The Fannie Mae Economic and Strategy Research (ESR) Group projects a decline in home sales as interest rates rise and economic growth slows, according to a press release and associated commentary released by Fannie Mae on March 17.
As a result of the war in Ukraine, increasing economic pressures and inflation in the U.S. — as well as rising interest rates — Fannie Mae projects home sales will decline 4.1% in 2022. This figure can be compared to their projections, made in February, of a 2.4% decline for the year. The projection follows the Federal Reserve’s announcement of raising interest rates by a quarter of a percentage point for the first time since 2018. The Fed also announced the potential for six more increases before the end of 2022.
The ESR group also downgraded its projections for gross domestic project (GDP) growth from 2.8% to 2.3% for the year, and also noted that it still expects the Federal Reserve to raise the federal funds rate five times in 2022 — and another three in 2023 — in line with the Fed’s announcement.
“A slowing economy, decades-high inflation, expired fiscal stimulus, tightening monetary policy, and now Russia’s invasion of Ukraine are all weighing on the health of the U.S. economy,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in the press release.
He added that housing is helping to support the economy, but a housing crisis is also contributing to rising inflation due to a lack of existing homes on the market. He called housing “an intermediate-term hedge against inflation.”
He said that the ESR group expects home loan volume to hold up, but refinance activity could slow with rising interest rates. As long as mortgage rates remain under 4% for a fixed-rate mortgage, the market will remain consumer friendly, Duncan concluded.
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