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Fannie Mae Is Predicting Much Lower Mortgage Rates by Year End

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In its latest housing forecast, Fannie Mae has become much more optimistic with regard to mortgage rates.

We’re talking 30-year fixed rates nearly 0.75% lower by the end of 2023 than in their previous forecast.

And mortgage rates that could flirt with the high-4% range by the end of 2024.

This would be welcome news to both existing homeowners and those still looking to buy.

Let’s dig into the details.

A 30-Year Fixed at 5.7% by the End of 2023

Now does a 30-year fixed priced below 5.75% sound? A year ago, it probably sounded horrible.

Today, it sounds not half-bad. That’s Fannie Mae’s latest prediction from their April 2023 Housing Forecast released Friday.

And it’s down significantly from their report released a month earlier, due to an “economy that decelerated meaningfully toward the end of the first quarter of 2023.”

If the Fed’s rate hikes are working and the economy does indeed fall into a recession, as Fannie Mae expects at the beginning of the second half of the year, interest rates should also ease.

Here’s a comparison of their mortgage rate forecast from April and March for the popular 30-year fixed-rate mortgage, which is currently priced around 6.40%, per Freddie Mac.

Fannie Mae April 2023 Mortgage Rate Forecast

Q1: 6.4% (actual)
Q2: 6.1%
Q3: 5.9%
Q4: 5.7%

Fannie Mae March 2023 Mortgage Rate Forecast

Q1: 6.4% (actual)
Q2: 6.6%
Q3: 6.6%
Q4: 6.4%

Fannie Mae expects the 30-year fixed to ease to around 6.1% in the second quarter of 2023, before falling to 5.9% in the third quarter and 5.7% in Q4.

And it gets even better than that. By the end of 2024, they expect the 30-year fixed to average 5.2%.

If that were to happen, many homeowners who currently feel locked-in by their low mortgage rate would likely be more open to moving.

In essence, it could get the housing market moving again, with move-up buyers able to move on and unlock starter home inventory.

Their March forecast had the 30-year fixed at 6.4% to end 2023, and 5.6% to end 2024.

For reference, here is their 2023 mortgage rate prediction from December 2022.

First quarter 2023: 6.5%
Second quarter 2023: 6.4%
Third quarter 2023: 6.2%
Fourth quarter 2023: 6.0%

Why Does Fannie Mae See Mortgage Rates Improving?

In a nutshell, they see slowing economic growth and “a modest economic contraction beginning in the second half.”

They point to “recent indicators, including retail sales, industrial production, and labor market data,” all which signal a slowdown.

There’s also the future unknown related to the short-lived banking crisis that took place in March.

While things cooled off quickly, Fannie acknowledges that “future risks remain” in that department.

The Fed’s many interest rate hikes also seem to be slowing inflation, albeit slowly. But as such, less inflation means interest rates should come down.

The one caveat is that Fannie expects “tighter bank lending” as a result, so it could be more difficult to obtain a mortgage.

All the more reason to keep debt levels low and credit scores high.

Home Prices May Only Fall Modestly in 2023 and 2024

Fannie Mae also updated its housing price outlook, expecting a more modest decline in home prices in 2023 and 2024.

For 2023, they now expect prices to fall just 1.2%, compared to their prior expectation of negative 4.2%. That’s a huge swing.

And for 2024, they see property values dipping 2.2%, a slight improvement from their prior forecast of -2.3%.

They also revised their 2023 home sales forecast to 4.84 million units (previously 4.63 million), but it’ll still be the slowest annual pace of home sales since 2011.

Issues include ongoing affordability challenges, a lack of for-sale inventory, and the mortgage rate lock-in effect, which as mentioned could ease if interest rates come down as forecast.

If mortgage rates were to fall into the high-4% range, existing homeowners could sell, new home buyers could qualify more easily, and inventory issues would ease.

That would also boost mortgage demand, which has been decimated by the doubling in mortgage rates.

Fannie Mae now projects total residential loan origination volume of $1.66 trillion in 2023, up from their previous forecast of $1.55 trillion.

For 2024, they expect loan volume to rise to $2.02 trillion, a slight increase from their earlier forecast of $1.89 trillion.

For comparison, loan volume was a staggering $4.6 trillion in 2021, and $2.4 billion in 2022.

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