Fannie Mae Releases Latest Economic, Mortgage Market Forecast
Written By: Joel Palmer, Op-Ed Writer
Global conflicts and global economics spell near-term uncertainty for the domestic mortgage market.
Fannie Mae’s latest monthly economic commentary continues to forecast robust sales for new homes, but a declining market for existing homes and refinances. The overall general economy is also predicted to grow less than previously forecasted for the remainder of 2022.
“A slowing economy, decades-high inflation, expired fiscal stimulus, tightening monetary policy, and now Russia’s invasion of Ukraine are all weighing on the health of the US economy,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
Fannie’s Economic and Strategic Research (ESR) Group now projects full-year 2022 real GDP growth of 2.3 percent, down from last month’s projected 2.8 percent. Fannie’s commentary acknowledges that many of its forecast’s base assumptions, including a near-term resolution to the acute global economic effects of the Russian invasion of Ukraine, represent substantial downside risks to both the macroeconomic and housing outlooks.
Despite the substantial uncertainty, the ESR Group continues to expect the Federal Reserve to raise the federal funds rate five times in 2022 and eight times total through 2023.
“We marked down our growth expectations this month by half a percentage point for 2022, but risks remain firmly to the downside. The interruptions to the trade of energy, agriculture, and other commodities are putting upward pressure on inflation and making an already difficult task for the Federal Reserve even more challenging.”
Following a surge of existing home sales in January, likely due to buyers trying to beat the oncoming rise in mortgage rates, existing sales are expected to trend downward. Fannie forecasts 5.6 million annualized units by the end of the year, compared to 6.2 million in the fourth quarter of 2021.
The ESR Group said new home sales are still expected to remain robust as homebuilders are actively working to bring more homes to completion after ongoing supply chain and labor-related delays.
The report includes a prediction of $1.95 trillion in purchase origination volume this year, which would be 4.4 higher than 2021 but a slight downward revision from last month’s forecast.
For refinances, Fannie downgraded its forecast due to its mortgage rate expectation being revised upward. It now expects 2022 refinance volumes to be $1 trillion, nearly 9 percent below its prior forecast. Furthermore, in 2023, Fannie expects refi volumes to fall to $742 billion, a downward revision of $118 billion from last month’s forecast.
“We expect home purchase loan volume to hold up reasonably well but refinance activity to fall off considerably over our forecast horizon, perhaps totaling only a third of originations, unless there is a drop in mortgage rates, which we do not expect,” said Duncan. “Nonetheless, from a historical perspective, mortgage rates around 4 percent for fixed-rate loans is still a consumer-friendly rate for a home purchase.”
Fannie said that while geopolitical and monetary policy uncertainty add risk to the housing outlook the short-term prevalence of bidding wars and a lack of inventory for sale means further rate increases will have a comparatively muted effect on sales relative to the historical rate change relationship. This will only be temporary, Fannie cautioned, as a more pronounced economic slowdown over the next couple of years would reduce housing demand.
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.
