Report: Origination Activity to Total $2.7 Trillion in 2022

In their latest forecast, Fannie Mae’s Economic and Strategic Group (ESR) has downgraded its GDP projections along with home sales and mortgage originations due to the current state of the economy. 

Fannie Mae now predicts that real GDP growth measured on a fourth-quarter basis will be 1.3%, down from 2.1% predicted at the beginning of the year. 

Further, they also downgraded their predictions on the housing market for calendar years 2022 and 2023 by 3.7% to 6.1 million units and 4.5% to 5.4 million units, respectively. Mortgage originations outlooks were downgraded as well, as they now expect 2022 origination activity to total $2.70 trillion and 2023 originations to total $2.25 trillion, down from the respective $2.82 and $2.41 trillion they had previously projected. 

Rising interest rates and inflation are on the forefront of economists' minds, and the ESR no longer believes that recent and future moves by the Federal Reserve to curtail inflation by tightening monetary policy will result in a “soft landing” as they are still predicting a slide into a recession during the second half of next year. 

The ESR is also forecasting a “meaningful slowdown” in home sales during the second and third quarters followed by a softening in construction activity and, ultimately, a large deceleration in home price growth. Mortgage rates have risen faster in the last five months than any time since 1981. With only 1.4% of mortgages now predicted to have a 50-plus-basis point incentive to refinance, it is expected that, going forward, a majority share of refinance activity will be of the cash-out variety. 

"Financial conditions have tightened significantly, and the economy is slowing faster than previously expected as markets adjust to the Federal Reserve's tightening guidance," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "Uncertainty continues to weigh heavily on markets, with geopolitical risks rising as the Russian war on Ukraine extends into its third month. The impact to prices of expected reductions in agricultural production, as well as continued increases in house prices, suggest to us a difficult path for the Fed to return inflation to its two-percent target rate in a timely manner – and, of course, in the absence of an economic downturn." 

"Rising mortgage rates are reducing affordability through higher mortgage-related costs, all while house prices continue to grow. Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity, which we reflect in our forecast. Not only is the worsening affordability of homes a problem for potential entry-level homebuyers, but current homeowners are less likely to trade in their existing lower-rate mortgages and list their homes for sale, both of which will likely weigh on sales." 

Click here to view the forecast in its entirety.