Fannie Mae revised its latest monthly forecast on home sales downward for 2022 and 2023.
Projected Downturn in Home Sales from Fannie Mae’s Latest Forecast
Fannie Mae’s economists are now indicating they expect a “modest recession” in the second half of 2023.
Fannie’s economists are quick to point out that the “modest recession” they anticipate in 2023 is NOT comparable to the length and depth of the Great Recession in 2008-09. However, Fannie’s economists are predicting that home sales will decline by -7.4% in 2022 and by -9.7% in 2023 due to higher mortgage rates.
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(Previously, Fannie’s economists forecast that home sales would drop by -4.1% this year and by -2.7% in 2023.)
Comments by Industry Leaders
Fannie Mae’s forecasters issued this statement: “Since our last forecast, monetary policy guidance has shifted in a hawkish direction, and markets have responded with rapid increases in interest rates, signaling a belief that brisker tightening is likely to occur. While a ‘soft landing’ for the economy is possible, which is where inflation subsides without economic contraction, historically such an outcome is an exception, not the norm.”
Fannie’s forecasters also added, “It should be noted that interest rates have moved up further than we had expected since the completion of our interest rate forecast at the start of the month, representing downside risks to our housing forecast.”
Pertinent to both on-going low inventory and affordability concerns, Fannie’s Chief Economist Doug Duncan said, “Households with a 3% 30-year, fixed-rate mortgage are unlikely to give that up in favor of a mortgage closer to 5%, and we expect this so-called “lock-in” effect to weigh on home sales. Moreover, if mortgage rates remain relatively elevated, we expect the added affordability constraint to price out some would-be first-time homebuyers and contribute to the slowing demand.”
Goldman Sach’s Chief Economist Jan Hatzius believes there is a 35% chance of a recession over the next two years and that prices will slow in 2023.
Buffers in Housing Market Favor “Modest” Impact
Today’s housing market has safeguards it did not have fifteen years ago. These buffers include:
- Stronger mortgage credit quality
- Less leveraged residential properties and mortgage finance systems
- Better equipped mortgage servicers
- Ongoing supply constraints relative to demographic demand for housing
Home Price Appreciation & Mortgage Originations May Cool
Homebuyers may be thrilled to hear that Fannie’s economists project home price appreciation to drop from the record hit of 19.8% during Q1 2022 to 6.5% by Q1 2023 and to 3.2% by Q4 2023.
Fannie’s forecasters have also revised their forecasts for total mortgage originations and by mortgage categories. Take a look:
- Total mortgage originations down in 2022 to $2.8T and $2.4T in 2023, rather than previous forecasts of $3T and $2.7T, respectively
- Purchase volume down by $18B to $1.93T in 2022 and down by $130B to $1.85T in 2023
- Refinance volumes in 2022 at $889B, down $148B from last month’s forecast
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Thanks to Fannie Mae and Inman.