The US housing market, in the words of the housing bulls, is stabilizing. New home sale rising again, as aggressive builder incentives bring buyers back to the market. Meanwhile, mortgage payments which fell below 7%, coupled with the housing market entering the busier spring season, saw many regional housing markets reverse from method of correction on growth mode. Indeed, Only 16% of the region’s housing markets tracked by Zillow saw house prices decline between March and April.
When it comes to housing, the worst is behind us. Or is it?
The housing market recession isn’t over yet—and it could pick up again as the market moves into the slower summer and fall months. At least that’s according to one revised forecast just release on Fannie Mae.
In the first quarter of 2023, the activity of the US housing market measured by private residential fixed investment (ie the core of housing GDP) decreased, on a nominal basis, for four consecutive quarters. And more contracting could be on the horizon. Indeed, Fannie Mae expects residential fixed investment to fall in Q2 2023 (-5.9%), Q3 2023 (-9.1%), Q4 2023 (-6.4%), and Q1 2024 (-1%).
“There is a record number of multifamily units currently under construction, which are scheduled to come online later this year and through 2024. Coupled with the tightening of credit for construction lending, which we expect will soon materialize in a slow new project pipeline, we expect a significant slowdown in starts later this year,” wrote Fannie Mae economists their report published last Friday.
The retreat of the multifamily segment, according to Fannie Mae’s forecast, will negate any economic growth made by single-family, which benefited this spring from builder incentives such as mortgage rate buydowns.
Last year, the housing market was one of the few areas of the economy that was stuck in the recession. That could soon change: Fannie Mae’s forecast model thinks the downturn in the US housing market will play out and help push the US economy into a recession. Indeed, Fannie Mae predicts US GDP decreased in Q3 2023 (-1.2%), Q4 2023 (-1.7%), and Q1 2024 (-0.5%).
“A moderate recession is the likely outcome—and its timing remains the primary important question—because the Fed is likely to maintain tighter policy for a longer period of time if pressures “Wage-related inflationary pressures will not slow,” Fannie Mae economists wrote.
While Fannie Mae’s forecast model predicts that the US housing market will help drag the economy into recession, Fannie Mae’s economists also believe that the US housing market will act as a buffer against a deeper recession. retreat.
“We see conditions in the housing construction and auto sectors likely to be more of a buffer to the severity of a recession by being potential drivers of a later recovery than a way to prevent one. ,” Fannie Mae economists wrote Friday.
What does this mean for house prices?
Unlike Zillow and CoreLogic, which predicts a slight increase in house prices next year, Fannie Mae thinks the home price correction will soon regain momentum. Fannie Mae’s forecast model has US home prices, as measured by the Fannie Mae Home Price Index, falling 1.2% between Q4 2022 and Q4 2023, and then another 2.2% decline between Q4 2023 and Q4 2024. If the declines come to fruition, it would mark the first year-over-year decline measured by the Fannie Mae Home Price Index since 2012.
By the time the national home price bottoms in Q4 2024, Fannie Mae predicts US home prices will be 5.28% lower than the peak in Q2 2022. Regionally speaking, results are likely to vary widely. .
That prediction is a mild correction—not a house crash.
The reason Fannie Mae says a national crash in home prices is unlikely is due to a lack of inventory for sale. In fact, active inventory is 40% below pre-pandemic levels.
“Although mortgage rates remain high compared to the past few years, the severe shortage of housing supply remains supportive of home prices. Of course, the lack of homes for sale is currently exacerbated by the so-called ‘lock-in effect,’ which continues to disincentivize many households with low mortgage rates from listing their homes,” wrote Fannie Mae chief economist Doug Duncan in a recent report.
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