Fannie Mae has revised its home-sales forecast for 2022 downward as the country continues to grapple with an uncertain economic climate and a weakened housing market.
The government-sponsored enterprise has lowered its sales forecast down slightly to 5.78 million units for the year. If realized, that would represent an annual decrease of 16.2%, larger than the 15.6% decline in Fannie’s previous forecast. Recent data, Fannie economists said, suggests a faster near-term slowdown in sales than was previously expected, even with mortgage rates coming down over the past month.
Still, with the Federal Reserve remaining assertive and resolute in its policies to combat inflation, it’s likely that further changes to the central bank’s benchmark rate will place upward pressure on mortgage interest rates, according to Fannie Mae chief economist Doug Duncan.
“Housing remains clearly on the downtrend – and has been for several months now – due to the combined effects of outsized home-price increases and the significant and rapid runup in mortgage rates,” Duncan said.
“The question for many market observers is how quickly, and with how much additional tightening, the core inflation rate will come down to the Fed’s preferred target. In our view, the labor market’s continued strength suggests that the Fed is likely to maintain its aggressive posture through the end of the year.”
With sales down, Fannie’s latest forecast places total mortgage origination volume for 2022 at $2.47 trillion, down from $4.47 trillion last year. Fannie expects 2023 to include further declines, projecting that figure at $2.29 trillion.
Despite anticipating a further drop in origination volume next year, Fannie actually made a slight upward revision to its sales outlook for 2023, going from 5.15 million units in its prior forecast to 5.18 million units in its most recent projection. And the agency’s new 2023 originations forecast actually represents a moderate uptick from its previous prediction, which called for an overall volume of $2.22 trillion next year.
Fannie’s tempered projections reflect the ongoing volatility in the economy. Although the labor market remains strong (528,000 jobs were added in July), Fannie still expects real gross domestic product (GDP) growth to be flat year over year by the time fourth-quarter 2022 rolls around. Fannie sees more contraction in the GDP next year, projecting a dip of 0.4% in 2023, unchanged from its previous forecast.
“The economy is progressing largely as we’d previously forecast,” Duncan said. “The near-term decline in gas prices has given consumers a chance to catch their breath and shift some spending elsewhere. Likewise, lower interest rates at the longer end of the yield curve should be supportive of the economy through the end of 2022, which is why we’re forecasting modest economic growth in the second half.
“However, we maintain the view that a modest recession is likely to emerge in the new year as the labor market softens and the effects of tighter monetary policy are more acutely felt.”
