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Lower mortgage rates and strengthening home buyer sentiment will contribute to positive growth for both existing-home sales and single-family housing starts in 2024, according to the latest forecast from the Fannie Mae Economic and Strategic Research (ESR) Group. The ESR is calling for mortgage rates to fall to 5.9% by the end of 2024 and settle at 5.7% by the end of 2025.

The ESR Group upgraded its 2024 macroeconomic growth outlook due to a stronger-than-expected Q4 2023 gross domestic product (GDP) report, as well as incoming data on recent population growth and immigration trends that point to faster payroll and GDP growth over the forecast horizon. Still, the ESR Group continues to expect a slower pace of economic growth in 2024 compared to 2023.

An unsustainably low savings rate suggests softer consumer spending going forward, consistent with the pullback in January retail sales, and slowing local and state tax receipts point to slower direct government spending growth. Further, while payroll growth looks to have reaccelerated in December and January, other labor market measures indicate softness, including the household survey and the quits rate. On net, this suggests to the ESR Group that the labor market is likely to cool in the near future.

“Right now, our base case scenario foresees economic growth decelerating, rates gradually declining, and new single-family home sales slowly recovering as construction adds supply. However, if economic growth continues to surprise to the upside, then we believe the risk of mortgage rates remaining higher for longer will also increase,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

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