Home prices have reached historic highs in recent months, but low inventory and rising mortgage rates have some economists warning of a slowdown in both sales and homebuilding.
A “meaningful slowdown” could be headed for home sales in the second and third quarters, according to an outlook from Fannie Mae reported by Inman. The economists forecasted 6.1 million total home sales this year, a reduction from previous estimates that would represent an 11.1 percent decline from 2021.
The economists expect even fewer sales in 2023, 5.4 million, a further 11.6 percent decline. They believe once sales slow, construction will follow.
Rising mortgage rates are one of the factors to blame for the forecasted slowdown as they hover around their highest levels since the start of the pandemic.
“Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity, which we reflect in our forecast,” Fannie Mae chief economist Doug Duncan said in a statement.
Fannie Mae chief economist Doug Duncan (Fannie Mae)
In addition to higher mortgage rates making buying a home less affordable, homeowners may be less inclined to sell their homes and buy a new one because they are locked into a more favorable rate.
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In good news for hopeful buyers, the economists forecasted the appreciation of home prices to slow down. Price appreciation is expected to hit single digits next year and drop to 3.2 percent by 2023’s fourth quarter, though the deceleration varies by region.
Fannie Mae economists don’t foresee another crash like 2008, though.
“To be clear, even if home prices were to decline in coming years, we are not anticipating a reoccurrence of the housing market or economic turmoil seen during the 2008 financial crisis, as conditions are considerably sounder today,” the economists said.
Fannie Mae economists also predicted that mortgage rates are hovering around a peak. They anticipated rates will hover around 5.1 percent for the near-term future, but will begin to drop slowly in about a year. The forecast projected mortgage originations to drop 40 percent this year and 7.4 percent next year; refinancings are forecasted to fall 69 percent in 2022 and another 38 percent in 2023.
[Inman] — Holden Walter-Warner