Fannie Mae Downgrades Housing, Origination Forecast

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In their latest forecast, Fannie Mae’s Economic and Strategic Group (ESR) has downgraded its GDP projections along with home sales and mortgage originations due to the current state of the economy.

Fannie Mae now predicts that real GDP growth measured on a fourth-quarter basis will be 1.3%, down from 2.1% predicted at the beginning of the year.

Further, they also downgraded their predictions on the housing market for calendar years 2022 and 2023 by 3.7% to 6.1 million units and 4.5% to 5.4 million units, respectively. Mortgage originations outlooks were downgraded as well, as they now expect 2022 origination activity to total $2.70 trillion and 2023 originations to total $2.25 trillion, down from the respective $2.82 and $2.41 trillion they had previously projected.

Rising interest rates and inflation are on the forefront of economists' minds, and the ESR no longer believes that recent and future moves by the Federal Reserve to curtail inflation by tightening monetary policy will result in a “soft landing” as they are still predicting a slide into a recession during the second half of next year.

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"Rising mortgage rates are reducing affordability through higher mortgage-related costs, all while house prices continue to grow. Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity, which we reflect in our forecast. Not only is the worsening affordability of homes a problem for potential entry-level homebuyers, but current homeowners are less likely to trade in their existing lower-rate mortgages and list their homes for sale, both of which will likely weigh on sales."

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The dream of homeownership for many young people is drying up if you read that last statement and also many people will stay put as rates rise and choose to remodel instead of sell and upgrade. The same thing happened in '08 when the RE market crashed. People stayed put and remodeled.

Also, if you are paying attention you will see there has been a steady increase in new construction houses just sitting on the market signaling a slow down is underway. It's a matter of time before price corrections follow especially as rates will have to keep going up as inflation shows no signs of slowing down.