Fannie Mae economists revised much of their forecast last month as new data arrived. The outlook for GDP 2021 has been revised modestly to 7.1 percent of 7.0 percent on a Q4 over Q4 basis. The revision came on the back of data suggesting stronger growth in private consumption in the second quarter, which they expect to be heavily driven by inventory build-ups and to slow significantly in the second half of the year. They have also lowered their growth forecast for 2022 by a tenth to 2.7 percent and revised their inflation forecast upwards.
Like the Federal Reserve on Wednesday, Fannie Mae says a lot about the recent uptrend in
inflation was ephemeral, but price pressures are likely to continue until 2022. Lagging effects from the recent soaring house prices will create upward pressure. They forecast that the consumer price index (CPI) will stay up around 5 percent annually through the end of 2021 before slowing down over the next year, and that the core personal consumption expenditure deflator (core PCE) will stay at 4.6 percent by the end of 2021 and at 2.9 percent at the end of 2022.
Since inflationary factors are viewed as temporary, the economists said that it is Not
change their growth forecasts sensibly. However, if the issues behind these factors are not resolved, inflation will be the main risk to the forecast, followed by consumer behavior related to the reopening and COVID-19 developments.
Should a stronger underlying inflation trend develop, there is a risk of a Wage-price spiral which could likely lead to a sharp rise in longer-term interest rates and an earlier and more aggressive tightening of the Fed. This is likely to slow growth and have a negative impact on home sales, house prices, construction and mortgage lending. Other risks to housing include how much recent migration to suburbs and cheaper subways will continue after the full reopening, the impact of the phasing out of mortgage forbearance programs on home sales and prices, and how quickly problems in the construction supply chain be solved.
Fannie Mae clearly downgraded the forecast for the second and third quarters Home sales, mainly due to the persistent lack of available offers and a slowdown in the pace of new construction due to these supply restrictions. They now expect sales to grow 4.2 percent from 2020 onwards in 2021, compared to their previous forecast of 6.3 percent.
Constantly Delivery bottlenecks are affecting builders and there have been reports of new orders being turned down or construction being delayed. However, the lack of available supply continues to drive demand for new homes and there should be some recovery in startup activity in the coming months. Still, persistent labor shortages and the lack of developable land are limiting production capacity, and home builders may struggle to continue ramping up.
The economists assume that housing construction will start this year 17.2 percent higher than in 2020; downgraded from previous forecast for 19.3 percent gain. Even with the downgrade, it would be the fastest construction pace since 2013. An increase of 20.2 percent compared to 2020 is forecast for single-family home construction.
The slowdown is not being driven by falling demand. House prices continue to rise rapidly on an annual basis, rising 13 percent in April on the CoreLogic national house price index, the highest growth rate since 2006. Recent measures of average selling price continued to rise and the average time in the market remained at record lows. All of this suggests the persistent lack of supply as the main driver behind the recent drop in sales.
The company believes there is one still enough demand to a. to drive much higher Selling rate if stocks were available and expect at least a modest spike in supply in the coming months as COVID worries subside and some homeowners reassess their living conditions as soon as the future of home work regulations clears and mortgage forbearance programs expire . They don’t expect a high rate of foreclosure activity after these expulsions, in part because of the big profits with the homeowner. However, there will be a segment of the distressed homeowners putting their homes up for sale.
The 30-year fixed-rate mortgage rate has stabilized in recent weeks, from a high of 3.18 percent in the first week of April and a trend of just under 3 percent since the end of April. Mortgage spreads tightened in May and fell briefly below 130 basis points for the first time since 2011 and well below the previous decade’s average of around 170 basis points. Fannie’s outlook for the 10-year and 30-year fixed interest rates is unchanged at 1.6% and 3.0% in 2021 and 1.9% and 3.3% respectively in 2022.
The overall forecast for mortgage lending for 2021 was as of $ 4.1 trillion; a higher expected pace of refinancing activity offset downward revisions in mortgage loan purchases. Mortgage purchase expectations over the years have decreased by $ 33 billion to $ 1.8 trillion, and refinancing volumes have increased by $ 54 billion to $ 2.3 trillion.
The forecast for issuance volume in 2022 rose to $ 3.1 trillion from $ 3.0 trillion, with purchase volume expected to grow 4 percent to $ 1.9 trillion. The refinancing volume will be 1.2 trillion, an increase compared to the outlook of the previous month, but a decrease of 49 percent compared to 2021. The refinancing volume will retreat from the high level in 2020 over the entire forecast period. At the current interest rate level, an estimated 49 percent of all outstanding mortgages have a refinancing incentive of at least 50 basis points, compared to 51 percent in the previous month.