Last Updated on February 15, 2024 by Luke Feldbrugge
Is a recession coming in 2024? While most experts predicted a recession was likely in 2023, it never came to be, and the good news is many experts are now expecting things to improve in 2024. This includes a stronger housing market as interest rates have come down over a full percent point in the past 6 months, pricing seems to have stabilized and inventory levels are improving slightly with the help of builders putting up more units. That said, there are varying degrees of optimism, so here we will look at what has happened recently and what the experts are predicting for the remainder of 2024.
Key Federal Reserve Activities
The Fed is trying to find a balance between keeping inflation in check and keeping the economy growing.
- The Federal Reserve has not raised interest rates in its last four meetings, including its first FMOC meeting of 2024. Talk that a recession is coming seems to have waned. Rate cuts could be coming, though unlikely at the March meeting.
- Federal Reserve Chairman Jerome Powell stated in a recent interview that while economic signs are positive, he’d like to see more before cutting rates.
The Fed’s actions on interest rates alone cannot guarantee that a recession will not happen. However, right now, there seems to be a fair amount of agreement that things are beginning to improve, or at least normalize.
What is a Recession?
Traditionally, a recession is indicated by two consecutive quarters of negative Gross Domestic Product (GDP). And the National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The bureau can sometimes wait as long as a year to declare a recession as it awaits incoming economic data.
Assessing Economy to Determine if a Recession is Coming
Yes, economists are less concerned about the possibility of a recession in 2024.
Part of what they look at is the labor market. The labor market added 353,000 jobs in January and unemployment stayed at 3.7%, according to the Bureau of Labor Statistics (BLS). This is similar to the 333,000 added in December 2023.
Forecasts from entities like Fannie Mae’s Economic & Strategic Research (ESR) group offer insights into the economic trajectory. Projections for 2024 show a more positive outlook, with an improvement in GDP growth compared to earlier estimations.
Fannie Mae’s economic team no longer explicitly forecasts a recession is coming in 2024. While the economic group previously expected a 0.3% worsening of the GDP by the 4th quarter of 2024, it now predicts a 1.1% growth.
Impact of Economic Outlook on the Housing Market
Stabilizing economic forecasts offer cautious optimism for the housing market. Factors such as stagnant mortgage rates and strong consumer spending contribute to this positive sentiment. Forecasts anticipate a gradual recovery in home sales and mortgage origination, supported by lower mortgage rates and increased new home construction. This news offers a sigh of relief for many would-be home buyers and sellers.
“Mortgage rates remain stagnant, hovering in the mid-six percent range over the past several weeks. The economy and labor market remain strong with wage growth outpacing inflation, which is keeping consumer spending robust,” said Sam Khater, Freddie Mac’s chief economist.
Effect on Home Sales and Home Loans
Fannie Mac’s most recent forecast is cautiously more hopeful about 2024 than earlier reports. Fannie Mae predicts a “gradual return to a more normal balance” in the market following recent years of volatility and uncertainty.
“In 2024, we expect home sales and mortgage origination activity to begin a gradual recovery in the presence of a slow-growing economy,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Inflation’s decline and the resultant Fed pivot to signaling future rate cuts rates lead us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023 and that a gradual improvement is now underway.”
Fannie Mae Anticipates:
- Mortgage rates below 6% by the end of 2024.
- Existing home sales will begin to turnaround with an expected 3.1% increase.
- Single-family new construction nearly 6% higher and a continued decline in multi-family new construction.
- Home prices will “moderate.”
Fannie Mae expects a more affordable housing market, and an increase in refinancing and new home purchase financing, both brought on by lower mortgage rates and increased new home construction.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” said Lawrence Yun, NAR chief economist. “Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand.”
The National Association of Realtors’ Key 2024 Forecasts:
- Average 6.3% 30-year fixed mortgage rate for the year
- Existing home sales will rise from $3.78 million (seasonally adjusted) to $4.71 million.
- 1.04 million single-family housing starts (compared to 945,000 in 2023) and a continued decline in multi-family starts.
Home Affordability – Issue Even if No Recession is Coming
Despite positive forecasts, challenges persist, particularly with housing supply shortages. Limited new construction and the reluctance of existing homeowners to sell, contribute to this issue. The “lock-in effect,” where homeowners delay moving due to high interest rates, can impact existing home sales.
Experts and home buying professionals understand affordability is key to a strong rebound, especially among low income and first-time homebuyers. Even if economic indicators suggest more reasons to be hopeful, the housing supply shortage creates issues that lead to affordability problems.
The shortage is largely caused by limited new housing construction and the “lock-in effect.” The “lock-in effect” refers to the disincentive current homeowners see to move again given high interest rates. Over 80% of homeowners have home loans with interest rates under 6 percent, according to a 2023 Realtor.com survey. With so many homeowners deciding to stay put longer than expected, the existing home sale inventory looking for their next home on hold, dramatically decreasing the existing home sale inventory in 2023 from pre-pandemic times.
Moody’s Warren Kornfeld, senior vice president of the financial institutions group looks for mortgage rates to “moderate down to 6% to 6.25%,” but he and others see the “lock-in effect” homeowners as the “biggest wildcard” if they continue to wait rather than list their home now, limiting existing home sales. They may decide rates still aren’t low enough to sell.
New housing construction had slowed with consumer confidence in the housing market low, higher mortgage rates, supply chain issues and overall higher costs to homebuilders.
“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” said National Association of Homebuilders (NAHB) Chairman Alicia Huey. “Single-family starts are expected to grow in 2024, adding much needed inventory to the market. However, builders will face growing challenges with building material cost and availability, as well as lot supply.”
NAHB chief economist, Rob Dietz, expects a more moderate growth in new home construction, a 3-4% rise, than the NAR 6% forecast, and gains in existing home sales.
People’s View on Housing and the Economy
The average consumer plays a crucial role in shaping market dynamics. Even though there are still people whispering, “Is there are recession coming?,” recent consumer surveys indicate people are growing more confident about things; driven by factors such as job security and expectations of lower mortgage rates. This optimism, coupled with potential rate adjustments by the Federal Reserve, is great for the housing market and the U.S. economy. And that makes things better for home buyers and sellers when compared to 2023.
Earlier this month, Fannie Mae released its Home Purchase Sentiment Index, its national housing consumer survey, that looks at how people are feeling about the housing market.
It seems people are more confident than they have been in almost two years. The more optimistic outlook is linked to people feeling a greater sense of job security and believing mortgage rates will go down.
Even though only 17% surveyed see conditions as good for buying a home, things are moving in the right direction and good changes are happening.
Discussing the March outlook, CoreLogic’s Chief Economist Selma Hepp said:
“The US economy continues to show signs of strength, so therefore, rates are likely to remain stable through the spring home buying season, with cuts not expected until the beginning of summer. However, in recent industry surveys, home buyers are beginning to feel optimistic about where rates are heading, and more and more home buyers are anticipating rates to decline through the year.”
Improved sentiment toward the economy, an increased likelihood the Fed will lower rates in coming months, and forecasts reflecting home inventory increases are all strong indicators that things are improving when compared to 2023’s struggles.
That said, it is good to remain vigilante because things can change. However the common consensus today is a recession is not coming in 2024, and things will continue to improve throughout the year.
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