The increase in mortgage rates in February has driven a modest downgrade to expectations for total home sales and mortgage originations in 2024, according to the March 2024commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. The ESR Group now expects the 30-year fixed mortgage rate to end the year at 6.4 percent, up from the 5.9 percent predicted in last month's forecast. Strong headline jobs numbers and hotter-than-expected inflation data had led financial markets to price in a less aggressive rate-cutting path by the Federal Reserve, and while the ESR Group notes that labor market indicators are mixed and disinflation will likely resume, it also believes that recent data are unlikely to provide the Fed with the "greater confidence" it needs to begin easing monetary policy in the near term. Still, the ESR Group expects existing home sales will trend upwards in 2024 due in part to increased activity by households likely needing to move due to life events – and who are thus less sensitive to the interest rate lock-in effect. The ESR Group cited the recent trend upward in new home listings, as well as comparative strength in the latest reading of the 'good time to sell' component of the Fannie Mae Home Purchase Sentiment Index^®, as evidence that housing market activity is likely to continue its gradual thaw in the months and quarters ahead.

"The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we'd previously forecast, as markets continue to evolve their expectations of future monetary policy. Still, while we don't expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 -- even if mortgage rates remain elevated."

Visit the Economic & Strategic Research site at fanniemae.com to read the full March 2024 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.