Fannie Economists Continue Downgrading Housing and Mortgage Outlooks
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae economists expect increasing inflation and higher interest rates to further weigh on economic growth and home sales this year.
Fannie’s Economic and Strategic Research (ESR) Group has downgraded previous estimates for economic growth, home sales and mortgage originations for 2022.
In its June 2022 commentary, Fannie revised downward its forecast for total home sales in 2022 to 5.96 million units, a 13.5 percent decline from 2021 and steeper than the previous forecast of an 11.1 percent decline. Sales expectations for 2023 were also revised downward to a pace of 5.29 million units, from 5.42 million previously.
Fannie noted that existing unadjusted home sales fell in April by 9.6 percent from the year prior and that recent incoming mortgage application data points to a faster-than-anticipated further decline entering the third quarter. Fannie now expects seasonally adjusted sales to fall sequentially in the third and fourth quarters of this year by a further 7.6 percent and 1.8 percent.
In addition, new home sales came in well below Fannie’s expectations, plunging 16.6 percent over the month of April to the slowest pace since the April 2020 COVID-19 shutdowns. Fannie is now forecasting single-family housing starts to end the year about 15 percent lower than what occurred in the most recent reading for April.
The June commentary also reported that higher mortgage rates are making renting more attractive than buying. Using the national Apartment List Rent Estimate for 2-bedroom rental units, the median-priced single-family home, and current mortgage rates, the typical new mortgage payment compared to typical asking rent has grown swiftly and is now far less attractive on a relative basis. Fannie economists say this will be one of the factors weighing on single-family home sales while also helping to bolster multifamily rents and construction.
With home sales being revised downward, Fannie also had to lower its forecasts for mortgage originations. The company now expects total 2022 mortgage originations to be $2.6 trillion, $90 billion lower than last month’s forecast. In 2023, we expect mortgage originations to fall to $2.2 trillion, also a downgrade from last month.
For refinance originations, the forecast for 2022 remains at $797 billion, unchanged from last month. The forecast for 2023 was revised up moderately by $24 billion or 4.8 percent, with an expectation that mortgage rates will stabilize in 2023, and new acquisitions at the current rate are expected to be in-the-money again.
Given recent jumps in mortgage rates, however, Fannie said there is some downside risk to its refinance originations outlook. At 5.23 percent, the most recent Freddie Mac 30-year fixed-rate survey reading, Fannie estimates that less than 2 percent of outstanding mortgages have a refinance rate incentive of at least 50 basis points. Cash-out refinances, which are less sensitive to interest rate movements, now make up the vast majority of total refinance volume.
For the overall economy, Fannie’s ESR Group ticked down by one-tenth its real gross domestic product (GDP) forecast to 1.2 percent growth in 2022, followed by a decline of 0.1 percent in 2023.
“Our view continues to be that the magnitude of response required of monetary and fiscal tightening to return inflation to the Federal Reserve’s target will likely result in a recession, which we currently expect will be modest and occur next year,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “Notably, the recent market response to continued heightened inflation suggests that the predicted recession could occur sooner and be deeper than our current baseline forecast.”
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.
