Fannie Mae’s latest economic forecast points towards an imminent slowdown in the U.S. economy, raising questions about whether it will result in a soft landing or a full-blown recession. Amid this uncertainty, Fannie Mae predicts a continuous drop in mortgage rates in the upcoming year, providing potential relief for the housing market.

The housing giant anticipates a gradual decline in mortgage rates over the next two years, with the 30-year mortgage rate expected to reach 6.9% by 2025. Fannie Mae suggests that this decline will trigger a modest rebound in home sales, countering the recessionary-level home sales activity witnessed in 2023.

Home sales volumes are expected to reach 4.8 million by the end of this year, slightly correcting from the previously forecasted 4.8 million for 2024. However, a notable jump is projected for 2025, with home sales reaching 5.3 million. Total mortgage originations are forecasted to grow from $1.5 trillion in 2023 to $2.2 trillion in 2025.

Despite the anticipation of a mild recession in 2023, Fannie Mae highlights the continued support for new construction due to the lock-in effect limiting existing housing stock. The economic slowdown is attributed to the impact of monetary policy tightening, leading to stress on consumers’ spending abilities.

Fannie Mae Senior Vice President and Chief Economist Doug Duncan expressed concerns about the economy’s slowing pace, citing the often-lagged economic effects of monetary policy tightening. While recognizing the current affordability pressures in the housing market, Duncan expects mortgage rates to trend modestly downward in 2024, contributing to a gradual recovery in home sales by 2025.

The announcement aligns with the recent trend of declining mortgage rates, offering potential benefits for homebuyers. A Redfin report notes a fifth consecutive week of dropping rates, leading to a decrease in the typical U.S. homebuyer’s monthly mortgage payment. The decline, coupled with an increase in new listings, creates more favorable conditions for buyers, according to Redfin Economics Research Lead Chen Zhao.

However, uncertainties persist, with the Federal Reserve having raised interest rates multiple times to combat inflation. Fed Chair Jerome Powell acknowledges the economy’s restrictive stance but remains cautious about prematurely concluding the need for further rate increases. The evolving economic landscape prompts financial experts to advise consumers to consider their options carefully, emphasizing the importance of comparing housing costs in the current market context. Platforms like Credible are recommended for those seeking the best mortgage rates and financial solutions.

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