Home sales

Fannie Mae predicts a drop in home sales and creations in 2022-2023

Price, Market equilibrium, Economy, Law of supply, Equilibrium scale

According to a new report from At Fannie Mae’s Economic and Strategic Group (ESR), a combination of rising interest rates and high inflation will continue to weigh on the housing market and now forecasts market growth of 1.2% for the full year.

The ESR still predicts a modest “economic contraction” from the end of 2023 due to the fact that consumers’ resilience to expected financial stress remains an unanswered question, and further forecasts residential fixed investment to decline by 8.6% in 2022 and 6.5% in 2023.

Significantly higher mortgage rates are now the limiting reactive of the housing market. The ESR expects total home sales to fall 13.5% in 2022, down from their forecast of 11.1% in May, and expects mortgages to fall to 2.6 trillion in 2022 and $2.2 trillion in 2023.

Not surprisingly, refinancing origination activity has declined given the rise in rates; it is estimated that only 2% of outstanding mortgages have an incentive of at least 50 basis points to refinance.

“Market expectations for the Federal Reserve’s necessary response to persistent general inflation continue to adjust,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Tighter financial conditions are slowing economic activity, and consumers are dipping into their savings and relying more and more on credit cards as they seek to maintain current levels of consumption.”

“The sharp and sudden rise in interest rates is starting to be widely felt as job growth slows and stock market valuations fall,” Duncan said. “Nowhere is this more evident than in housing affordability measures, with the potential monthly payment on a typical new mortgage climbing dramatically. As a result, sales of new and existing homes continue to slow, while refinancing activity has fallen significantly, with what remains largely being equity extraction.

“Our view continues to be that the magnitude of the monetary and fiscal tightening response required to bring inflation back to the Federal Reserve’s target will likely lead to a recession, which we believe will be modest and will occur. next year,” Duncan concluded. “Notably, the recent market response to continued high inflation suggests that the projected recession could come sooner and be deeper than our current baseline forecast.”

Click here to view the full report.