An economic growth slowdown along with a decline in total home sales is expected for 2022 as the pandemic’s effects continue.

Unprecedented market and policy responses stemming from the pandemic will gradually be replaced by more typical pre-COVID economic and housing patterns. However, this will still take some time and we don't expect a complete reversal. Some of the behavioral and structural changes from the past two years may prove to be long-lasting. The durability of changes in work, schooling, and housing arrangements is yet to be seen. Even though inflation is expected to eventually ease, a higher-than-pre-COVID range is forecast for the foreseeable future. Therefore, we describe this upcoming year as returning to a 'new' normal.  The unemployment rate is now below 4 percent, and the Federal Reserve is poised to begin policy tightening (we now expect the first rate hike to occur in March). Thus, the economy appears to be entering the mature stage of the business cycle, during which growth decelerates toward the long-run trend. Robust labor demand and the ample need for firms to continue rebuilding inventories suggests to us that economic growth will be solid in 2022, but the period of rapid recovery has passed. Additionally, while we expect improvement to supply chain difficulties, there are risks around the speed at which this occurs, the duration of continued high inflation, and policy maker and financial market reactions to these economic conditions. For housing, the past year's demand surge was driven by a combination of factors, including low mortgage rates, down payments supported by stimulus checks and other savings, and a pandemic-driven reshuffling of preferences and move timing on the part of many households, all of which are expected to wane. Furthermore, we expect the recent rapid house price appreciation and rising mortgage rates will lead to growing affordability constraints, dragging on home sales, but also likely limiting further price appreciation to a more sustainable pace. Only modest changes have been made to our macroeconomic forecast since December’s outlook. For 2022, we expect a deceleration of growth to 3.1 percent (down one-tenth), while our 2023 forecast remains unchanged at 2.2 percent. Our housing forecast has also been minimally changed; we expect total home sales to fall 1.2 percent in 2022 (from -1.4 percent last month), followed by a decline of 3.6 percent in 2023 (previously -3.8 percent). We now project 7.6 percent and 3.3 percent house priced growth for 2022 and 2023, respectively, as measured by the FHFA Purchase-Only Index. This compares to our previously projected rise of 7.4 percent and 2.9 percent.

Source: Fannie Mae’s Economic Outlook