The Blubber

Home prices will still appreciate for the next three years due to low inventory, per the MBA.

The Mortgage Bankers Association (MBA) anticipates that housing demand will recover after a period of mild recession and subsequent decreases in current high mortgage rates. According to the MBA's housing market forecast released on Sunday, mortgage originations, representing the process leading to homebuyer loans, are expected to reach 5.2 million by loan count in the coming year. This projection signifies a 19% increase compared to the 4.4 million loans predicted for the entire year of 2023. Additionally, the origination volume for 2024 is forecasted to surge by 19% to reach $1.94 trillion, in contrast to the expected $1.64 trillion for this year.

This rebound in housing demand is attributed to the expected decline in mortgage rates, which have reached levels not seen in over two decades, with the 30-year fixed rate significantly exceeding 7%. The MBA suggests that mortgage rates will decrease as a result of the Federal Reserve's tight monetary policy, deteriorating credit conditions, and diminishing savings rates in the United States. These factors are likely to contribute to a mild recession in the first half of the next year, which, according to the MBA's outlook, will slow job market growth and increase unemployment from 3.8% to 5% by the end of 2024. Simultaneously, inflation is predicted to gradually decrease, ultimately reaching the Federal Reserve's 2% target rate by mid-2025.

These conditions will provide the Federal Reserve with flexibility to gradually lower interest rates over time, resulting in a reduction in elevated mortgage rates, as stated by the MBA. Lower rates are expected to stimulate homebuyer demand and lead to an increase in the inventory of existing homes, consequently supporting the origination volume for home purchases in 2024. MBA's Chief Economist, Mike Fratantoni, highlighted that this would encourage homebuyers to re-enter the market and prompt current homeowners to be more inclined to sell their properties, as many have refrained from doing so this year due to favorable mortgage rates.

Nonetheless, the MBA suggests that housing inventory will remain limited enough for home prices to continue appreciating over the next three years. Despite lower mortgage rates, homebuyers may still encounter high costs, a scarcity of properties available for sale, and reduced credit availability.