Fannie Mae’s Research Group Makes Downward Revisions for Mortgage Originations

On a macroeconomic scale, many things are coming into play that are affecting the current housing market: the Fed’s monetary tightening, inflation, labor market, the threat of an upcoming recession, mortgage rates, and lack of inventory are all affecting housing prices, with lack of inventory being the most prevalent cause of heightened home prices the market is currently seeing. 

According to Fannie Mae’s Economic and Strategic Research Group (ESR), a predicted recession remains the most likely outcome of actions by the Federal Reserve’s monetary tightening and other market dynamics such as inflation, which has moderated partly due to slowing domestic and global economic growth. The ESR is also predicting continued robustness in the labor market, lead the ESR to expect that the Fed will maintain its restrictive monetary policy stance until it is abundantly clear that inflation pressures from the labor market have eased. 

However, based on how the timing of data releases works (typically releases are a month or two behind), that evidence is unlikely to appear until a recession is already underway, making the question of a downturn more of a matter of “when” than “if,” according to the ESR. 

Looking at the housing market specifically, current housing market dynamics continue to be fueled by the lack of existing homes available for sale, a trend that did not improve during the spring homebuying season, when more homes are typically put on the market in preparation for the usually hot summer buying market.


This lack of inventory has supported a return-to-home price growth in the last few months and has contributed to a boost in new home construction. However, the ESR in predicting housing starts to weaken in coming quarters, this is predicted on the business cycle turning. Further, in the absence of a recession, the ESR notes substantial upside risk to its new home sales and starts forecasts. 

“Core inflation remains sticky, having not fallen as rapidly as other price measures, creating upside risk to the fed funds rate, as noted in the Federal Reserve’s Summary of Economic Projections, and making it likely in our view that it maintains a restrictive posture for longer than most market participants initially anticipated,” said Doug Duncan, SVP and Chief Economist for Fannie Mae. “Meanwhile, housing prices continue to show stronger growth than what was previously expected given the suddenness and significant magnitude of mortgage rate increases. Housing’s performance is a testimony to the strength of demographic-related demand in the face of Baby Boomers aging in place and Gen-Xers locking in historically low rates, both of which have helped keep the housing supply at historically low levels. Homebuilders continue to add to that supply, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time. We expect housing to support the overall economy as it exits the modest recession.”

Looking specifically at mortgage originations, the ESR is forecasting that single-family purchase mortgage originations to come in around $1.32 trillion in 2023 and $1.41 rising in 2024, representing downward revisions of $41 billion and $60 billion, respectively, relative to last month’s forecast. The revisions were mainly due to recent incoming data on the share of transactions financed by cash, which has been trending upward lately. 

In the current high-interest-rate environment, it makes sense for some prospective homebuyers to avoid taking out a high-rate mortgage altogether. 

For refinance originations, the ESR revised downward 2023 and 2024 volumes by $21 billion and $65 billion, respectively. This revision can be attributed to continued low refinance application volumes measured by Fannie Mae’s Refinance Application-Level Index and a higher-than-expected rate environment in June’s forecast. 

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