Fannie Mae boosts housing outlook, even as economy slows

Fannie Mae has increased its mortgage origination forecast for both this year and next due to a slightly more optimistic view for home sales and prices, although all are still expected to decline.

Its April outlook calls for $1.66 trillion in loan production for 2023, up from $1.55 trillion in March and close to February's expectations of a $1.69 trillion market this year. This is still down from $2.42 trillion for 2022.

Similarly, Fannie Mae pushed its 2024 prediction back above the $2 trillion mark, to $2.02 trillion, from $1.89 trillion in March and just below the $2.03 trillion forecast in February.

While still expecting an economic downturn in the second half of this year, Fannie Mae's chief economist Doug Duncan slightly waivered.

"The economic slowdown has resumed — whether the end result is a modest recession or simply a soft landing remains unanswered — although we continue to expect the former, as we have since April of last year, when we first made our 2023 recession call," Duncan said in a press release. "The greater-than-expected resilience of the housing sector to the affordability pressures of higher home prices and mortgage rates is central to our expectation that the recession will be modest."

The economic tightening that came about from the failures of Silvergate Bank, Silicon Valley Bank and Signature Bank had the same result as the Federal Reserve's rate hikes. Because of that, Duncan now foresees just one more 25 basis point rate hike at its May meeting, before starting on another round of easing by the end of this year.

"In our view, while it would be premature to expect no further difficulties in the banking sector other than credit tightening, we're maintaining our baseline expectation of a modest recession, as we see signs of a weakening employment market, slowing retail sales, and declining manufacturing activity," Duncan continued. "However, the rapid response of hopeful homeowners to periodic declines in mortgage rates, even from the currently higher rates, gives us additional confidence in our use of the word 'modest.'"

Home prices are now expected to fall by 1.2% during the year; Fannie Mae previously expected a 4.2% decline.

For 2024, it revised its projection to a 2.2% drop, slightly lower than the previous 2.3% estimated decline.

Meanwhile, the home sales forecast for this year was increased to 4.84 million units from 4.63 million units. That is still a 14.6% drop from 2022 and the slowest pace since 2011, Fannie Mae pointed out.

The Mortgage Bankers Association's April outlook issued earlier in the week is more optimistic than Fannie Mae's. But it still reduced its 2023 originations expectations to $1.81 trillion from $1.84 trillion in March. For next year, it dropped to $2.25 trillion from $2.3 trillion.