Housing demand will rebound from this year’s strained levels after a mild recession pulls down today’s high mortgage rates, the Mortgage Bankers Association predicted.
Mortgage originations, or the process leading to a homebuyer loan, are estimated to reach 5.2 million by loan count next year, according to the MBA’s housing market forecast released on Sunday. That’s a 19% jump from the 4.4 million loans predicted for all of 2023.
By another measure, origination volume will jump 19% to $1.94 trillion in 2024, up from $1.64 trillion expected this year.
The rebound will be driven by falling mortgage rates, which have reached highs not seen in more than two decades, with the 30-year fixed rate well above 7%.
Mortgage rates will fall as tight Federal Reserve policy, deteriorating credit conditions and eroding US savings fuel a mild recession in the first half of next year, the MBA said.
In its outlook, this will slow labour market growth, with unemployment rising from 3.8% to 5% by the end of 2024. At the same time, inflation will gradually fall to the Fed’s 2% target by mid-2025.
These factors will give the central bank room to lower interest rates over time, which will bring down elevated mortgage levels, the MBA said.
“Lower interest rates should help boost both homebuyer demand and the inventory of existing homes, thereby supporting purchase origination volume in 2024,” MBA chief economist Mike Fratantoni said in a statement.
Not only will this encourage homebuyers to return, but it will also help increase housing supply by making current owners more willing to sell their homes. Many have stayed out of the market this year, preferring the cheaper mortgage rates they currently enjoy.
But despite this, housing inventory will remain tight enough to keep house prices rising for the next three years, the MBA said. Even with lower mortgage rates, homebuyers can still expect high payments, a shortage of properties for sale and reduced credit availability.
