It’s not every day that a famous, government-sponsored company warns of a U.S. home sales slowdown. Yet, that’s exactly what happened recently. Reportedly, the Federal National Mortgage Association (OTCMKTS:FNMA) — the mortgage loan originator commonly known as Fannie Mae — has warned about “headwinds” investors should pay attention to.
As you may be aware. the Federal Reserve hinted at “higher for longer” interest rates yesterday. While Federal Reserve Chairman Jerome Powell didn’t use that particular phrase, the market has read between the lines and formed its own conclusion.
So, how will this impact the housing market?
Is a Housing Market Crash Coming?
With the average 30-year mortgage loan interest rate exceeding 7%, the specter of a potential housing market crash is looming. Or at least, it seems that this is what Fannie Mae might be suggesting.
In its recently published report, Fannie Mae observed that mortgage origination activity has slowed down in recent weeks. Furthermore, total home sales “remain at levels not seen since 2011.”
Next, Fannie Mae served up a one-two punch of startling predictions. The first one is as follows:
“We forecast total home sales to be around 4.8 million in 2023, which would be the slowest annual pace since 2011 and 4.9 million in 2024.”
And it only gets worse from there:
“Similarly, our expectation for 2023 mortgage originations was downgraded from $1.60 trillion to $1.56 trillion in 2023 and from $1.92 trillion to $1.88 trillion in 2024.”
Fannie Mae didn’t conclude that there will be a housing market crash this or next year. Nonetheless, the company has unique insights into the U.S. housing market, so investors should reconsider their portfolio allocations if necessary.
What You Can Do Now
In response to Fannie Mae’s predictions, this may be a good time to ease back on stocks that directly correlate with the U.S. housing industry. Two examples of this are Lowe’s (NYSE:LOW) and Home Depot (NYSE:HD).
You can also cut back on your exposure to exchange traded funds (ETFs) in this sector. Hence, Fannie Mae’s warning might prompt you to sell or avoid the SPDR S&P Homebuilders ETF (NYSEARCA:XHB) and the iShares US Home Construction ETF (BATS:ITB).
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
