Fannie Mae lowered its projections of mortgage originations and home sales for 2022 as mortgage rates continue to climb.
Fannie Mae’s Economic and Strategic Research (ESR) Group revised its projected mortgage origination volume to $2.6 trillion in 2022 and $2.2 trillion in 2023. In May, Fannie Mae dropped its mortgage origination volume projection for 2022 to $2.7 trillion and $2.25 trillion for 2023, down from the respective $2.8 trillion and $2.41 trillion projected the previous month.
The GSE’s projections for refinance originations this year remain at $797 billion, unchanged from last month. Fannie Mae estimates that with rates at 5.23%, per the agency’s 30-year fixed rate survey reading, less than 2% of all outstanding loan balances have a refinance rate incentive of at least 50 basis points. Since that reading, rates have climbed on conventional mortgages north of 6%.
In 2023, Fannie expects refinance originations to go up by $24 billion or 4.8% of the entire originations volume as mortgage rates are predicted to stabilize that year.
Higher mortgage rates are the housing market’s “primary constraint,” the agency said in a statement Thursday. Total home sales are expected to fall 13.5% to 5.96 million units in 2022, sliding down even further from its 11.1% projected decline in May. About 5.29 million homes are expected to sell in 2023, down from the prior forecast of 5.42 million.
Consumers are feeling the sudden rise in interest rates as employment growth slows and stock market valuations fall, said Doug Duncan, Fannie Mae’s senior vice president and chief economist. “Nowhere is this more evident than in housing affordability measures, with the prospective monthly payment on a typical new mortgage climbing dramatically.”
Existing home sales dropped 2.4% in April from March to 5.61 million, according to Realtor.com. A total of 591,000 new homes were sold in April, falling 16.6% from the previous month, the lowest level in two years.
Regarding the overall economy, Fannie Mae marginally downgraded the GDP forecast for 2022 to 1.2%, from the 1.3% projected in May. While the agency raised the second quarter GDP to 2.5%, the GDP for 2022 is offset by a slower growth forecast in the latter half of the year as inflation continues to eat into real incomes and effects of higher interest rates.
“Our view continues to be that the magnitude of response required of monetary and fiscal tightening to return inflation to the Federal Reserve’s target will likely result in a recession, which we currently expect will be modest and occur next year,” Duncan said.
