Economists More Optimistic About Single-Family Market; Pessimistic in Commercial
Written By: Joel Palmer, Op-Ed Writer
Late-year 2023 developments in the housing market has prompted Fannie Mae to deliver a more optimistic forecast for 2024.
“Overall, we expect 2024 to be a better year than 2023 for homebuyer affordability and the mortgage industry,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
Fannie Mae’s Economic and Strategic Research Group released its first market commentary for 2024 last week. In it, Fannie’s economists wrote that they expect mortgage rates to end this year below 6 percent.
The report took into account the Federal Reserve’s December meeting that financial markets interpreted as a “pivot” toward a more neutral monetary policy stance.
“While we think financial markets may have gotten ahead of themselves regarding the extent of Federal Reserve rate cuts this year (we currently forecast 100 basis points of cuts in 2024), the outlook for both short-term rates and mortgage rates is now decidedly lower than what we had previously forecast,” the report said.
With lower mortgage rates making homes a little more affordable, Fannie is also forecasting existing home sales to rise 3.1 percent this year.
And though inventory will continue to be a challenge, Fannie expects existing homeowners to move forward with plans to sell they delayed the past few years due to COVID and higher mortgage rates. In addition, Fannie projects 2024 single-family housing starts to be 5.7 percent higher than in 2023.
With an expectation of rising home sales, moderating mortgage rates, a downward drift in the cash share of home sales, and continued positive home price growth, Fannie forecasts single-family mortgage origination dollar volume to grow 19 percent in 2024, albeit from a depressed starting level, to $1.5 trillion.
The refinance mortgage market, however, will remain subdued, as 90 percent of outstanding Fannie Mae single-family conventional 30-year fixed rate mortgage loans currently have a note rate below 6 percent. So, while many recent borrowers from 2023 will begin to face meaningful benefits by refinancing, a strong refinance wave driven by rate-term borrowers is not expected in 2024.
Even as rates moderate, there is also expected to be continued interest in cash-out refinancing relative to past periods, especially given heightened levels of aggregate homeowner equity available following the home price gains of the last few years.
Fannie projects 2024 single-family refinance volumes for the overall U.S. market will be $490 billion, up from only $246 billion in 2023.
In contrast to the moderate optimism in the single-family residential market, there is concern about the immediate future of commercial real estate and the multifamily market.
Cantor Fitzgerald CEO Howard Lutnick, speaking at the World Economic Forum, said there would likely be a large number of defaults in commercial real estate this year and next, as much as $700 billion worth.
The problem: As The Wall Street Journal reported earlier this month, more than $2.2 trillion in commercial debt is maturing before 2028 and will have to be refinanced at higher rates. WSJ said the problem is exacerbated by higher vacancies and weaker cash flows depressing property values. Lenders potentially selling defaulted properties will only depress values more.
Fannie predicted that multifamily construction will continue to slow in 2024, with a forecast of multifamily housing starts falling 18.3 percent this year. This is due to weak rent growth that followed a historically high flow of new units entering the market.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
