Fannie Mae Home Price and Interest Rate Forecast
Fannie Mae downgraded their economic growth forecast in their April housing market and economic forecast. They state that a “soft landing” from the Federal Reserve is appearing less likely. Tightening from the Federal Reserve along with high inflation are weighing heavily on the economy. Combined with the recent inversion of the treasury yield curve, this has caused them to expect a modest recession in 2023. As a side note, they are not expecting it to be as severe as the Great Recession.
From a housing market perspective, they talk about why the housing market is still on solid footing. They cite reasons such as stronger mortgage credit quality, a much less leveraged mortgage finance system, a more equipped mortgage servicer and public policy system, as well as ongoing housing supply constraints relative to demographic demand for housing.
Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae stated “We expect housing to slow over our forecast horizon, as well. Mortgage rates have ratchetted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown. Consequently, we expect home sales, house prices, and mortgage volumes to cool over the next two years. In particular, we expect house price growth to decelerate to a pace more consistent with income growth and interest rates. Households with a 3-percent, 30-year, fixed-rate mortgage are unlikely to give that up in favor of a mortgage closer to 5 percent, and we expect this so-called ‘lock-in’ effect to weigh on home sales. Moreover, if mortgage rates remain relatively elevated, we expect the added affordability constraint to price out some would-be first-time homebuyers and contribute to the slowing of demand.”
Below are a few interesting charts related to housing market values:
Stocks vs. Home Values: https://www.longtermtrends.net/stocks-to-real-estate-ratio/
Home Values vs. Median Income: https://www.longtermtrends.net/home-price-median-annual-income-ratio/
Home Values vs. Inflation https://www.longtermtrends.net/home-price-vs-inflation/
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