US economy to rebound by 2024 after a modest recession: Fannie Mae
Home sales are likely to reach their lowest point in the second quarter of 2023
The U.S economy is headed for a recession, but Fannie Mae forecasts that it should be on track for a rebound by 2024. (iStock)
Fannie Mae's latest economic forecast predicts a modest downturn for the U.S. economy in 2023, but it should be on the road to recovery by 2024.
The mortgage giant's Economic and Strategic Research (ESR) Group expected a contraction of 0.6%, down one-tenth from its previous forecast, in gross domestic product (GDP) growth in 2023. However, it anticipated a rebound in GDP growth in 2024 to 2.0%.
Fannie Mae has revised its forecast for 2022 mortgage originations to $2.34 trillion, up from $2.33 trillion, and lowered its 2023 originations forecast to $1.71 trillion from $1.74 trillion. Fannie Mae said it expected originations to increase to a total of $2.11 trillion by 2024.
"With the effects of rising interest rates yet to be fully felt in the broader economy and many forward-looking indicators weakening, we continue to expect that an economic contraction will occur in 2023," Fannie Mae said.
If you are looking to reduce your expenses, you can consider refinancing your home loan to lower your monthly payment. You can visit Credible to compare multiple mortgage lenders at once and choose the one with the best interest rate for you.
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Home sales projected to pick up in 2024
Lower mortgage rates and an improving economy are expected to support growth in home sales by 2024, according to Fannie Mae. The government-sponsored mortgage lender projects an 18.6% pick-up in home sales from its 2023 forecast for an expected 5.25 million units in total sales.
The uptick in the home sales forecast comes on the back of lower mortgage rates and "a broader economic recovery" coupled with "an ongoing housing supply deficit helping drive new home sales," Fannie Mae said.
"We are forecasting mortgage rates to pull back somewhat over the next two years," Fannie Mae said. "This partially reflects a view of moderating 10-year Treasury rates as the Fed eventually ends its tightening stance, a contracting economy, and the compressing of the Treasury-mortgage rate spread once interest rates stabilize.
"We believe this should eventually help spur a rebound in sales," Fannie Mae continued.
Home sales have taken a significant hit this year as higher interest rates have translated to higher mortgage rates, which have kept many homebuyers who are already dealing with high home prices sidelined over affordability issues.
House purchases will likely reach their lowest point in the second quarter of 2023, at a selling pace of 4.27 million annualized units, as "the full effect of higher mortgage rates and the projected recession to take hold," Fannie Mae said.
If you are looking to pay off outstanding debt and have accumulated home equity, you could consider a cash-out refinance. You can contact Credible to speak to a home loan expert and see if this is the right option for you.
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Existing borrowers are disincentivized by higher rates
Higher mortgage rates have kept first-time buyers from accessing the market and disincentivized existing buyers from taking "on a new mortgage rate well above what they had previously," Fannie Mae said.
"More than 80 percent of existing borrowers have mortgages at least 200 basis points lower than current market rates as of October and more than 90 percent have mortgages at least 100 basis points lower," Fannie Mae said.
This has created a so-called "lock-in" effect that will impact the housing market in two ways, according to Fannie Mae. First, the supply of existing homes for sale will continue to slow. Second, the limited supply of existing housing will push homebuyers will increasingly have to turn to newly built homes.
"Given this, homebuilders may focus more on comparatively modest product offerings as the number of move-up buyers is lower relative to past cycles," Fannie Mae said.
If you think you're ready to shop around for a mortgage loan, you can use the Credible marketplace to help you easily compare interest rates from multiple mortgage lenders and get prequalified in minutes.
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