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The economy is still growing, but not as fast as it did in the latter half of last year. Freddie Mac expects this slower growth to stick around as the job market continues, and they think the Federal Reserve will start cutting rates sooner rather than later. While they see inflation cooling off more, it’s likely that through 2024 and 2025 it will stay above 2% Fed target rate. The buzz about upcoming rate cuts is already pushing mortgage rates down, so Freddie Mac anticipates a decline in mortgage rates over the next few quarters but thinks it will be gradual.

Housing Market

High mortgage rates and home prices have made some potential buyers hit pause. However, with mortgage rates expected to drop, Freddie Mac is anticipating a big jump in demand, especially from first-time buyers waiting on the sidelines. Lower rates might also ease the rate lock-in effect a bit, giving a slight boost to inventory. However, this boost will be minimal since most homeowners have locked in rates below 6%. Due to years of under-construction and the rate lock-in effect, tight inventory will still limit home sales. Freddie Mac expects home sales to rise modestly through the rest of the year and into 2025, but they’ll stay below 6 million annually. With strong demand, they predict home prices to increase by 2.1% in 2024 and 0.6% in 2025.

Mortgage Origination

Freddie Mac is looking at a modest increase in total mortgage origination for 2024 and 2025. This is based on slightly better home sales and rising home prices, boosting purchase originations. Refinance volumes are expected to stay flat in 2024 and pick up a bit in 2025 as rates drop further.

Overall Outlook

Overall, Freddie Mac is optimistic. While high home prices continue to challenge prospective buyers, homeowners are seeing significant wealth gains, making them less vulnerable to economic downturns. Under our baseline scenario, they don’t see the economy slipping into a recession.