The housing market and GDP in 2022-2023

Fannie Mae is just the latest organization to downgrade its forecast for the U.S. economy and housing market.

In its April 19th commentary Fannie predicts that home sales will decline 7.4% in 2022 (previously forecast at -4.1%), and by 9.7% in 2023 (previously -2.7%). Home price growth is expected to top out at 10.8% by the end of 2022 and 3.2% by the end of 2023. 

Fannie makes an important distinction between today’s housing market and approaching recession and the 2008 housing crash and financial crisis citing improved mortgage and credit underwriting standards and a continued shortage of housing supply.

Outside of Fannie Mae’s commentary, there’s no denying surging home values have pushed many buyers out of the market. And home affordability has been further eroded with mortgage rates climbing rapidly since January being 2% higher than they were just one year ago. The big question is how will homebuilders and developers respond to the increasing cost of borrowing money to construct much-needed new homes, and will inflation and supply-chain issues further exasperate home prices?

All things considered, it appears the U.S. is headed straight into a recession. What we don’t know is how long or how severe this economic slowdown cycle will be. What we do know is we’re at the tail-end of another boom cycle in housing prices. The dreaded word among real estate professionals and lenders is ‘bubble’. Are we in one? “We’re not in a housing bubble just yet—but we’re skating close to one if prices continue rising at the current pace,” said George Ratiu, a housing economist at Realtor.com. 

A healthy housing market would help blunt the fallout of a full-fledged recession.

Regardless, older homeowners who once considered a reverse mortgage may want to look again. The operative words being sooner than later as both a softening housing market and rising rates are likely to continue to reduce potential loan proceeds. 

Resources:
Economic Growth Forecast Downgraded as ‘Soft Landing’ Appears Increasingly Unlikely