Fannie Again Lowers Forecast for 2023 Housing and Mortgage Volumes
Written By: Joel Palmer, Op-Ed Writer
The housing and mortgage markets continue to decline with existing sales headed for potentially their lowest volume in more than a decade.
Fannie Mae’s October 2022 commentary forecasts total single-family home sales in 2022 and 2023 of 5.64 million and 4.47 million, respectively, which would represent annual declines of 18.1 percent and 20.8 percent. The attribute these drops in sales to the higher mortgage rate environment.
“As long as supply is limited and affordability pressures continue to constrain potential homebuyers via elevated home prices and mortgage rates, we expect home sales will remain sluggish,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
Fannie’s predictions for existing home sales are 5.02 million in 2022 and 3.93 million in 2023, both lower than previous estimates. The latter would be the lowest annual pace since mid-2012. The forecast revisions are based on a 2 percent decline in pending sales in August and continued decline in mortgage applications.
Fannie said new home sales should hold up better than the existing home market. This is due to an increased willingness for builders to discount homes to drive sales.
The decline in the market has led Fannie to also significantly revise downward its forecasts for home price growth. The new forecasts are for home price growth to increase 9 percent annually in 2022, compared to its previous forecast of 16 percent. Fannie is also predicting home prices will decline for the full year in 2023 by 1.5 percent, compared with its previous forecast of 4.4 percent growth. On an annual basis, Fannie forecasts house price growth to turn negative beginning in the second quarter of 2023.
Fannie said in its latest report that its economists do not anticipate a repeat of the sizable price declines felt during the Great Financial Crisis. That's because in this market there has been minimal use of adjustable rate mortgages, teaser rates and exotic mortgage products as there was between 2006 and 2008. Better underwriting standards imposed since the financial crisis should also minimize the impact of mortgage foreclosures on the market.
Of course lower forecasts for sales mean less volume for mortgage underwriters and processors. Fannie has downgraded its forecast for 2022 purchase mortgage origination volumes by $78 billion from last month’s forecast to $1.6 trillion. In 2023, the company’s economists expect purchase volumes to shrink by 18 percent year over year to $1.3 trillion, a downgrade of $338 billion from last month’s forecast.
In the refinance market, Fannie expects 2022 volumes to total $701 billion, $30 billion lower than last month’s forecast; and 2023 refinance volumes to be $392 billion, a downgrade of $98 billion from last month’s forecast.
Not surprisingly, Fannie reported that is monthly Home Purchase Sentiment Index decreased for the seventh consecutive month, dropping to its lowest level in 11 years.
Only 19 percent of respondents to its most recent survey said now is a good time to buy a home, down from 22 percent the month before, while 75 percent said it’s a bad time to buy, up from 73 percent. The percentage of respondents who say it’s a good time to sell remained unchanged at 59 percent, while the percentage who said it’s a bad time to sell decreased from 35 percent to 33 percent.
Black Knight wrote that while conditions seem dire, there will still be buyers and sellers to keep business going.
“Sales dipping by 15 percent to 25 percent would be more in line with historical reactions to a period of significantly higher mortgage rates,” the mortgage technology company noted in a recent blog.
“Strong employment gains have continued through August of 2022, adding to the expected minimum sales. Rather than view this possible decline as a negative or huge fall off, we prefer to characterize it as a return to a more normal market condition – although we do not foresee more typical levels of available inventory for sale in the housing market anytime soon.”
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.
