Fannie Mae’s Economic and Strategic Research Group reported This Week in Real Estate that they have raised their forecast for a March increase in the Fed funds rate from 25 basis points to 50 in response to escalating inflation. They now expect initial rate hikes from March to July to total 100 basis points followed by a pause for the balance of the year while they assess the impact of the increases. Fannie expects a decline in total home sales of 2.4 percent while new home sales will increase 15.4 percent higher than 2021. Below are a few newsworthy events from the fourth week of February that influence our business:
Pending Home Sales Drop For Third Straight Month. With housing inventory at an all-time low, contract signings decreased 5.7% month over month in January – the third consecutive month for a drop, the National Association of REALTORS reported Friday. NAR’s Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, is down 9.5% compared to a year earlier. All four major regions of the U.S. posted annual declines in activity. “Buyers are still having a difficult time finding a home,” says NAR Chief Economist Lawrence Yun. Yun says home buyers also are contending with escalating home prices and rising mortgage rates, which have increased by more than a full percentage point over the last six months, according to Freddie Mac. “Given the situation in the market – mortgages, home costs, and inventory – it would not be surprising to see a retreat in housing demand,” Yun says. NAR predicts economic conditions could be volatile in the coming months as the Federal Reserve ends its asset purchase program in March, which could drive up interest rates. Also, Russia’s conflict with Ukraine likely will lead to a crisis in global oil supply and further accelerate inflation, NAR notes. That said, “there’s also the possibility that investors may flee toward safer U.S. Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun says.
Mortgage Applications Drop To Lowest Level In Over 2 Years. Climbing mortgage rates are hitting both potential homebuyers and refinance candidates. Total mortgage applications decreased 13.1% last week to the lowest level since December 2019, according to the Mortgage Bankers Association. Applications to refinance dropped 15% weekly and were 56% lower than one year ago. Those higher mortgage rates combined with high prices and low inventory pushed applications to purchase a home down 10% weekly and 6% lower than one year ago. This was the third straight week of declines for purchase applications. Home prices have been climbing steadily and didn’t let up in 2021. The S&P CoreLogic Case-Shiller Home Price Index was released Tuesday, and 2021 registered the highest calendar-year increase in 34 years. Rising mortgage rates will pose a challenge for some buyers, likely leading to less demand.
Fannie Mae’s February Forecast Revises Nearly Everything. Fannie Mae’s economists have again stepped up their expectations for the Fed’s response to escalating inflation. A 7.5 percent annual increase in the January Consumer Price Index (CPI), a 40-year high, prompted Fannie’s Economic & Strategic Research (ESR) Group to raise its forecast for a March increase in the Fed funds rate from 25 basis points to 50. The group says, however, that they disagree with the futures markets in that they expect initial rate hikes, from March through July to total 100 basis points, followed by a pause for the rest of the year while the Fed assesses the impact of both the increases and their balance sheet run off. Fannie has doubled the size of its projected decline in total home sales to 2.4 percent, in part because of increasing lack of affordability. Sales will be down but not out as the ongoing inventory problems will help with demand. New home availability is improving; the number of lots being acquired and developed is rising and new homes for sale in December were at their highest since 2008. The limiting factor for new home sales is a matter of how quickly builders can work through supply chain and labor problems but Fannie expects new home construction will remain strong both in absolute terms and relative to existing home sales. They now expect new home sales for 2022 to be 15.4 percent higher than the 2021 total, helping to offset some of the existing shortage of pre-owned homes and thus aid affordability. Fannie Mae expects sales to decline quarter-over-quarter in coming months relative to the 2021 end-of-year surge, but they will be only slightly lower than in the first half of last year. Home price appreciation, however, is expected to decelerate considerable, down to an annualized 7.6 percent by the end of this year from 17.3 percent in Q4 2021.
Did you know every home listed for sale with Berkshire Hathaway HomeServices Northwest Real Estate and Berkshire Hathaway HomeServices Real Estate Professionals is eligible to receive no-obligation home warranty coverage from American Home Shield the first six months the home is listed with our company?