The current deceleration of the housing market given declining demand is likely to continue, Freddie Mac reports. In a new quarterly forecast, the company’s chief economist points to mortgage rates that have more than doubled in the last year as the key driver.
“Mortgage rates have increased at the fastest rate in four decades, quickly taking the wind out of the sails of the housing market,” says Sam Khater, Freddie Mac’s chief economist. “Caused by stubbornly high inflation and higher mortgage spreads, the rise in rates has created affordability challenges that have forestalled many consumers’ decision to buy a house.”
“As housing market activity continues to contract, we expect a gradual increase in the supply of homes available for-sale, as compared to historically low levels last year,” continues Khater. “The combination of much lower demand and higher supply will cause home prices to decrease during the next year.”
The 30-year fixed-rate mortgage (FRM) is expected to average 5.4% in 2022 and 6.4% in 2023. In 2021, the 30-year FRM averaged 3%.
House price growth is averaging 6.7% in 2022, slowing to -0.2% in 2023. House price growth was 17.8% in 2021.
Home sales are expected to be 5.8 million in 2022, decreasing to 5.1 million in 2023. Home sales were 6.9 million in 2021.
Home purchase mortgage originations are expected to be $1.9 trillion in 2022 and $1.6 trillion in 2023. Originations were $2.0 trillion in 2021.
Refinance originations are expected to continue softening, declining to $747 billion in 2022 and $310 billion in 2023. Originations were $2.8 trillion in 2021.
Overall, annual mortgage origination levels are expected to be $2.6 trillion in 2022 and $1.9 trillion 2023, down from $4.8 trillion in 2021.
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