The housing market is starting to unfreeze.
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Fannie Mae now sees mortgage rates dipping below 6% in 2024, anticipating a stronger housing market rebound.
The 30-year fixed rate is expected to hit 5.8% by the fourth quarter, down from a previous estimate of 6.5%.
“The outlook for both short term rates and mortgage rates is now decidedly lower than what we had previously forecast.”
The housing market will thaw faster than expected with mortgages dipping below 6% later this year, according to Fannie Mae, which sharply revised its forecasts from just a month ago.
That’s as the Federal Reserve has signaled a pivot away from tight monetary policy, sending bond yields lower, along with other borrowing costs.
“We anticipate that after the past several years of extreme volatility in interest rates, the 30-year fixed rate mortgage rate will continue to moderate over the course of 2024, moving toward a rate below 6% by year end,” Fannie Mae’s latest market outlook stated.
After hitting 8% in October, the average 30-year fixed rate has already fallen to 6.60% as of Thursday from 6.66% in the week prior, sister mortgage giant Freddie Mac said.
And Fannie Mae sees a steeper decline from there, predicting a rate of 5.8% by the fourth quarter of this year and 5.5% by the end of 2025. That’s down from its December forecast of 6.5% for late 2024 and 6.1% for late 2025.
“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.
As mortgage rates relax, it’s also easing the “lock in” effect that had held the housing market in a chokehold.
That’s when many homeowners stayed on the sidelines as mortgage rates jumped in 2022 and last year, choosing to keep low-interest home loans they secured before the Fed’s rate hiking campaign.
As tumbling rates coax more homeowners back to the market, it’s expected to bring more inventory to supply-starved buyers and spur more activity.
Fannie Mae revised its 2024 forecast for total home sales to an annualized rate of 4.96 million, up from its prior estimate of 4.79 million. Total housing starts are seen at 1.37 million this year, up from an earlier view of 1.28 million.
And Fannie Mae now expects its home price index to increase 3.2% this year, after previously estimating a 2.8% uptick.
“While we expect affordability will remain stretched and the supply of homes for sale tight, an easing in mortgage rates is expected to begin thawing the existing home sales market, which was held back in 2023 by strong lock-in effects,” the outlook said.