Home sales likely bottomed out in the fourth quarter and are expected to begin “a slow but meaningful recovery over the course of the next year,” according to the latest commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. In addition, the group projects “upward-trending mortgage origination activity” in 2024.
The same dynamics that kept home sales in 2023 at their lowest level since the Great Financial Crisis, including affordability challenges, the lock-in effect, and a lack of homes available for sale, will likely persist in 2024. As such, the ESR Group expects the home sales recovery to be meaningful but slow.
The ESR Group also continues to forecast a modest downturn in 2024, followed by a return to growth in 2025, noting that many of the underlying business cycle dynamics that contributed to last year’s recession call remain. While the likelihood of a soft landing has certainly improved over the last few months, engineering it while avoiding a resurgence in inflation will likely be a difficult task.
“Last week’s comments by Chairman Powell, as well as the Federal Reserve’s updated Summary of Economic Projections, suggest increased Fed confidence that a soft landing has been achieved and inflation is headed sustainably to 2%,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Clearly, the many economic forecasters who previously forecasted a recession beginning in 2023 were wrong, including us. However, we continue to think there are reasons for concern that will likely lead to a mild economic downturn, including stretched consumer spending relative to personal incomes and the continued effects of restrictive monetary policy still working through the economy. Although we expect headline growth to clock in at 2.6% in 2023 – above what is generally considered to be the economy’s long-term growth potential of 1.8% – we’re also forecasting slightly negative growth in 2024.”
