{"id":158899,"date":"2023-09-27T14:42:38","date_gmt":"2023-09-27T20:42:38","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=158899"},"modified":"2024-02-29T17:48:45","modified_gmt":"2024-03-01T00:48:45","slug":"fannie-mae-expects-a-recession-is-there-opportunity-for-investors","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/fannie-mae-expects-a-recession-is-there-opportunity-for-investors","title":{"rendered":"Fannie Mae Expects a Recession as Mortgage Rates Continue to Climb\u2014An Opportunity for Investors?"},"content":{"rendered":"\n

As far as economic news goes, last week was a busy one. The Federal Reserve met for its September meeting, ultimately announcing it would hold steady on its benchmark interest rate. The average 30-year fixed mortgage rate also notched its sixth consecutive week at 7%-plus. And to top it off, Fannie Mae released its latest string of forecasts, calling for a possible \u201cmild recession\u201d and continued housing headwinds.<\/span><\/p>\n\n\n\n

\u201cA modest contraction remains the most likely outcome,\u201d the <\/span>mortgage purchaser announced<\/span><\/a> in a press release early last week. Specifically, Fannie Mae projects that a downturn will occur in the first half of 2024, bringing with it reduced consumer spending and a decreased interest in housing, among other goods and services.<\/span><\/p>\n\n\n\n

But what could that downturn look like on the ground for real estate investors, and does it mean opportunity? Here\u2019s what Fannie\u2019s data\u2014and other forecasts\u2014are currently projecting.<\/span><\/p>\n\n\n\n

What\u2019s Happening With Mortgage Rates?<\/span><\/h2>\n\n\n\n

The Fed\u2019s rate doesn\u2019t directly correlate to mortgage rates, but they typically move in a similar direction. And since the Fed started increasing its federal funds rate back in March of last year, <\/span>mortgage rates have soared<\/span><\/a>, climbing from the high 3% range to upwards of 7%. <\/span><\/p>\n\n\n\n

While the Fed hasn\u2019t said for sure what it will do with rates moving forward, Chair Jerome Powell did say at the August meeting, \u201cThe process of getting inflation sustainably down to 2% has a long way to go \u2026 We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective.\u201d<\/span><\/p>\n\n\n\n

Translation: More rate hikes could be in the future\u2014but a rate drop? That\u2019s probably not in the cards anytime soon (which probably means mortgage rates will remain around their current level for a while).<\/span><\/p>\n\n\n\n

Fannie\u2019s forecast says as much, predicting the year will finish out at a 7.1% average rate on a 30-year fixed-rate mortgage\u2014right on track with today\u2019s 7.19%\u2014before dipping only slightly to 6.8% in the first quarter of 2024.<\/span><\/p>\n\n\n\n

What About Home Prices and Demand?<\/span><\/h2>\n\n\n\n

As we enter the \u201cmild recession,\u201d as Fannie puts it, and mortgage rates stay elevated, consumers will start to pull back on housing, and home prices could decline.<\/span><\/p>\n\n\n\n

As of now, the mortgage purchaser\u2019s Home Price Index predicts price growth of just 3.9% in Q4 2023 (over Q3) and 2.6% growth in the first quarter of next year. By the end of 2024, Fannie Mae projects prices will fall 0.7% nationwide. <\/span><\/p>\n\n\n\n

Doug Duncan, senior vice president and chief economist at Fannie Mae, said:<\/span><\/p>\n\n\n\n

\u201cHouseholds remain confident in their own employment, even though they don\u2019t feel great about the overall economy, and the vast majority don\u2019t believe it\u2019s a good time to buy a home, as mortgage rates and home prices continue to constrain affordability. This is evidenced by recession-level home sales volumes resulting from the very low levels of existing homes for sale and the significant affordability challenges. We expect that total housing market activity will remain at a low level into 2024 as the Federal Reserve continues to hold the line on interest rates against inflation.\u201d<\/span><\/em><\/p>\n\n\n\n

According to CoreLogic, the five markets with the highest likelihood of home price declines are:<\/span><\/p>\n\n\n\n