While the flow of new listings remained suppressed for much of 2022 due to a mortgage rate lock-in effect, the slower pace of sales led to a build-up of active inventories for sale and a modest decline in national house prices in late 2022, the ESR group explained.
Single-family housing starts surged 18.5% in May to a seasonally adjusted annualized rate of 997,000 units.
Single-family housing permits, which tend to be more indicative of the underlying trend, also rose, but by a smaller 4.8% and to a seasonally adjusted annualized rate of 897,000 units, well below the pace of starts.
Still, the permits data points to a clear upward trend in recent months, and this coincides with improvement in homebuilder sentiment. Homebuilder confidence moved into a positive territory for the first time in nearly a year amid recent data from the U.S. Census Bureau showed that about 1.69 million single-family and multifamily housing units are under construction across the country in May, nearing the highest levels recorded in the last 50 years.
Without a broader economic slowdown, current home prices and lack of existing inventory will lead to more home construction, Fannie Mae’s ESR group projected.
Doug Duncan, senior vice president and chief economist, pointed out that housing prices continue to show stronger growth than what was previously expected given the “suddenness and significant magnitude” of mortgage rate increases.
Homebuilders continue to add to the supply of historically low inventory levels, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time, according to Duncan.
The ESR group projects single-family mortgage originations for 2023 to be $1.59 trillion, down from its previous forecast of $1.65 trillion. In 2024, about $1.90 trillion origination volume for total single-family houses is projected, also down from the previous forecast of $2.03 trillion.
Fannie Mae reiterated that the economic downturn remains a question of “when” rather than “if.”
The ESR group expects a modest recession in the fourth quarter of 2023, a shift from last month’s forecast from the beginning of the second half of the year.
“We do expect housing will be supportive of the overall economy as it exits the modest recession,” Duncan said.
The good news is that ongoing resilience in employment, strong housing demand, and current financial conditions do not point to an immediate downturn.
Fannie Mae upgraded its 2023 GDP forecast to 0.1% from -0.3% on a Q4/Q4 basis while it downgraded its 2024 GDP forecast to 0.8% from 1.2%.