In its Economic and Housing Weekly Note, Nathaniel Drake of Fannie’s Economic and Strategic Research Group said that the full effects of rising interest rates have “yet to be felt.”
“Especially given that the full effects of the recent rise in mortgage rates have yet to be felt, we expect existing home sales to continue to decline through 2022,” the note reads.
“However, we believe there is still a pool of prospective buyers who were previously outbid but still want to purchase a home, which should help support sales, thus limiting the pace of slowdown in the near term.”
Though demand remains elevated, there are signs that the hot housing market is cooling down. Existing home sales fell for the second month in a row, and Redfin recently reported that competition for homes dropped month-over-month in March for the first time since September 2021. However, competition is still up YOY.
The ESR Group notes that current manufacturing levels for all industries may not be sustainable thanks to likely disruptions from China’s lockdown, policy tightening around the world, and high current capacity utilization.
“A similar dynamic is true for new housing construction, as builders continue to report throttling sales due to supply chain and skilled labor issues limiting construction relative to demand,” the note reads, and the group expects new home sales to remain strong for now.
The group suggests that starts peaked in Q1 but will remain high due to the pool of prospective buyers. Multifamily construction remains elevated and the group anticipates an upward revision for its expectations on this front moving forward.