Policies contributing to higher interest rates. 

The Mortgage Bankers Association’s 2024 outlook was presented at its 2023 Annual Convention & Expo by Mike Fratantoni, Chief Economist and Senior Vice President for Research and Industry Technology; Joel Kan, Vice President, Deputy Chief Economist; and Marina Walsh, CMB, Vice President of Industry Analysis. According to Fratantoni, the U.S. economy has been resilient throughout 2023, but MBA is forecasting that the combination of higher interest rates, tighter credit conditions, and a depletion of pandemic-era household savings will lead to a mild recession in the first half of 2024. “Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023,” said Fratantoni. “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected. Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024. The job market will likely slow as we enter 2024, with fewer jobs added and the unemployment rate increasing from its current rate of 3.8 percent to 5.0 percent by the end of 2024. Inflation will gradually decline towards the Fed’s 2 percent target by the middle of 2025,” Fratantoni continued. Fratantoni believes that as the economy slows and inflation moves lower, longer-term rates will decline from current levels, helping to bring mortgage rates lower. However, the spread between mortgage and Treasury rates remains roughly 120 basis points wider than typical, due to a combination of factors. MBA’s baseline forecast is for mortgage rates to end 2024 at 6.1 percent and reach 5.5 percent at the end of 2025, as Treasury rates decline and as the spread narrows. MBA expects national home prices will grow over the next three years, as tight inventory supports price growth. Kan emphasized that first-time homebuyers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages. There will still be challenges, as median purchase and interest payments remain high, for-sale inventory is scarce, particularly for entry-level homes, and credit availability is low. “New home sales continue to be stronger than existing-home sales, as buyers increasingly turn to newly constructed homes given the dearth of existing home listings and how competitive the bidding process still is. Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months,” Kan said. 

Source: The MBA