2024 will see a housing market rebound: Fannie Mae

Despite some positive economic indicators, the U.S. is still headed for a modest recession sometime in the first half of this year, Fannie Mae Chief Economist Doug Duncan said. But 2024 stands to be a better year for housing. 

In his latest forecast, Duncan predicts that in the fourth quarter of 2023, year-over-year gross domestic product will shrink by 0.6%, one-tenth of a percentage point less of a decline than projected in his December outlook. The fourth quarter of 2022's GDP change compared to the same time in 2021 was pushed upward to 0.8% growth from December's 0.4% estimate.

"There are economic signals pointing to recession but also signs that a 'soft landing' may be in the offing," Duncan said in a press release. "In our view, the balance still suggests a modest recession, particularly if the Federal Reserve maintains its focus on labor market tightness."

Even with signs that the labor market is slowing, especially with several high profile layoffs like those at Google, Microsoft and Wayfair for example, overall employment remains robust as the December Bureau of Labor Statistics data showed, he continued.

"The market sees the Federal Reserve easing in the second half of the year, which can be interpreted either as a view that the recession is forthcoming or that the slowdown in inflation will lead to a less restrictive monetary posture," Duncan said. "If the latter occurs, the lower accompanying rates will likely set the stage for a pickup in housing activity going into 2024, as can be seen in our latest forecast."

But if the Fed holds to its line and keeps raising short-term rates to make sure inflation does not surge again, "then the accompanying rate decline and associated revival in housing activity will likely be delayed," Duncan declared. "In either case, we expect 2023 to be a slow year for the housing market."

His January forecast calls for $1.64 trillion in total originations this year, down from an estimated $2.34 trillion in 2022 and $4.57 trillion in 2021. The December outlook expected $1.67 trillion of mortgage production in 2023.

Purchase volume could fall to $1.28 trillion in 2023 from $1.66 trillion a year ago, while the already depressed refinance business is expected to drop another 50%, to $356 billion from $683 billion.

But even with his positive words for the housing market in 2024, Duncan cut his outlook for next year's mortgage activity to $1.97 trillion from $2.11 trillion in December's outlook.

The latest forecast calls for $1.42 trillion of purchase, compared with $1.53 trillion one month prior.

In January, Duncan forecast total home sales will drop over 21% this year versus 2022 to 4.52 million units on a seasonally adjusted basis, before rebounding in 2024 to 5.1 million units, a gain of nearly 13%. Those are down from December's prediction of 4.57 million units and 5.24 million units of total home sales respectively.