The Federal National Mortgage Association, better known as Fannie Mae, has said that the 30-year fixed mortgage rate will gradually but consistently drop through next year, according to its latest forecasting.
The 30-year fixed-mortgage rate—the most popular among American borrowers—will average 7 percent in the first quarter of 2024, 6.8 percent in the second quarter, 6.6 percent in the third quarter, and 6.5 percent in the fourth and final quarter. This is according to Fannie Mae’s housing forecast, released earlier this month.
The prediction spells good news for aspiring homebuyers, who have been struggling with a crisis of affordability in the past three years, which was worsened by the sudden jump in mortgage rates last year. While home prices skyrocketed during the COVID-19 pandemic due to high demand, low inventory and relatively low mortgage rates, affordability became an even bigger problem for homebuyers after the Federal Reserve embarked on its aggressive rate-hike campaign to slow down inflation. Newsweek contacted Fannie Mae for comment by email on Friday.
As a result of the Fed’s rate hikes, mortgage rates went up to levels unseen in more than two decades. This caused a drop in demand in the national housing market and triggered a so-called price correction. However, this wasn’t such a significant change for struggling homebuyers. Prices started to bounce back already in spring 2023, as supply remained historically low around the country and mortgage rates stayed high.
The first real good news for homebuyers came on December 13 when the Fed announced that, with inflation now significantly lower than it was in 2022, it was ready to shift towards cutting rates. This means that mortgage rates are also bound to drop, making the cost of buying a home significantly more affordable.
Crucially, Fannie Mae’s outlook on the U.S. housing market remains positive for the next couple of years. The company expects the 30-year fixed-mortgage rate to continue dropping in 2025, averaging 6.3 percent in the first quarter of the year, 6.2 in the second and third quarter, and 6.1 in the fourth quarter.
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Fannie Mae also expects home sales and mortgage originations—the process of creating a home loan or a mortgage—to start to recover slowly in 2024, while it expects the country’s GDP to decline modestly in 2024 by 0.3 percent and grow by 1.7 percent in 2025.
Fannie Mae, according to its December outlook, expects total single-family mortgage originations to grow from $1.5 trillion in 2023 to $1.9 trillion in 2024, and then to $2.3 trillion in 2025.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.