The increase in existing-home sales in February is projected to be “temporary,” and will likely reverse in coming months as affordability constraints and the lock-in effect continue to impact demand, according to Fannie Mae’s Economic and Strategic Research Group. New home sales, comparatively performing better than existing-home sales, are expected to remain steady in the coming months despite similar headwinds on affordability and mortgage rate lock-ins. In regards to the overall economy, the group projects the recent bank failure of Silicon Valley Bank could either be a catalyst for an economic recession or the impacts could “blow over relatively quickly,” not meaningfully impeding inflation.
The jump was larger than we had expected, meaning we will likely upgrade our near-term forecast. However, based on more recent mortgage application activity, we expect a pullback in the March sales number, and over the medium term, we expect sales to be subdued. Affordability constraints and the lock-in effect, in which existing homeowners with low mortgage rates have a financial disincentive to move, will continue to weigh on demand.
On the new home side, after revisions, the quarterly pace of sales is largely in line with our Q1 expectations. New home sales are expected to continue to show strength relative to existing home sales as homebuilders utilize mortgage rate buydowns and other concessions to move their elevated inventory of homes for sale, though new home sales will also continue to be affected by affordability issues and the lock-in effect.
