The US housing market is defying doomsayers thanks to a supply crunch, Fannie Mae says

• US home prices should drop much less than previously than expected, Fannie Mae said in a revised outlook.
• The government-sponsored company now sees only a 1.2% drop this year, versus a previous forecast 4.2% decline.

The US housing market is defying predictions for a crash this year - thanks to a supply crunch and strong demand, Fannie Mae says.

The government-sponsored organization recently revised its forecast for 2023 and 2024, saying national home prices will decline much less than previously expected. It now predicts home prices to fall by 1.2% this year and a further 2.2% next year.

Earlier this year, it had estimated property prices would tumble by 4.2% in 2023 and a further 2.3% next year.

Several experts and high-profile commentators have predicted a housing-market crash this year. Elon Musk, Tesla and SpaceX CEO and the world's richest person, said in May that home prices were heading for a slump. Earlier in the year, economists from the Dallas Federal Reserve warned of a 20% housing-market correction.

Fannie Mae's forecast change mirrors a similar move by Goldman Sachs. The Wall Street bank currently expects property prices to fall just 2.2% amid a supply shortage, compared with a 6.1% slump that was previously anticipated.

"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. This has supported a return to home price growth in recent months and continued to boost new home construction," Fannie Mae wrote in a press release.

It's no surprise that housing inventory is tight in a world of higher borrowing costs. Homeowners have been tempted to stay locked into low-rate mortgages, leaving them reluctant to sell, following the Federal Reserve's aggressive interest-rates increases over the past 15 months in a bid to cool inflation.

With demand exceeding supply, some homebuyers are snapping up newly built homes instead of existing ones.

"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 housing supply at historically low levels," Fannie Mae's chief economist Doug Duncan said.

"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," he added.