Fannie Mae’s Economics and Strategy Research (ESR) Group predicts lower home sales as interest rates rise and economic growth slows, according to a press release and related comments issued by Fannie Mae on March 17.
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Due to the war in Ukraine, increasing economic pressures and inflation in the United States – as well as rising interest rates – Fannie Mae predicts home sales will decline 4.1% in 2022. This figure can be compared to their projections, made in February, of a 2.4% decline for the year. The projection follows the Federal Reserve announcing a quarter-percentage-point interest rate hike for the first time since 2018. The Fed also announced the possibility of six more hikes before the end of 2022.
The ESR group also lowered its projection for gross domestic project (GDP) growth from 2.8% to 2.3% for the year, and also noted that it still expects the Federal Reserve to increase the federal funds rate five times in 2022 — and three more in 2023 — in line with the Fed’s announcement.
“A slowing economy, decades-high inflation, expired fiscal stimulus, monetary policy tightening, and now Russia’s invasion of Ukraine are all weighing on the health of the U.S. economy,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. the press release.
He added that housing helps sustain the economy, but a housing crisis also contributes to higher inflation due to a lack of existing homes on the market. He called housing “a medium-term hedge against inflation”.
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He said the ESR group expects home loan volumes to hold up, but refinancing activity could slow as interest rates rise. As long as mortgage rates remain below 4% for a fixed rate mortgage, the market will remain favorable to consumers, Duncan concluded.
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