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In its latest housing forecast, Fannie Mae has become much more optimistic about mortgage rates.
We’re talking 30-year fixed rates by the end of 2023, about 0.75% lower than their previous forecast.
and mortgage rates that could flirt with the high-4% range through late 2024.
This will be welcome news for both existing home owners and those still looking to buy.
Let’s dig into the details.
30-year fixed at 5.7% through the end of 2023
Now does the 30 year fixed cost less than 5.75%? A year ago, this probably sounded terrifying.
Today, it doesn’t sound half-bad. Here’s Fannie Mae’s Latest Prediction From Their April 2023 Housing Forecast Free Friday.
And that’s down significantly from their report released a month earlier, calling for an “economy that contracted meaningfully at the end of the first quarter of 2023.”
If the Fed’s rate hike is working and the economy does indeed slide into recession, as Fannie Mae expects to begin in the second half of the year, interest rates should decline as well.
Here’s a comparison of their mortgage rate forecasts from April and March for the popular 30-year fixed-rate mortgage, which currently costs around 6.40%. Freddie Mac,
Fannie Mae April 2023 Mortgage Rate Forecast
Q1: 6.4% (real)
Q2: 6.1%
Q3: 5.9%
Q4: 5.7%
Fannie Mae March 2023 Mortgage Rate Forecast
Q1: 6.4% (real)
Q2: 6.6%
Q3: 6.6%
Q4: 6.4%
Fannie Mae expects the 30-year fixed yield to decline to about 6.1% in the second quarter of 2023, before falling to 5.9% in the third quarter and 5.7% in Q4.
And it gets even better than that. By the end of 2024, they expect the 30-year average to settle at 5.2%.
If this happens, many homeowners who currently feel locked-in from their low mortgage rates will likely be more open to moving.
In short, it could get the housing market moving again, with move-in buyers able to move in and unlock starter home inventory.
His March forecast pegged the 30-year rate at 6.4% by the end of 2023 and 5.6% by the end of 2024.
For reference, here is their 2023 mortgage rate prediction from December 2022.
Q1 2023: 6.5%
Q2 2023: 6.4%
Q3 2023: 6.2%
Q4 2023: 6.0%
Why does Fannie Mae see a correction in mortgage rates?
In short, they see slowing economic growth and “the beginning of a modest economic contraction in the second half”.
They point to “recent indicators, including retail sales, industrial production and labor market data,” which all point to a recession.
The future with respect to the short-lived banking crisis in March is also unknown.
While things quickly calmed down, Fannie acknowledged that “future risks remain” in that department.
The Fed’s multiple interest rate hikes are also slowing inflation, albeit more slowly. But as such, low inflation means that interest rates should come down.
One caveat is that Fannie expects “tighter bank lending” as a result, so mortgages may be more difficult to obtain.
There are many more reasons to keep debt levels low and credit scores high.
Home prices may fall marginally in 2023 and 2024
Fannie Mae also updated its housing price outlook, expecting a more modest decline in home prices in 2023 and 2024.
For 2023, they now expect prices to decline by only 1.2%, compared to their prior expectation of negative 4.2%. It is a huge swing.
And for 2024, they see a 2.2% decline in property values, a slight improvement from their prior forecast of -2.3%.
They revised their 2023 home sales forecast to 4.84 million units (4.63 million previously), but it would still be the slowest annual pace of home sales since 2011.
Issues include ongoing affordability challenges, a lack of inventory for sale and the mortgage rate lock-in effect, which as noted could ease if interest rates drop as forecast.
If mortgage rates fall into the high -4% range, existing homeowners can sell, new home buyers can more easily qualify, and inventory issues will subside.
This will also boost mortgage demand, which has been reduced by the doubling of mortgage rates.
Fannie Mae now forecasts total residential loan originations of $1.66 trillion in 2023, up from their previous forecast of $1.55 trillion.
For 2024, he expects loan volume to increase to $2.02 trillion, a slight increase from his earlier forecast of $1.89 trillion.
For comparison, the debt volume was $4.6 trillion in 2021 and $2.4 billion in 2022.
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