Volume 110 | September 23, 2022

Guardian Asset Management

Weekly Newsletter

Guardian endeavors to provide you with the latest in housing, industry and market news from Washington D.C. and around the country. It is our goal as your industry partner to be informative, relative and topical.

From the General

Counsel's Desk

The housing market slowdown has only just begun:

Fannie Mae

Economists at Fannie Maesay the Federal Reserve‘s fiscal policy is having its desired effect on the housing market – home price growth began to slow in the summer, and the GSE says the housing slowdown will continue through 2023.

The agency’s Economic and Strategic Research (ESR) Group forecasts the total home sales to decline 17.2% to 5.71 million units this year from 2021, a further downward revision from August’s projected 16.2% drop. 

The latest forecast also projects total mortgage origination activity at $2.44 trillion in 2022. The mortgage market is projected to slip further to $2.17 trillion in 2023, according to Fannie Mae.

Higher mortgage rates are throwing a bucket of ice-water on the super-heated housing market. Home prices in August were down about 6% from their peak in June, the biggest 2-month drop in prices in nearly a decade. The pace of home sales slowed for the 7th straight month. "The housing market certainly reacts to the monetary policy change," says Lawrence Yun, the chief economist for the National Association of Realtors which just released the new existing home sales numbers. 

The housing market correction will be deep, and ugly

You think things are bad in the housing market now? Stick around and see if mortgage rates climb into the 7% range.

If it happens, the current origination forecast of $2.2 trillion in 2023 will look awfully rosy. Even the most battle-tested industry players are preparing for one of the strongest housing market corrections in decades.

Federal Reserve Chairman Jerome Powell sent a clear message during a press conference following the announcement of the central bank’s decision to hike the federal funds rate by 75 basis points on Wednesday: the ongoing housing market correction, which brought the largest mortgage rates increase in four decades, is far from at an end.

The Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey found that the total number of loans now in forbearance decreased by two basis points, dropping from 0.74% of mortgage servicers’ portfolio volume nationwide in July 2022 to 0.72%, as of August 31, 2022. The MBA estimates that approximately 360,000 U.S. homeowners are currently in forbearance plans.

Jerome Powell just warned that the US housing market needs a 'difficult correction' so that folks can afford homes again ⁠— but here's why it'll look nothing like 2008

Real estate investors have largely done well for the past few years. But with higher interest rates, things could be about to change.

The U.S. Federal Reserve raised its benchmark interest rates by 0.75 basis points on Wednesday, marking the third such hike in a row.

Higher interest rates translate to bigger mortgage payments — not good news for the housing market. But cooling down housing prices is part of what needs to be done to bring inflation under control.

The Federal Reserve's interest rate hikes may be intended to give the housing industry a "reset," as chair Jerome Powell wanted, but it also may have further confused home buyers and sellers on what to do next. 

Average 30-year fixed mortgage interest rates have spiked from 3.2% to 6.38% over the past six months, tightening supply as sellers hang on to those early, historically low rates. But the demand for housing of all types still remains high nationwide.

On Wednesday, Powell said in an effort to cool "a red-hot housing market" to straighten a "big imbalance," now believes it will likely take a "difficult housing correction," to fix things.

"For the longer term, what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level and at a reasonable pace and that people can afford houses again," Powell told reporters on Wednesday.