Fannie Mae economists revised much of their forecast last month as new data came in. The outlook for 2021 GDP has been revised slightly to 7.1 percent 7.0% on a Q4 over Q4 basis. The revision was due to data pointing to stronger growth in personal consumption in the second quarter which they say was heavily driven by inventory replenishment and will slow significantly in the second half of the year. They also lowered growth forecasts for 2022 to 2.7% by a tenth and revised their inflation forecasts upwards.
As the Federal Reserve did on Wednesday, Fannie Mae says that much of the recent rise in
inflation has been transient, but price pressures are expected to last until 2022. The lagging effects of recent rapid house price growth will generate upward pressure. They predict that the Consumer Price Index (CPI) will remain high at around 5% per year until the end of 2021 before decelerating next year, and that the personal consumption expenditure deflator (core PCE) will end 2021 at 4.6% and remain high at 2.9% at the end of 2022.
Since the inflation factors are considered temporary, economists said they had no do not
significantly change their growth forecasts. However, if the issues behind these factors are not resolved, inflation will be the main risk to the forecast, followed by consumer behaviors related to the reopening and developments of COVID-19.
If a stronger underlying trend in inflation develops, there is a risk wage-price spiral which could likely lead to a substantial hike in long-term interest rates and an earlier, more aggressive pace of Fed tightening. This is expected to dampen growth and have a negative impact on home sales, home prices, construction and mortgage origination. Other housing risks include the extent to which recent migration to suburban areas and cheaper subways continues after full reopening, the effects on sales and home prices of the expiration of mortgage forbearance programs and how quickly construction supply chain issues are resolved.
Fannie Mae significantly downgraded forecasts for the second and third quarters door-to-door sale, in large part due to the continued lack of available listings and a slowdown in the pace of new construction due to these supply constraints. They now expect 2021 sales to increase 4.2% from 2020, from their previous projection of 6.3%.
In progress supply constraints Homebuilders are lagging behind and there are reports that some are turning down new orders or delaying construction. However, the lack of available listings continues to stimulate demand for new homes and housing starts should rebound in the coming months. Still, persistent labor scarcity and lack of building land are limiting production capacity, and home builders may find it difficult to continue to ramp up.
Economists expect housing starts this year to be 17.2% more than in 2020; downgraded from previous forecast for a gain of 19.3 percent. Even with the decommissioning, this would be the fastest pace of construction since 2013. Forecasts for single-family housing starts predict a 20.2% increase from 2020.
The slowdown is not due to a drop in demand. House prices continue to rise rapidly on an annual basis, up 13% in April on the CoreLogic National House Price Index, the highest growth rate since 2006. The most recent measures of the average price On-demand sales continued to increase and the average time to market remained at an all time high. All of this indicates that the persistent lack of supply is the main driver of the recent slowdown in sales.
The company says it believes there is again enough demand to drive a much higher sale rate if inventories were available and expect to see at least a modest increase in listings in the coming months as concerns over COVID fade and some homeowners reassess their living situation once the The future of work-from-home arrangements will become clearer and forbearance programs will expire. They don’t expect a high rate of foreclosure activity after these expirations, in part because of the large gains in homeowner’s equity. However, there will be some homeowners in distress who put their homes up for sale.
The 30-year fixed mortgage rate has stabilized in recent weeks, rising from a high of 3.18% in the first week of April and moving just below 3% since the end of April. Mortgage spreads tightened in May, briefly falling below 130 basis points for the first time since 2011 and well below the previous decade average of around 170 basis points. Fannie’s outlook for the 10-year and 30-year fixed rate is unchanged at 1.6% and 3.0%, respectively, in 2021 and 1.9% and 3.3% in 2022.
The overall mortgage origination forecast for 2021 has changed little at $ 4.1 trillion; a higher expected pace of refinancing activity offset downward revisions to purchase mortgage arrangements. Expectations for years, the origination volume of purchase mortgages has been reduced from $ 33 billion to $ 1.8 trillion and refinancing volumes have increased from $ 54 billion to $ 2.3 trillion. dollars.
The forecast for 2022 creations hit $ 3.1 trillion from $ 3 trillion previously, with purchase volumes expected to rise 4% to $ 1.9 trillion. Refinancing volume will total $ 1.2 trillion, an increase over last month’s outlook but a 49% decline from 2021. Refinancing volume will decline from the 2020 peak throughout the forecast horizon. At current interest rate levels, an estimated 49 percent of all outstanding mortgages have at least a 50 basis point rate incentive to refinance, down slightly from the 51 percent forecast in the last month.