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Press Release

The Economy and Housing to Turn Toward 'New Normal' in 2022

January 19, 2022
Affordability Constraints Expected to Increasingly Limit Home Sales, Weigh on Prices

WASHINGTON, DC – The housing market and larger economy are expected to enter a "new normal" in 2022 as the unprecedented market disturbances and policy responses stemming from the COVID-19 pandemic subside, according to the January 2022 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. The ESR Group expects inflation to remain elevated in 2022, while still unknown is the extent to which structural shifts in the economy and housing markets over the past two years become permanent. However, the ESR Group foresees economic growth returning to more modest levels consistent with the long-run trend, while home sales and house price growth slow to a more sustainable pace. The latest forecast projects home price appreciation to clock in at a still-brisk 7.6 percent in 2022 – as measured by the FHFA Purchase-Only Index – but down greatly from 2021's expected 17.3 percent. Compared to the prior forecast, expectations for headline economic growth remain largely unchanged: The ESR Group expects real GDP growth of 5.5 percent in 2021, which would represent the strongest annual growth rate since 1984, and 3.1 percent in 2022, a downgrade of only one-tenth. Inflation and supply chain disruptions remain key risks to the forecast, and the Federal Reserve's policy response to the former – as well as the financial markets' response to all of it – will be a critical storyline in 2022. For now, the ESR Group projects inflation, as measured by the Consumer Price Index, to average 7.0 percent on an annual basis in the first quarter before slowing to a still-elevated 4.0 percent by the end of the year. Additionally, the ESR Group expects the Fed to raise interest rates three times in 2022 – the first of which is expected to occur in March.

"We expect economic growth to continue slowing as the impacts of fiscal stimulus fade and the country's attention increasingly turns to rising inflation," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "The Fed has accelerated the pace at which it intends to reduce monetary accommodation, as inflation appears more resilient than initially expected. Currently, we expect inflation to run above the Fed's two-percent target through 2023, and for the Fed to respond by tightening over that period. The resultant rise in interest rates will likely put additional stress on housing affordability measures vis-à-vis higher mortgage rates for consumers and the continued, though decelerating, rise in home prices. While consumers still have a significantly elevated level of savings, the rate of saving has fallen such that, over time, we believe 'excess' saving will likely be eroded and affordability increasingly constrained. We observe an early indication of this in recent increases in debt-to-income measures associated with incoming mortgage originations."

Visit the Economic & Strategic Research site at to read the full January 2022 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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