Fannie May economists are again adjusting their expectations on the total number of home sales for the year. They now expect 5.78 million homes to change ownership—16.2% less than a year ago. 

Last month Fannie Mae predicted a 15.6% pullback, but recent affordability challenges have moved the needle a bit more, even with the recent easing of mortgage rates. 

Fannie Mae’s Housing Forecast for August 2022 breaks down the numbers.

Economists expect mortgage rates to ease

Fannie Mae economists believe mortgage rates have peaked and will continue their downward trend this year and into the next. 

The housing forecast expects the 30-year fixed mortgage rate to reach 5.1% and 4.8% in the third and fourth quarters, respectively. They expect rates for 2023 to start at 4.7% (Q1) and end at 4.4% (Q4) for an annual average of 4.5%. 

That’s still above 2021’s average of 3.0% but down from 2022’s expected average of 4.7%. 

As for the Fed, Fannie Mae forecasters expect it to “modestly slow its pace of tightening” by raising the federal funds rate by 50 basis points (bps) instead of 75 in September. 

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. The question for many market observers is how quickly, and with how much additional tightening, the core inflation rate will come down to the Fed’s preferred target. In our view, the labor market’s continued strength suggests that the Fed is likely to maintain its aggressive posture through the end of the year.

Doug Duncan

Fannie Mae Senior Vice President and Chief Economist

According to Fed Chairman Jerome Powell, the Fed will be more data-dependent going forward, meaning more aggressive tightening could happen if inflation and job growth remain strong.  

Mortgage lending is trending down 70%

With the recent dip in mortgage rates, Fannie Mae economists have improved their outlook for 2022 refinancing volume to $769 billion—which is still 70.5% less than a year ago. 

Even with the slight drop in mortgage rates, many Americans are struggling under the weight of inflation. Homebuyers priced out by near 6% rates aren’t rushing back in. 

As for sellers, many are experiencing the “lock-in” effect. Those who bought their existing home at a low rate are understandably reluctant to give that up. 

Home value appreciation and inventory

Annual home price appreciation has slowed slightly—but not as quickly as Fannie Mae’s forecasters had expected at the beginning of 2022. That, combined with inflation, has kept many potential buyers on the sidelines. Affordability, or the lack thereof, remains the chief obstacle.

Also, while for-sale inventories are growing, the three-month supply of existing homes on the market in June is still low by historical standards. And Fannie Mae insiders expect it to remain tight for many months to come. 

They do expect some easing as more new construction enters the market. But with homebuilder sentiment at a low, it’s unclear how many builders will forge ahead. 

Top takeaways for real estate agents

The more market data you have at your fingertips, the easier it is to answer questions from your clients and prospects about what they can expect as buyers or sellers. Make it your goal to stay on top of monthly and weekly changes in your local market.