Homebuyers, Owners, & Renters
      
      Homebuyers, Owners, and Renters

          
                        Business Partners
                  Single-Family Business

Helping lenders serve homebuyers and homeowners with affordable mortgages
    
          Multifamily Business

Financing for quality, affordable rental housing in every market, every day
    
          Capital Markets

Reducing risk and enhancing housing finance liquidity
          About Us
                toggle
                Who We Are
                                              toggle
                        Awards and Recognition
                                                      Diversity and Inclusion
                                                              toggle
                                Employee Resource Groups
                                                                      Progress With Purpose
                                                      Employee Code of Conduct
                                                      Community Engagement
                                                      History
                                      What We Do
                                              toggle
                        Duty to Serve
                                                              toggle
                                Manufactured Housing
                                                                      Affordable Housing Preservation
                                                                      Rural Housing
                                                                      Research Initiatives
                                                                      Colonias Investment Areas
                                                      Homeownership
                                                              toggle
                                Access to Mortgage Credit
                                                                      Restrictive Covenants
                                                      Innovation
                                                      Mortgage Finance in America
                                                      Financial Performance
                                                      Disaster Resiliency and Relief
                                                      Pilot Transparency
                                      Leadership Team
                                      Corporate Governance
                                              toggle
                        Corporate Governance Guidelines
                                                      Fannie Mae Charter
                                                      Board of Directors
                                                      Committees
                                                      Committee Charters
                                                      Code of Conduct
                                                      Bylaws
                                                      Contacting the Board of Directors
                                                      Housing Reports
                                      Investor Relations
                                              toggle
                        Quarterly and Annual Results
                                                      Annual Reports
                                                      SEC Filings
                                                              toggle
                                All SEC Filings
                                                                      Annual Filings
                                                                      Quarterly Filings
                                                                      Current Reports
                                                                      Section 16 Filings
                                                                      Proxy Filings
                                                      Additional Disclosures
                                                              toggle
                                Monthly Summary
                                                                      Capital Disclosures
                                                      Stock Information
                                                      Current Stock Information
                                                      Contact Information
                                      ESG
                                              toggle
                        Learn about our business
                                                      Environmental
                                                      Social
                                                              toggle
                                Equitable Housing Finance Plan
                                                      Governance
                                                      Sustainable Bonds
                                                              toggle
                                Green Bonds
                                                                      Social Bonds
                                                      Reports & Disclosures
                                                              toggle
                                2021 ESG Report
                                      Research & Insights
                                              toggle
                        Forecast
                                                              toggle
                                Monthly Archive
                                                                      Weekly Archive
                                                      Surveys & Indices
                                                              toggle
                                National Housing Survey
                                                                      Mortgage Lender Sentiment Survey
                                                                      Fannie Mae Home Price Index
                                                                      Refinance Application-Level Index
                                                                      Special Topics
                                                      Publications
                                                              toggle
                                Fannie Mae Working Papers
                                                                      Housing Insights
                                                                      Partner Research
                                                                      Publications Archive
                                                      Perspectives
                                                              toggle
                                Archive - 2020
                                                                      Archive - 2021
                                                                      Archive - 2022
                                                                      Archive - 2023
                                      Newsroom
                                              toggle
                        News
                                                      Media Resources
          
                        Careers
                toggle
                Our Teams
                                              toggle
                        Corporate Teams
                                                      Data & Analytics
                                                      Digital & Technology
                                                      Mortgage & Customer Solutions
                                                      Risk Management
                                      Life at Fannie Mae
                                      Diversity & Inclusion
                                      Benefits & Professional Development
                                      Campus
          
                        Contact Us
                      
            Google Translate Disclaimer
            The Google Translate feature is a third-party service that is available for informational purposes only. Fannie Mae is unable to guarantee the accuracy of any translation resulting from the tool and is not responsible for any event or damage that occurs as a result of using the translations generated by the Google Translate feature.
            OK
  Translate
        Translation Disclaimer
          Chinese, Traditional
            English
            Filipino
            Korean
            Spanish
            Vietnamese
 FM Site Nav
  

        

Homepage
                    
      Fannie Mae logo
    Toggle navigation
      Rent
                
                All Renter Resources
                                      The Rental Process
                                      Make Your Rent Count
                                      Credit Basics
                      
            Buy
                
                All Homebuyer Resources
                                      7 Steps to Homeownership
                                      HomeView Homeownership Education Course
                      
            Own
                
                All Homeowner Resources
                                      Make the Most of Your Home
                                      Refinancing Your Mortgage
                                      When It’s Time to Sell
                      
            Get Relief
                  Manage Financial Uncertainty

All Resources to Manage Financial Uncertainty

Help for Homeowners

Help for Renters

Protect Yourself from Fraud
    
          Recover from a Disaster

All Resources for Recovering from a Disaster

Recovery Assistance for Homeowners

Recovery Assistance for Renters

Protect Yourself from Fraud
                      
            Calculators & Tools
                
                All Calculators & Tools
                                      Tools for Renters
                                      Tools for Homebuyers
                                      Tools for Homeowners
                                      HomeView® Homeownership Education Course
                                      Glossary
                                      Mobile AppToggle search
 Skip to main content
          
    
    Home
                        Research and Insights
                        Forecast
                        Housing Faces Mortgage Rate Headwinds as Economic Growth Likely Tempers
    Economic & Housing Outlook
Housing Faces Mortgage Rate Headwinds as Economic Growth Likely Tempers
September 18, 2023
We maintain our forecast for a modest economic contraction in the first half of 2024. Fundamentally, personal consumption remains at what we believe to be an unsustainable level relative to incomes, and the full effects of monetary policy tightening are still working through the economy. We have upgraded our 2023 real GDP growth outlook to 2.2 percent from 1.9 percent on a Q4/Q4 basis largely due to incoming July data, while our forecast for growth in 2024 is unchanged. Meanwhile, we forecast the topline and core measures of the Consumer Price Index (CPI) to end the year around 3.1 percent and 4.0 percent in 2023, respectively, slowing further in 2024 to 2.4 percent and 2.5 percent.

With the jump in mortgage rates to above 7 percent, the housing market faces renewed headwinds. Mortgage origination activity has slowed further in recent weeks and total home sales remain at levels not seen since 2011. The new home market, which showed surprising strength over the first half of 2023, due in part to a limited inventory of existing homes for sale, may now be taking a breather. We forecast total home sales to be around 4.8 million in 2023, which would be the slowest annual pace since 2011 and 4.9 million in 2024. Similarly, our expectation for 2023 mortgage originations was downgraded from $1.60 trillion to $1.56 trillion in 2023 and from $1.92 trillion to $1.88 trillion in 2024.

**Q3 GDP Growth Poised to Accelerate, but Strength is Likely Temporary**
The third quarter started off on a strong note, with real personal consumption jumping 0.6 percent month over month in July, pointing to a stronger Q3 2023 GDP growth figure than previously anticipated. Even if personal consumption expenditures were to remain flat over the next two months, July’s growth alone would translate into a pace of personal consumption over the quarter of around 3.8 percent annualized. However, this surge in spending is likely unsustainable and our outlook is for decelerating activity. We believe much of the July consumption was the result of pulling forward future spending in part due to a combination of the release of popular movies and concerts as well as an increase in spending on energy during the July heat waves, and perhaps due to seasonal timing related to online retailer sales. Both recent credit card transaction data and auto sales data point to a likely pullback in consumption in August, with auto sales falling 4.6 percent month over month. August nominal retail sales jumped by 0.6 percent, but this was almost entirely due to price increases in gasoline. Control group retail sales, which feed into the GDP report, rose by only 0.1 percent in nominal terms, suggesting flat or slightly declining real sales. Furthermore, the 0.6 percent pop in real consumption in July came despite a decline of 0.2 percent in real disposable income, increasing the divergence between the two series. Recent spending growth has come via a further reduction in the already below-trend personal saving rate to 3.5 percent in July. This was down from 4.3 percent in June and around an average of 8.0 percent from 2017 to 2019. Especially when accounting for an expected deceleration in wage growth, we expect more modest consumer spending growth in coming quarters.

Recent surge in consumption has not been supported by income growth

Complicating the outlook currently, much of the recent data paints a muddied economic picture. Real GDP in the second quarter was revised downward by 0.3 percentage points but still reported as a solid 2.1 percent annualized pace.However, gross domestic income (GDI), which is a theoretically equivalent measure of economic activity but can diverge in practice due to imperfect measurement and incomplete data, was reported to have grown only at a 0.5 percent annualized rate in the second quarter. This is significantly weaker than the Q2 GDP figure, though an improvement from the negative 3.3 percent and negative 1.8 percent annualized growth rates in the prior two quarters, while GDP averaged a 2.3 percent annualized growth rate during the same period. This is a historically wide divergence between these series. While some of the discrepancy can be explained by accounting differences with regard to Federal Reserve Bank losses from paying higher interest on reserves, the gap between GDP and GDI shrinks only marginally when making such an adjustment. As such, the significant divergence between GDP and GDI makes our interpretation of recent data less clear than it typically would be, adding additional uncertainty to our current outlook.

Discrepancy between GDP and GDI paints mixed picture of current economy

In the past, large discrepancies between GDP and GDI have typically been at least partially revised away during benchmark revisions. This presents downside risk to our 2023 GDP expectation. A 2023 research note from the Cleveland Fed found that the initial difference between GDP and GDI is predictive of eventual benchmark revisions to GDP but is not predictive of revisions to GDI, suggesting GDI may be the more reliable indicator when the two measures diverge.

**Inflation Decelerating as Labor Market Cools; Can it Level Off?**
The CPI jumped 0.6 percent over the month in August, the largest monthly increase since June 2022. This was an acceleration on a year-over-year basis to 3.7 percent from 3.2 percent in July. The jump, however, was mostly due to a 10.6 percent surge in gasoline prices over the month. Core inflation was more subdued, rising a lesser 0.3 percent over the month, partially driven by an also-energy-related 4.9 percent increase in airline fare and still lagging shelter price growth. Favorable base effects in the core index caused the annual rate of inflation to decelerate by four-tenths to 4.3 percent. When looking at various rolling averages of the core index, as a whole, the CPI continues to support our expectation for a generally softening inflation trend when excluding volatile energy prices. The three-month annualized rate of the core CPI fell to 2.4 percent in August from 3.1 in July and 4.1 in June. If this is sustained, then overall inflation is already at or near the Fed’s 2-percent PCE deflator target. On an annual basis, we expect further deceleration in the core index as base effects become more favorable and measures of shelter prices continue to cool in line with more timely estimates of new rents, and labor market conditions continue to loosen.

Payroll gains have decelerated meaningfully as labor market conditions cool

Nonfarm payroll employment rose by 187,000 in August, though the prior two months were revised downward by a combined 110,000 jobs. After revisions, the three-month moving average of employment gains currently sits just below the average monthly payroll gain in 2019, and the unemployment rate, which rose 0.3 percentage points in August, now sits at its highest level in 18 months. While we are discounting the jump in the unemployment rate due to it being driven by a jump in the often-volatile measure of labor force participation rather than a decline in employment, it is clear after payroll revisions that the labor market has loosened in recent months. Average payroll gains over the past three months were 149,000, down from 312,000 in the first quarter of the year. Another data point consistent with a cooling labor market is that average hourly earnings growth decelerated to just a 0.2 percent month-over-month growth rate in August, down from the 0.4 percent growth rate in June and July. If sustained, this is a wage growth rate that is compatible with the Fed’s 2-percent inflation target given current productivity growth trends. More predictive going forward, the JOLTS report also showed job openings at their lowest level in July since April 2021 and a quits rate that has returned to its pre-pandemic level. The latter is highly correlated to future wage growth, and its recent declines suggest wage growth will be more modest in coming months.

While it is only one month of data, the August employment report struck a near-perfect balance between sufficient strength to prevent a recession but not so much strength that the labor market contributes above-target inflationary pressures. The question moving forward will be whether the labor market softening slows or continues right into net job losses. Based on history, we believe the latter is more likely, as the full effects of monetary policy tightening are still working through the economy, but if we were to change our recession call it would be due in large part to seeing several months of employment data that look like August.

It should also be noted that as of this writing there was uncertainty over whether the United Auto Workers would go on strike at the “big three” auto companies. Were this to occur for a sustained period of time, the scale is large enough to drive a negative payroll report in October, as well as dampen the GDP measure. A short-lived strike would likely be followed by a rebound in auto manufacturing output thereafter, but it’s worth noting the potential impact on economic data.

**Higher Mortgage Rates Another Test for Home Sales**
With the 30-year fixed mortgage rate staying above 7 percent in recent weeks, purchase mortgage applications have pulled back again and now sit near the lowest level since 1995. While existing home sales are expected to remain near their lowest level since 2009, further sales declines are likely to be less pronounced in relation to current increases in the mortgage rate. As more sales are driven by life events and fewer are from discretionary move-up buyers, we see limited further existing home sale downside. Additionally, the mortgage application measure and the pending home sales index are increasingly diverging, reflecting the higher cash share of sales. While the additional downside risk from rate movements to date is minimal, the prospects of a recovery in existing sales in the near future is unlikely given strong mortgage rate “lock-in” effects and stressed affordability.

Purchase mortgage applications just above the lowest level since 1995

While new listings have shown some comparative seasonal strength in recent weeks relative to the typical seasonal decline seen in recent years, the total number is still 9.3 percent below this time last year, according to Redfin. The speed at which listings sell has declined slightly, but it is still at a level reflecting a tight market. The median number of days on the market was 46 in August, up from 41 a year prior, according to Realtor.com. However, it still remains well below the 59 days recorded in August 2019, prior to the pandemic.

Purchase mortgage applications and pending sales diverge as cash share of home sales rises

Existing home sales fell by 2.2 percent in July to a seasonally adjusted annualized rate (SAAR) of 4.07 million. This represented a 16.6 percent decline from a year prior. Pending home sales, which lead closings on average by 30-45 days, moved up slightly in July despite rising mortgage rates, suggesting August sales will be similar to July. Still, given the pullback in mortgage applications, we are expecting a modest dip in existing sales thereafter.

The recent rise in mortgage rates will also now test the resiliency in the new home sales market, which showed remarkable strength over the first half of the year. The lack of existing homes for sale has helped support demand for new homes, including an increasing share of first-time buyers. A big question will be to what extent homebuilders will continue to offer generous mortgage rate buydowns to drive sales. Looking at recent Fannie Mae mortgage acquisition data, there has been wide divergence in the average note rate of borrowers purchasing existing homes vs. new homes, reflecting homebuilders subsidizing the rate. When mortgage rates originally jumped to 7 percent in late 2022, a pullback in homebuilder activity ensued as buying activity slowed. It is uncertain whether this same rate threshold will result in a similar effect this time around or whether buyers and homebuilders have increased their willingness to purchase and subsidize at current rates. Perhaps telling, after rising for 6 months, the homebuilder confidence survey pulled back six points in August, suggesting some softening in new home sales and starts in the near term. While we anticipate new home construction to remain comparatively strong over the coming quarters given mortgage rates and the economic environment, we are still forecasting a modest pullback in new sales and starts. We expect fourth quarter new home sales to average around 691,000 units on an annualized basis, down slightly from the most recent pace of 714,000 in July.

Interest rates on new home purchases are being subsidized by builders, spurring demand

Multifamily construction continues to show further signs of deceleration. Multifamily housing starts fell in August by 1.7 percent. While the series has been noisy in recent months, the more indicative permits figure continues to trend downward and, at 513,000 annualized units in July, sat at a level near the pre-pandemic 2019 average. With sluggish rent growth on a national level, more normalized vacancy rates, and tighter construction and development loan lending standards, we expect multifamily construction starts to continue to slow. These dynamics may also play into softening demand for single-family housing: There is a large pipeline of multifamily housing coming online, and the rent-to-buy calculus for prospective homebuyers may tilt a little more in favor of renting for longer.

**Mortgage Originations Forecast Little Changed**
We have revised downward our forecast for purchase mortgage originations this month given downgrades to the home sales forecast. In particular, we now expect purchase volumes to be $1.3 trillion in 2023, a downgrade of $30 billion from last month’s forecast. We expect purchase volume to rise to $1.4 trillion in 2024 as home sales increase, a downgrade of $29 billion from the prior forecast.

Given a higher expected mortgage rate path this month, we reduced our refinance forecast by $10 billion in 2023 to $251 billion and by $14 billion in 2024 to $442 billion. Refinance activity, as illustrated by the Refinance Application-Level Index (RALI), remains depressed given that mortgage rates remain above the 7 percent level.

**Economic & Strategic Research (ESR) Group**
September 14, 2023
For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes.

***Data sources for charts:****Bureau of Economic Analysis, Bureau of Labor Statistics, Mortgage Bankers Association, National Association of REALTORS®, Fannie Mae*

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.

****ESR Macroeconomic Forecast Team****

**Doug Duncan, SVP and Chief Economist**
	**Mark Palim, VP and Deputy Chief Economist**
	**Eric Brescia, Economics Manager**
	**Nick Embrey, Economist**
	**Nathaniel Drake, Economic Analyst**
	**Richard Goyette, Economic Analyst**

TOPICS
  
Fannie Mae Corporate
          Research and Insights
  
  
      Twitter
              Facebook
              Linkedin
              Email
Research and Insights
                                                              Forecast
                                                              Monthly Archive
                                    Weekly Archive
                                    Surveys & Indices
                                    Publications
                                    Perspectives

Related Links

September Press ReleaseSeptember Economic Forecast 
September Housing Forecast 
September Multifamily Market Commentary

Our Company
    About Us
      Contact Us
      Careers
      Investor Relations
      Newsroom
      Research & Insights
      ESG
  Business Partners
    Single-Family Business
      Multifamily Business
      Capital Markets
	      Suppliers
      Developer Portal
  Homebuyers, Owners, & Renters
    Educational Resources
      Credit Basics
      HomeView Homeownership Education Course
      HomePath - Search for Homes
      Make Your Rent CountCalculators & Tools
      All Calculators and Tools      Glossary of Key Terms
      Mortgage Calculator
      Down Payment Assistance Search Tool
      Mobile AppLet Us Help You
      Contact a Housing Counselor
      Manage Financial Uncertainty
      Recover from a Disaster
    
    
  

      
Social media
  

        
            Follow us
          Follow us
          Facebook
          Twitter
          LinkedIn
          Instagram
    Footer
  

        
            Legal
          Privacy
          Digital Accessibility
                Cookie Preferences
            © 2024 Fannie Mae