Fannie Mae updates its 2023 house price projection in favor of growth

 Fannie Mae updates its 2023 house price projection in favor of growth

Even more resilient than anticipated, but foresee a "deceleration" in 2024 due to affordability issues

Fannie Mae analysts have updated their housing market outlook as house values stay even more stable than anticipated despite mortgage rates now standing well over 7%.

Fannie Mae's Economic and Strategic Research Group said in a new commentary released on Monday that while house prices have shown themselves to be "resilient" until the third quarter of 2023, an increase in long-term interest rates is anticipated to have a negative impact on the economy. However, a "deceleration" in property prices is anticipated in 2024 as a result of anticipated increases in mortgage rates.

The experts have increased their prior prediction of 3.9% to 6.7% year-over-year growth in U.S. house prices in the fourth quarter of 2023 as assessed by the Fannie Mae house Price Index. They said that the upgrading is "largely due to higher-than-expected incoming transaction data over the third quarter."

In face of increasing mortgage rates and difficulties with affordability, house values have shown to be more robust than anticipated, according to Fannie Mae experts.

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However, experts continue to project that home price growth would slow to 2.8% year over year by the end of 2024 and that home price growth will decline the following year.

Doug Duncan, senior vice president and chief economist at Fannie Mae, claimed that the housing market "experienced a four-year of growth in a two-year period between mid-2020 and mid-2022." "Much of that activity has effectively been handed back due to persistent affordability issues and increasing mortgage rates. Up to 2024, we anticipate that the rising mortgage rate environment will continue to stifle home development and make house affordability even more difficult.

Due to anticipated increases in mortgage rates, Fannie Mae analysts also modestly lowered their projection for overall house sales.

In 2023 and 2024, respectively, they said, "We forecast sales to be 4.81 million and 4.80 million, downward from our prior projection of 4.84 million and 4.88 million, respectively." "Despite the lower sales forecast, due to the higher expected house price outlook, our forecast for mortgage application volumes was unchanged until 2023 at $1.56 trillion and slightly revised forward for 2024 to $1.90 trillion (previously $1.88 trillion)."

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According to a press release, the analysts stated that further falls in house sales from an already low level despite current mortgage rates would likely look "muted relative to the slowdown in 2022."

The research team at Fannie Mae also issues a warning, stating that when rates rise over time as low-interest debt is added to higher rates, they are projected to have an adverse effect on hiring, corporate investment, and consumer spending. The press release noted the data adjustments showed consumption and earnings in "better balance than had been reported previously," suggesting that the U.S. economy has "fewer structural headwinds than previously thought."

According to the most recent statistics, "consumer has been in a better position than previously thought," which raises the possibility that the Federal Reserve will be able to effectively bring the economy down to a "soft landing" while continuing to control inflation, Duncan added.

Duncan cautioned that despite consumer resilience, recent interest rate increases have been abrupt, and in other contexts — even with less severe interest rate shocks — this has resulted in economic disruptions. Therefore, we continue to anticipate a little economic slump in the first half of 2024.

"We continue to take the the central bank at its word that rates will be 'higher to feed longer'" until annual inflation stabilizes at 2%, Duncan said, "while at this time, in part because of the most recent run-up in long-term rates, we don't anticipate additional Fed rate hikes."