Economy Expected to Slow in 2024, Rebound in 2025

WASHINGTON, DC – Economic growth remains likely to decelerate and ultimately result in a mild recession in 2024, followed by a return to growth in 2025, according to the November 2023 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. While the combination of ongoing employment gains and decelerating inflation has increased the likelihood of a soft landing, the ESR group contends that, between a likely slowdown in consumption growth stemming from an imbalance between spending and incomes and the rising real federal funds rate weighing on consumer and business activity, a downturn remains the most likely outcome.

With mortgage rates having previously neared the 8 percent mark, the ESR Group expects existing home sales to decline further in the near term but bottom out in early 2024. Regardless of whether the economy manages a soft landing or enters a mild recession, the ESR Group forecasts mortgage rates in 2024 to retreat from their recent highs and average 6.8 percent by the fourth quarter. As such, the ESR group expects home sales to begin to increase modestly over 2024 but to remain constrained by the likely persistence of the so-called "lock-in effect" and the low supply of homes for sale. New home sales and starts, which have remained comparatively resilient over the past year, are expected to remain so in 2024.

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

Visit the Economic & Strategic Research site at fanniemae.com to read the full November 2023 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

About the ESR Group
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Doug Duncan, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets. The ESR Group was awarded the prestigious 2022 Lawrence R. Klein Award for Blue Chip Forecast Accuracy based on the accuracy of its macroeconomic forecasts published over the 4-year period from 2018 to 2021.