“Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown,” Doug Duncan, Fannie Mae’s chief economist, said in a statement accompanying the forecast. “Consequently, we expect home sales, house prices, and mortgage volumes to cool over the next two years.” Rising mortgage rates, soaring prices, and a severe lack of homes for sale had already been deterring buyers, which contributed to a slowdown in sales in February, according to the National Association of Realtors. Some of those problems are likely to get worse before they get better, Duncan predicted, as higher borrowing costs force first-time buyers out of the market and discourage would-be sellers from moving. However, in a silver lining for homebuyers facing ever-rising prices, Fannie Mae forecast annual home price growth could slow to just 3.2% in 2023 compared to the 19.2% that was seen in 2021, as measured by Fannie Mae’s home price index. The same factors driving up mortgage rates—namely, surging inflation and the Federal Reserve’s tactic of fighting it by raising its benchmark interest rate—are also likely to send the economy into a mild recession in 2023, Fannie Mae predicted. However, it added, don’t expect a housing crash or a severe downturn like the Great Recession, since mortgage borrowers are in much better financial shape than they were back then, as is the overall financial system, and the demand for housing is much stronger today. Fannie Mae’s forecast is in contrast to that of its fellow government-sponsored enterprise, Freddie Mac, which predicted a much milder housing slowdown in a forecast released Monday. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
