The real estate industry is in trouble.
The housing market ended last year with a crash as mortgage rates doubled and demand plummeted.
Home sellers aren’t keen on listing their homes given they’ve recently secured ultra-low interest mortgages. As a result, homebuyers struggle to find good options as the number of homes for sale remains low.
So where will the supply come from to meet buyer demand? And what if a recession hits? Will house prices fall?
MarketWatch spoke with Doug Duncan, senior vice president and chief economist at Fannie Mae.
in a video interview.
Duncan’s team, Fannie Mae’s Economic Strategy Research Group, recently Released economic and housing forecasts.
Market Watch: Changed forecast for housing. Now home prices are expected to fall 6.7% over the next two years, which is higher than his previous forecast. What is the reason? And what are the signs?
Duncan: you can see everywhere you look [houses] It has been sold and relisted at a lower price. This will tell you if the market is experiencing price declines.
The fastest rising markets are the fastest falling. We will probably see more declines in the San Jose area than in Indianapolis.
Households who bought recently are probably at some risk, but they probably had a very low interest rate when they bought it. Now that the price has fallen his 20%, he has to decide whether to give up his 3.5% interest rate. Does it really matter if you’re going to live in that house?
““We expect a mild recession in 2023.”“
Market Watch: We keep talking about this problem of not having enough homes on the market for sale and not building enough new homes. When will supply improve? Where do these houses come from?
Duncan: Until the baby boomers get to a point where they are old and have to sell their homes, it will come from home builders.
One thing that baby boomers are working on very consistently is [to say] We are going to age on the spot. He has a 78% home ownership rate in her 75+ portion of our population. There are many homeowners in that population group.
And of course, like us, they face death. So this is actually the biggest driver of anything related to mortality, pushing them out of the house that puts it back into supply.
But they are a healthier group than the generation before it. they live long.
in short, [supply] on the back of the builder. However, builders face affordability issues from a development perspective due to local zoning issues.
““Companies are evaluating remote work.”“
Market Watch: Concerned about people’s reluctance to go back to work and the impact on commercial real estate?
Duncan: Companies will appreciate remote work and say that allowing workers to work remotely reduces commuting costs and is actually a substantial income increase for them. Because you don’t have to pay for wear and tear on your car or subway.
not all [remote] Workers will move back into the space and some of the space will be devalued or devalued. And it shows up in defaults, delinquencies, or loss-making real estate sales.
It can be more important in cities with large central business districts like San Francisco, New York and Chicago. [than] Say Indianapolis or Dallas or any place with more developable land.
Market Watch: What if the US Federal Reserve raises interest rates to 5.5%? What does that mean for the housing market?
Duncan: The housing sector has a very well-established relationship with monetary policy. If not, it is one of the most interest rate sensitive sectors. of Highest interest rates in the industry.
we made the first call about the recession [to occur this year]If the following developments continue over the next 9-12 months, we expect a mild recession in 2023. A soft landing is possible.
Our base case is a 0.5% to 1% decline in GDP in 2023.
And part of the reason we expect it to be calm is housing, as it hasn’t solved the supply problem.
Demand and supply characteristics are likely to recover if interest rates fall.
This interview has been edited and condensed for style and clarity.