Recession in '24 still more likely than soft landing, Fannie Mae says

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While admitting current economic conditions are increasing the chances for a soft landing, Fannie Mae Chief Economist Doug Duncan is holding to his forecast for a recession during 2024.

"The economy is now slowing from the otherwise robust first estimate of third quarter growth," said Duncan in a press release. "The slowdown in employment gains has continued, and stress is growing on consumers' ability to sustain their high levels of spending — unsurprising results that we attribute to the often-lagged economic effect of monetary policy tightening."

Existing home sales should continue to decline in the near-term, but by early next year, this should reach bottom and turn around, aided by declining interest rates. But this will still be affected by low inventory, in part driven by existing homeowners who are "locked-in" to a low interest rate mortgage deciding not to sell.

Duncan forecasts mortgage rates will go down to 6.8% by the fourth quarter of next year in either scenario of a recession or a soft landing. But that is at least 300 basis points higher than many homeowners are currently paying.

"Housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity," Duncan continued. "While many current owners with low mortgage rates will likely continue to be discouraged from listing their homes, we expect mortgage rates to trend modestly downward in 2024, which should help kickstart a gradual recovery in home sales into 2025."

Fannie Mae still cut its origination forecast for this year from its October outlook, to $1.53 trillion from $1.56 trillion, with the bulk of the reduction coming from purchase activity, $1.28 trillion in November from $1.31 trillion the prior month.

The 2024 forecast was also cut, to $1.84 trillion from just under $1.9 trillion. Purchase volume was reduced to $1.41 trillion from $1.44 trillion, while refinance volume was dropped to $428 billion from $456 billion.

Duncan also brought out his initial 2025 outlook, calling for originations to rebound to $2.21 trillion, with purchases making up $1.59 trillion.

Earlier, the Mortgage Bankers Association put out an updated forecast. Its 2023 outlook was unchanged at $1.64 trillion. But for next year, it was raised to $2.02 trillion from $1.95 trillion in October; purchases should make up $1.53 trillion, while in October MBA Chief Economist Mike Fratantoni forecast $1.47 trillion.

For 2025, Fratantoni raised the estimate to $2.34 trillion from the prior month's $2.25 trillion. Similarly, the 2026 outlook was hiked to $2.44 trillion from $2.38 trillion.


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