The latest report from Fannie Mae’s Economic and Strategic Research (ESR) Group suggests that 2022 will see the unprecedented market disturbances and policy responses stemming from the COVID-19 pandemic subside and the housing industry will enter a “new normal.” 

The latest forecast projects home price appreciation to clock in at a still-brisk 7.6% in 2022 – as measured by the FHFA Purchase-Only Index – but down significantly from 2021’s expected 17.3%. 

“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’s 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.”

Duncan said the group expects 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,” he said.

Compared to the prior forecast, expectations for headline economic growth remain largely unchanged: The ESR Group expects real GDP growth of 5.5% in 2021, which would represent the strongest annual growth rate since 1984, and 3.1% in 2022, a downgrade of only one-tenth. 

For now, the ESR Group projects inflation, as measured by the Consumer Price Index, to average 7.0% on an annual basis in the first quarter before slowing to a still-elevated 4.0% by the end of the year.

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