There are an increasing number of signs indicating that the housing market is cooling substantially. Declining home sales is a major sign that home prices cannot possibly continue rising at rates seen during 2020 and 2021. However, some prominent economists and firms even believe that housing prices are close to the point of stagnation nationally. For example, Moody’s Analytics recently predicted 0% national home growth over the course of 2023.
As home sales continue to decline, economists at Fannie Mae had to update their 2022 home sales forecast. Fannie Mae’s August forecasts a 16.2 percent annual decline in home sales in 2022, steeper than their July forecast of a 15.6 percent decline. Overall, they expect 5.78 million home transactions.
Fannie Mae economists point to high housing prices and mortgage interest rates as reasons for declining home sales. Additionally, despite mortgage interest declining from its peak earlier this year, home sales continue to fall faster than the Fannie Mae researchers previously expected.
“Housing remains clearly on the downtrend — and has been for several months now — due to the combined effects of outsized home price increases and the significant and rapid run-up in mortgage rates,” Fannie Mae Chief Economist Doug Duncan said in a statement.
“Despite a pullback in mortgage rates over the past month, recent incoming data point to a faster near-term slowdown in sales than we had expected, especially for new homes,” Fannie Mae forecasters said.
Both new and existing home sales are expected to fall by a similar margin for the rest of the year. According to Fannie Mae, home sales will decline 18 percent this year, while existing home sales will fall by 16 percent.
Annual new home sales in June were at their lowest point since the onset of Covid — in June, only 590,000 units were sold annually. Overall, Fannie Mae economists expect home sales to total 632,000 in 2022, down from their previous forecast of 668,000. The Fannie Mae researchers explained why they downgraded their forecast, explaining that “recent leading indicators of July home sales such as pending sales and mortgage applications, point to a continued slow down.”
Fannie Mae Expects That GDP Growth Will Decline Through 2023
Fannie Mae also released their forecast for the broader economy. Their prediction for real gross domestic product (GDP) growth remained virtually unchanged. They predict 0 percent GDP growth in 2022 and -0.4 percent GDP growth in 2023. Fannie Mae based this prediction on economic factors like high inflation and the Federal Reserve’s decision to ramp up interest rates.
Don’t expect inflation to slow down much over the course of the year — inflation will average 7.2 percent annually in 2022. However, the consumer price index, referring to inflation, will normalize next year, totaling 1.8 percent in 2023. Fannie Mae does note that predicting specific inflation numbers is tough but that inflation will slow down gradually in the near future.