“The gain in existing home sales was in line with our expectations given the decline in mortgage rates in November and December (when most of these sales would have gone under contract) and a pickup in mortgage applications,” said Nathaniel Drake, analyst at Fannie Mae’s ESR group.
The ESR group noted that the surprise surge in economic growth could potentially lead to higher mortgage rates for a longer period – reaching 5.9% by late 2024 and 5.7% by the end of 2025. Despite recent slowdowns, single-family housing starts will likely gradually increase as building permits remain on an upward trend.
The group revised its economic growth outlook slightly upwards due to surprisingly strong GDP figures in Q4 2023 and promising population growth data.
“Market dynamics continue to reflect significant uncertainty regarding the sustainability of stronger-than-expected recent GDP growth, the continuity of the decline of inflation, and the path of monetary policy change, not to mention the many ways in which historical relationships in housing and the larger economy remain out of balance post-pandemic,” Fannie Mae chief economist Doug Duncan said in the report.
“Right now, our base case scenario foresees economic growth decelerating, rates gradually declining, and new single-family home sales slowly recovering as construction adds supply. However, if economic growth continues to surprise to the upside, then we believe the risk of mortgage rates remaining higher for longer will also increase.”
