Fannie Forecasts Normalization of Mortgage and Housing in 2022
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae economists expect a “new normal” for the housing market in 2022 as the unprecedented market disturbances and policy responses stemming from the COVID-19 pandemic subside.
In its January 2022 commentary, Fannie’s Economic and Strategic Research Group said that economic growth will return to more modest levels consistent with the long-run trend, while home sales and house price growth will slow to a more sustainable pace.
"We expect economic growth to continue slowing as the impacts of fiscal stimulus fade and the country's attention increasingly turns to rising inflation," said Doug Duncan, Fannie Mae senior vice president and chief economist.
Fannie has revised upward its previous estimates for mortgage origination volume in 2022. The more optimistic forecast is based on its modestly stronger expectation for home price appreciation.
Fannie is forecasting 2022 purchase volumes to be $2 trillion, an upward revision of $17 billion from last month's forecast. Purchase volumes are expected to grow to $2.1 trillion in 2023, $27 billion higher than the previous forecast.
The commentary noted that the recent jump in interest rates may lead to downward revisions later this year in its originations forecast. Based on more recent data, Fannie estimates the mortgage rate could be approximately 20 basis points higher over the forecast horizon. If so, purchase volumes could be about 2 percent lower in 2022.
Fannie lowered its forecast for refinance volume for 2022 by $25 billion to $1.3 trillion. Its 2023 forecast is essentially unchanged from last month at $1.1 trillion, as the impact from stronger home prices and higher interest rates are projected to offset each other. At the current mortgage rate of 3.22 percent, Fannie estimates that about 32 percent of outstanding mortgage balances have at least a 50-basis point incentive to refinance.
Under the above scenario of a 20-basis-point increase in mortgage rates, Fannie said refinance volumes could be about 10 to 15 percent lower in 2022.
The forecast comes as the National Association of Realtors reported that existing home sales for 2021 grew 8.5 percent from the previous year to the highest annual level since 2006. This occurred despite a drop in sales in December.
"December saw sales retreat, but the pull back was more a sign of supply constraints than an indication of a weakened demand for housing," said Lawrence Yun, NAR's chief economist.
Help could be on the way for dealing with limited supply. The Census Bureau and the Department of Housing and Urban Development reported earlier this month that building permits for privately owned housing jumped 9.1 percent in December. Also, permits for all of 2021 were 17.2 percent higher than in 2020. Housing starts were also slightly higher.
Fannie noted in its report that the total number of homes under construction, including both single-family and multifamily units, is the highest since 1973.
Even so, home price appreciation is still expected to be higher than the historical norm in 2022, at 7.6 percent, though that would be much lower than the 17.3 percent appreciation in 2021.
Fannie said affordability will result in the sale of existing homes to slow by 3.2 percent from 2021, which would still represent the second fastest annual pace since 2006.
About the Author
As an NAMP® 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.
