Fannie Mae Lowers Expectations For Home Sales, But Upgrades GDP Outlook for 2024

On Wednesday, Fannie Mae’s Economic and Strategic Research (ESR) Group released its August commentary. According to the ESR Group, despite the recent pullback in mortgage rates, total home sales are expected to come in lower than previously forecast through the rest of 2024, and then not pick up meaningfully until further out in 2025.

The ESR Group notes that purchase mortgage applications have barely budged in response to the more favorable rate environment, and high-frequency measures of home purchase demand—including mortgage applications, showing requests, and listings views—remain below year-ago levels. Additionally, the Fannie Mae Home Purchase Sentiment Index® continues to report a near-record low share of respondents indicating it’s a “good time to buy” a home. As such, the ESR Group has downgraded its total home sales forecast to 4.78 million in 2024 and 5.19 million in 2025, with the expectation that homebuying will not pick up meaningfully until income growth begins to outpace home price growth and mortgage rates move closer to 6.0%.

On the new home side, the ESR Group continues to expect comparative strength relative to existing-home sales as strong builder margins are likely to drive concessions in the quarters ahead. However, a near-term slowdown in starts is expected, as the number of new homes for sale that are already under construction has risen, likely delaying new projects until this inventory can be sold. The ESR Group forecasts mortgage rates to average 6.4% by the end of 2024 and 5.9% by the end of 2025.

On the macroeconomic side, the ESR Group upgraded its 2024 real gross domestic product (GDP) outlook from 1.6% to 1.9% due to the stronger-than-expected Q2 GDP reading. However, a slowdown in growth is still expected given the historically low savings rate and the relatively weak July employment report, which showed the unemployment rate up six-tenths from the beginning of the year to 4.3%. The ESR Group continues to expect a soft landing as their base case forecast but notes that the odds of an economic downturn have likely increased given the historical relationship between sharp rises in the unemployment rate and previous business cycles.

In remarks accompanying the August commentary, Fannie Mae Vice President and Deputy Chief Economist Mark Palim said:

“After absorbing recent economic data, bond market participants now appear to expect slower paths for economic growth and inflation, which contributed to a softening in mortgage rates over the last few weeks. On its face, the lower rate environment should be good for home sales by helping loosen the grip of the so-called ‘lock-in effect,’ in addition to aiding affordability more generally. However, high-frequency data, such as mortgage applications, home showing requests, and listings views, suggest that many potential homebuyers remain reluctant to make the jump. Even with moderately lower mortgage rates, affordability remains close to historic lows due to the high level of home prices relative to incomes. We are therefore expecting continued sluggishness in home sales over the rest of the year. One bright spot for the mortgage industry has been the recent uptick in refinance applications, albeit from very low levels.”