-
The downturn in the US housing market isn’t ending anytime soon, Fannie Mae warned.
-
That’s because mortgage rates are set to stay elevated if the US avoids a recession.
-
Even if the US does tip into recession, tight financial conditions will still weigh on home sales.
The housing market isn’t coming out of its deep freeze anytime soon, even if the US economy manages to steer away from a recession in the next year, according to Fannie Mae economists.
The government-sponsored mortgage giant highlighted the stagnant US housing market, with existing home sales down 18.9% year per-year in June, according to Fannie Mae’s estimate. Mortgage applications, similarly, have fallen to a 28-year-low.
That slowdown has largely been spurred by high mortgage rates, which have pushed buyers and sellers out of the market. That’s likely to continue no matter what happens to the US economy over the next 12 months, the firm said in a note on Wednesday.
“With an ongoing tight supply of existing homes for sale and the recent rise in 30-year fixed-rate mortgage rate to around 7%, we expect home sales in 2023 to remain near the lowest annual level since 2009,” Fannie Mae economists said. “Regardless of whether a soft landing is achieved over the coming year, we expect existing home sales to stay subdued and within a tight range.”
That’s because the US avoiding a recession means real interest rates in the economy will likely stay elevated, which will influence mortgage rates to stay high as well. Higher rates have weighed heavily on the housing market over the past year, as they slam buyers with a high cost of borrowing and discourage sellers from listing their properties for sale, many of which were financed at ultra-low rates years ago.
In the event the US does fall into a recession, interest rates will likely dial back “somewhat,” the firm estimated, which could cause mortgage rates to ease slightly, but the housing market would still likely be affected by a weakening labor market and an ongoing crunch in credit conditions, in addition to dampened consumer confidence.
“We therefore do not anticipate a meaningful recovery in existing home sales over our forecast horizon under any of the more likely scenarios,” Fannie Mae said.
Despite growing optimism for a soft-landing in the US, it predicted the economy would finally slip into a downturn in 2024, with real GDP falling 0.2% year-over-year by the fourth quarter.
Experts say housing conditions are unlikely to improve until mortgage rates dial back to the 5% range. The average rate on the 30-year fixed mortgage, meanwhile, rose to 7.48% in the last week, according to Mortgage News Daily, touching a 23-year-high.
This story was originally published in August 2023.
Read the original article on Business Insider
Read the full article here