Recession or not, mortgage rates to keep dropping and home sales will recover by 2025: Fannie Mae

A slowdown in the U.S. economy is imminent, but whether it will be a soft landing or a full-blown recession is still uncertain. What is clear is that mortgage rates will continue to drop in the New Year and home prices will recover by 2025, according to Fannie Mae. 

Fannie Mae expects mortgage rates to decline gradually over the next two years, reaching 6.9% for the 30-year mortgage by 2025. The slow decline in rates is expected to trigger a modest rebound in home sales, according to its latest economic forecast report. 

Sales volumes are anticipated to end this year at 4.8 million, and 2024 is expected to see a volume of 4.7 million, a slight correction from the previously forecasted 4.8 million. By 2025, home sales will jump to 5.3 million. Total mortgage originations are expected to grow to $2.2 trillion in 2025 from $1.5 trillion in 2023.

As far as housing supply, expect more of the same. The continued lock-in effect will limit the stock of existing housing and will remain supportive of new construction. And the housing giant continued to forecast a mild recession in 2023, with real gross domestic product (GDP) declining 0.4% by the end of next year.

“The economy is now slowing from the otherwise robust first estimate of third quarter growth,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said. “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. 

At the same time, housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity. 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.”

If you are looking to take advantage of the current mortgage rates by refinancing your mortgage loan or are ready to shop for the best rate on a loan, consider visiting an online marketplace like Credible to compare rates and get preapproved with multiple lenders at once.

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Declining mortgage rates push down monthly payments

Mortgage rates dropped for a fifth consecutive week, pushing the monthly mortgage payments down by more than $150, according to a Redfin report. The typical U.S. homebuyer’s monthly mortgage payment was $2,575 during the four weeks ending November 26, down $164 from a peak of $2,739 last month but up 13% year over year. 

The steady decline in rates has been enough to offset the nearly 4% gain in home prices, Redfin said. Home prices have steadily increased in response to a shortage of housing supply.  

“Mortgage rates are dropping due to easing inflation and investors betting the Fed will cut interest rates sooner than expected,” Redfin Economics Research Lead Chen Zhao said. “Declining rates, along with a sizable year-over-year increase in new listings, are leading to more favorable conditions for some buyers. 

“My advice for serious homebuyers is to compare housing costs to recent highs instead of long-ago lows,” Zhao said. “Housing costs are at their lowest level in three months and it’s unlikely they will drop significantly anytime soon. That makes it a relatively good time to lock in a rate.”

If you’re looking to become a homeowner, you could still find the best mortgage rates by shopping around. An online marketplace like Credible can help you   compare your options.

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Uncertainty over where interest rates head next

The Fed has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% to slow the economy and lower soaring inflation. In October, inflation rose 3.2%, down from 3.7% growth last month – evidence that rising prices are moderating. However, Fed chair Jerome Power said in a recent statement that it is too soon to say that the Fed is done with rate increases confidently.  

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in a speech delivered to students at Spelman College in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”

Powell also noted that policy is “well into restrictive territory” and that the balance of risks between doing too much or too little on inflation is close to balanced now.

If you’re struggling with high-interest debt in a troubling economy, you could consider paying it off with a personal loan at a lower interest rate. Visit Credible to compare your options without affecting your credit score.

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