Summary of Economic Developments from Fannie Mae

For those who love numbers!  Here is a summary of Fannie Mae's May update.  Full article here.

Look like home prices are expected to stay strong and we're stuck with rates around 7 for a while!

1. Economic Overview:

   • The economy is expected to grow slowly, with GDP growth at 1.8% for 2024 and 1.9% for 2025.
   • Job growth is slowing, and the unemployment rate might rise to 4% by the end of the year.
   • Interest rates have been volatile but are expected to stay high, with potential rate cuts from the Federal Reserve starting in September if inflation decreases.

2. Housing Market:

   • Home Sales:
     • Total home sales for 2024 are forecasted to be 4.89 million, slightly down from previous predictions but still showing a gradual increase.
     • For 2025, total home sales are expected to reach 5.29 million.
     • The number of active home listings has increased by 30% compared to last year, suggesting that significant declines in home sales are unlikely.
   • Mortgage Rates:
     • The forecast for the 30-year fixed mortgage rate is now averaging 7.0% for 2024 and 6.7% for 2025.
     • High mortgage rates are a key reason for the slight downgrade in home sales and mortgage originations forecasts.
   • Mortgage Originations:
     • Mortgage origination volumes are revised down to $1.73 trillion for 2024 and $2.08 trillion for 2025, reflecting the higher mortgage rate expectations.
     • Purchase mortgage originations for 2024 are expected to be $1.4 trillion, with 14% growth from 2023 but $35 billion lower than last month's forecast. In 2025, purchase volumes are expected to grow by another 13%.
     • Refinance volumes are also revised downward to $368 billion for 2024 and $539 billion for 2025 due to the higher interest rate outlook.
   • Existing Home Sales:
     • Existing home sales fell to an annualized pace of 4.19 million in March but are expected to trend upward over time.
     • Despite generally rising mortgage rates, the steady flow of new listings suggests that further significant declines in sales are unlikely.
   • New Home Sales:
     • New single-family home sales rose by 8.8% in March, reaching a pace of 693,000.
     • The forecast for new home sales is lowered slightly due to higher interest rates, but demand remains supported by the limited inventory of existing homes.
   • Home Prices:
     • Home prices grew by 6.6% in 2023 and are expected to rise by 4.8% in 2024 and 1.5% in 2025.
   • Housing Starts:
     • Single-family housing starts have pulled back slightly but are expected to continue at a solid pace due to the lack of existing homes available for sale.
     • Multifamily housing starts are forecasted to decline due to muted rent growth, a large number of units near completion, and higher interest rates.

3. Consumer Spending and Labor Market:

   • Consumer spending was strong earlier in the year but didn't match income growth, reducing savings and increasing personal debt interest payments.
   • Higher interest rates are causing financial stress for some consumers, with increased credit card and auto loan delinquencies.
   • Job growth is slowing, which is likely to limit future consumption growth.

Overall, while the economic growth is expected to be slow and interest rates remain high, the housing market shows resilience with a gradual increase in sales and a solid pace of new home construction due to limited existing home supply. Home prices will continue to rise, though at a slower rate, and mortgage originations are adjusted downwards due to higher mortgage rates.