GSE Forecasts Call for Mortgage and Economic Slowdowns
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac forecast the housing market to remain “solid” and “resilient” for the near term, but higher mortgages, inflation and a possible recession next year will slow the market down the road.
Both of the enterprises released economic forecasts last week that continue previous warnings of declining mortgage volume.
Fannie Mae projected total mortgage originations to be $2.8 trillion in 2022, down from $4.5 trillion in 2021, with the refinance share of dollar volume expected to fall from 58 percent last year to just 32 percent this year. Freddie Mac forecasted total originations to decline from $4.8 trillion in 2021 to $3.1 trillion in 2022 and $2.8 trillion in 2023.
On the purchase side, Fannie sees mortgage originations totaling $1.93 trillion in 2022 and $1.85 trillion in 2023, both downward revisions from last month’s forecast. Freddie said home purchase mortgage originations will grow from $1.9 trillion in 2021 to $2.1 trillion in 2022, and to $2.2 trillion in 2023.
Fannie noted that a principal and interest payment using a 30-year mortgage on a median-priced home has risen by about 30 percent since December. This is likely to force out many potential buyers. Fannie estimates that about 65 percent of outstanding first lien mortgages have a note rate at 100 basis points lower than current market rates. For a borrower who has recently purchased or has refinanced into a 30-year loan over the past couple of years, purchasing a new home even with the same sized mortgage would result in a large increase in mortgage payment, a strong disincentive to do so.
Fannie expects new home sales and single-family housing starts to remain comparatively resilient in the near term, in part due to a heightened level of homes currently under construction and high order backlogs. But it expects existing home sales to fall more sharply in coming quarters, down 8.6 percent for 2022 compared to 2021.
On the other hand, Freddie said that demand for housing continues to remain solid with many prospective homebuyers looking to lock in a mortgage rate before they increase further. Freddie
forecasts home sales to slow to 6.7 million in 2022 and 6.6 million in 2023, compared with 6.9 million in 2021.
Not surprisingly, refinance business will take a larger hit as 30-year mortgage rates have climbed above 5 percent in recent weeks.
Freddie calls for refinance originations to decline from $2.8 trillion in 2021 to $960 billion in 2022 and to $535 billion in 2023.
Fannie’s forecast is for $889 billion in refinance volumes in 2022, which is $148 billion lower than what it forecasted last month. In 2023, Fannie expect volumes to decline to $558 billion. Fannie estimates that just 2.3 percent of all outstanding loan balances have a refinance rate incentive of at least 50 basis points.
Fannie anticipates an economic recession by the end of 2023, just three years after the COVID-driven recession of 2020. Its economists explained that the current business cycle would be shorter than previous ones because of the swift post pandemic recovery, which has already moved the economy into the mature stage of its current business cycle. Specifically, the unemployment rate is below the “full employment” level, inflation is accelerating as growth slows, and the Federal Reserve is beginning to tighten policy. These conditions, Fannie noted, typically mark the beginning of the end of an economic expansion.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
