National: Home sales are going to nosedive in 2023, Fannie Mae says
The forecast for the housing market in 2023 gets worse by the month, with the latest report predicting a million-plus decline in existing home sales.
Fannie Mae‘s Economic and Strategic Research (ESR) Group now forecasts total single-family home sales to decline 18.1% to 5.64 million units this year from 2021, a further downward revision from September’s projected 17.2% drop.
The latest forecast also projects total mortgage origination activity at $1.6 trillion in 2022, a $78 billion decline from last month’s forecast. The mortgage market is projected to slip further to $1.3 trillion in 2023, according to the government-sponsored enterprise.
“Over the last few weeks, markets have increasingly and perhaps reluctantly reflected the resolve of the Fed to lower inflation via rapid tightening of monetary policy,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist. “The slowing effect on the housing market of the higher mortgage rate environment has been largely predictable, and home prices appear to have already begun trending downward.”
Looking ahead to the full year 2023, Fannie Mae expects an average home price decline of 1.5%. “Given the ongoing tension between potential homebuyers and home-sellers at the moment, we believe the pace of sales is likely to slow even further, too,” he added.
Existing home sales came in slightly stronger than expected in August at an annualized pace of 4.8 million, according to the National Association of Realtors. Still, this was a further decline from July, and sales were down 19.9% from a year ago.
Combined with the ESR group’s upwardly revised interest rate expectation and its downgraded projected home price growth, Fannie Mae lowered its forecast of existing home sales to be 5.02 million in 2022 and 3.93 million in 2023.
While affordability measures are very stretched and median home prices are well-deviated from their historical relationship to typical household incomes, Fannie Mae does not anticipate that home price declines will result in a repeat of the Great Financial Crisis.
“Due to the minimal use of adjustable-rate mortgages (ARMs), teaser rates and exotic mortgage products, relatively few current single-family borrowers are subject to payment shocks from rising interest rates in the way many borrowers were in 2006-2008,” the ESR group said.
Robust underwriting standards as well as tools available for loan workout and modifications compared to 2008 will mitigate the impact of home price declines on mortgage delinquencies and foreclosures, the agency explained.
Fannie Mae’s ESR group also expected real gross domestic product (GDP) to grow 2.3% annualized in the third quarter of 2022 due to strong net export and inventory investment activity, before contracting 0.7% annualized in the fourth quarter.
Overall, the ESR group forecasts a negative 0.1% real GDP growth on a full-year basis for 2022, a downward revision from its September prediction of 0%. The agency maintained its expectation for a 0.5% contraction in real GDP in 2023.