From mortgage rates to home sales, here are Fannie Mae's housing market forecasts for the next 2 years

• Fannie Mae outlined its housing market forecasts through 2025, including home sales and price growth.
• Lower borrowing costs will boost activity, but home sales will only marginally rise higher.

The housing market will see some upside in the coming years, but persistent challenges will limit a bigger shift, according to Fannie Mae's latest forecast.

Total home sales in 2024 will come in at about 4.8 million, largely flat compared to this year's expected level, followed by a jump to 5.4 million in 2025.

"The drivers of slow sales are well known at this point: unaffordability, lock-in effects, and a lack of existing inventories freezing much of the housing market. While we believe these dynamics will slowly dissipate over time, they will remain obstacles in 2024," the mortgage giant said.

Still, existing home sales will undergo a slow recovery starting next year, after they hit a likely low point in October, at a seasonally adjusted annualized rate of 3.79 million.

Meanwhile, sales of new homes have also continued benefiting from the housing shortage, as well as builders' willingness to provide mortgage buydowns.

"This trend continues into our 2024 forecast, in which we expect new home sales to decline from current levels only slightly due to a modest economic contraction," according to the report.

While the shift in monetary policy has spurred a sharp drop mortgage rates this quarter, Fannie Mae noted a limit to how far these rates will fall: it projects that the 30-year fixed rate will average 6.7% in 2024, before falling to 6.2% in 2025.

That's down from the current level of just below 7%, after they soared close to 8% earlier this year.

"The recent pullback in mortgage rates to 6.95% from their peak of 7.79% in October points to an incoming rebound in sales, but even with recent declines, mortgage rates are currently similar to those of the summer of this year," it said.

Still, price appreciation next year and growing refinancing activity should boost single-family mortgage originations from $1.5 trillion to $1.9 trillion in 2024, and to $2.3 trillion in 2025.

But although prices are set to keep growing, Fannie Mae doesn't expect 2023's momentum to carry over into the coming years. In its latest quarterly survey gathered in October, respondents saw home price growth reaching 2.4% and 2.7% in 2024 and 2025, after surging an estimated 5.9% this year.

On new construction, Fannie Mae noted that an economic slowdown is bound to rollover into 2024. But this should provide only a temporary setback to housing starts, as low interest rates will help single-family starts jump through 2025.

Multifamily starts are more likely to level off, however, given the inventory that's already hit the market and expectations of muted rent growth.