Leading housing economists at Fannie Mae now predict that home prices will shrink next year, instead of growing 4.4 percent as they had previously forecast.
With a recession nipping at the economy’s heels, the mortgage-securitizer’s Economic and Strategic Research Group’s latest economic outlook predicts the United States’ GDP to grow 2.3 percent annualized in the third quarter of 2022 before contracting 0.7 percent annualized in the fourth quarter and 0.5 percent over the course of 2023.
With Federal Reserve policymakers steadfast in their intent to raise interest rates until inflation – up slightly month-over-month in September and 8.2 percent higher year-over-year – Fannie Mae economists say their outlook for home-sales demand has worsened. With interest rates likely to stay high, the group’s latest analysis says 18.1 percent fewer homes will trade hands in America this year, and 20.8 percent fewer will sell next year.
This drop in demand will also see home price growth turn negative, the analysis says. In their last forecast in July, Fannie Mae economists predicted home prices would grow 4.4 percent year-over-year in 2023. Now, they say to expect a 1.5 percent decline nationally in 2023. While Fannie Mae’s economics team has been predicting a deceleration in home-price growth in the second half of this year for some months, their latest report also dramatically cuts predictions for year-over-year home price growth in 2022. The fourth quarter will likely close out with 9 percent year-over-year growth in the fourth quarter, the report says, down from last month’s prediction of 16 percent.
“Over the last few weeks, markets have increasingly – and perhaps reluctantly – reflected the resolve of the Fed to lower inflation via rapid tightening of monetary policy,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a statement accompanying the report’s release. “At times, the market has reacted to incoming economic data suggesting the Fed is making progress in its fight with inflation by anticipating a potential policy ‘pivot’ toward a less restrictive regimen, prompting the Fed to restate its resolve. Of course, the slowing effect on the housing market of the higher mortgage rate environment has been largely predictable, and home prices appear to have already begun trending downward. Looking ahead to the full year 2023, on a national basis, we expect an average home price decline of 1.5%. Given the ongoing tension between potential homebuyers and home-sellers at the moment, we believe the pace of sales is likely to slow even further, too.”
So far, Connecticut’s home prices have proved more durable than other parts of the country, thanks in part to not having seen as big of a boom during the pandemic, experts say.
The latest Consumer Price Index data for September, released this morning, will likely put pressure on the Federal Reserve policymakers to increase interest rates by a further 0.75 percent when they meet in November. That would mark the third such increase in as many months.
“The primary driver of inflation has rotated away from goods prices and to services,” said Eric Winograd, U.S. economist at AB. “Services inflation is heavily influenced by wages, and so it is going to take a meaningful weakening of the labor market to bring inflation to heel.”
The Associated Press contributed to this report.