The Hazy, Interest-Rate Induced Foggy Outlook for Home Sales and Residential Lending

June 2023 Fannie Mae and MBA

Residential mortgage rate expectations rose slightly in the June 2023 forecasts from Fannie Mae and the MBA. The first set of tables shows 30-year conventional mortgage rate expectations as of June while the second set details forecasts just one-month earlier. The MBA continues to expect lower rates sooner than Fannie Mae, but neither sees rates (on a quarterly average) slipping out of the 6 percent range until at least Q4 this year (MBA) with Fannie forecasting rates in the 6 percent range through the first quarter of 2024. On an annual basis, Fannie Mae expectations are 60 basis points greater than the MBA on average in 2024.

June 2023

May 2023

Residential mortgage interest rates are the rudder for home sales and residential lending. Historical conventional 30-year fixed-rate mortgage rates are shown in the following graph as reported by Freddie Mac in their weekly Primary Mortgage Market Survey (PMMS). The latest rate as of the week ending May 25, 2023 was 6.57 percent, down from 7.08 percent the last week of October 2022 which was the highest seen in past 20 years. Daily rates from other sources continue to be quoted in the low 7 percent range, however.

Existing Home Sales

Historical existing home sales from 2001 through 2022 are detailed in the next graph. The current estimates for 2023 would be the fewest home sales in the past 13 years with a slight improvement in 2024. The MBA remains a tough more optimistic given their expectations for lower residential mortgage rates.

New Home Sales

Since 2002, there has been an average one new home sale for every 8.9 existing home closings. Current forecast from Fannie Maes call for new home sales to essentially be flat in 2023 and down 3.6 percent in 2024. Again, based on MBA’s lower interest forecast for 2023 they see improvement in new home sales in 2023 and 2024.

Residential Lending

Rising interest rates crushed refinance activity in 2022 compared to 2021 (down 73 percent) with another 50+ percent freefall (average) expected in 2023. More than 6-in-10 residential mortgage lending officers in business in 2021 are now out of a job in the mortgage industry. When the smoke from this implosion clears, for every 10 residential loan officers in business 2021 there will likely be just three at the end of 2023.

Estimated Mortgage Payments

The last table shows the typical monthly mortgage payment based on respective MBA and Fannie Mae forecasts (annual average) assuming 20 percent down. The impact of rising rates and median home prices since 2020 have seen monthly payment rocket up in the low 70 percent range in 2024 which is responsible for the plunge in home sales due to challenging affordability.

Just follow interest rates and the fog will dissipate. With the Fed expecting two more rate hikes this year, however, the outlook remains hazy today.