Fannie Mae Forecasts Continued Mortgage Rate Pressure Despite Strong Economic Indicators

Fannie Mae’s Economic and Strategic Research (ESR) group indicated this week that despite strong employment figures and higher-than-expected inflation data, the Federal Reserve is unlikely to ease its monetary policy in the near future. Consequently, 30-year mortgage rates are expected to remain elevated for a longer period than previously anticipated.

Contrary to earlier projections of mortgage rates ending the year below 6%, the ESR group now forecasts the 30-year fixed rate to close 2024 at 6.4%. This adjustment is attributed to the impact of the hotter-than-expected inflation data and robust payroll numbers, which are likely to exert upward pressure on mortgage rates as market expectations regarding future monetary policy evolve.

In February, annual inflation rose to 3.2%, and 275,000 jobs were added, both exceeding expectations and underscoring the ongoing economic strength. Despite these factors, the Federal Reserve is expected to maintain interest rates at their current levels after its upcoming meeting, with further insights into future rate adjustments provided in the central bank’s quarterly economic projections.

Fannie Mae has revised its total home sales forecast for 2024 to 4.91 million, down from the previous projection of 5 million. However, the organization anticipates an uptick in existing home sales this year, driven in part by increased activity from households needing to move due to life events, which are less influenced by interest rate fluctuations.

Although Fannie Mae does not explicitly forecast new home listings, it expects a rise in listings to outpace sales growth, gradually easing the current tight housing market. This shift is anticipated to lead to a slowdown in home price appreciation, despite positive price growth, as affordability measures become stretched.

Overall, Fannie Mae projects a purchase mortgage origination volume of $1.4 trillion in 2024, reflecting a 12% increase from 2023 but a $90 billion downgrade from previous estimates. Refinance originations are forecasted to total $397 billion, $62 billion lower than prior forecasts.