Home Sales is expected to close with surprising strength in 2021
Home buyers are stunted in the face of inexorable real estate price hikes, prompting Fannie Mae economists to “sensibly upgrade” their projections for the sale of existing homes in the last half of the year.
While home demand remains strong, there is no sign of easing on the supply side and the shortage of supply is expected to continue to drive home prices higher and depress existing home sales in 2022, Fannie forecasters predict Mae in her October Economic and Housing Outlook.
Mortgage rates have risen as the Federal Reserve prepares to withdraw the support it gave to the mortgage markets later this year. But Fannie Mae economists don’t anticipate a rapid rise in interest rates and see listing bottlenecks and rising prices as the major obstacle to home sales.
Fannie Mae and MBA Mortgage Rate Forecasts
âMortgage rates could rise in response to the closer environment, but we expect the severe shortage of homes for sale will remain the main reason for a sharp appreciation in home prices through at least 2022, thereby reducing the interest rate effects on home sales and home prices Fannie Mae chief economist Doug Duncan said in a statement.
Fannie Mae forecasters expect Fed policymakers to announce a schedule for the Fed to curb mortgage-backed securities purchases at their next meeting in November. However, they only forecast a modest rise in mortgage rates, with 30-year fixed-rate mortgages averaging 3.3 percent in 2022.
That’s a 3.1 percent increase in the September forecast, but other forecasters are more pessimistic about the prospect of a rapid rise in interest rates. In a September forecast, Mortgage Bankers Association economists predict that 30-year fixed-rate loan rates will rise to an average of 4 percent by the last quarter of 2022.
Fannie Mae forecasters have been more pessimistic about how long it will take to fix the persistent supply chain disruptions that have slowed economic growth. They now expect the economy to grow 4.9 percent this year, compared to the September forecast of 5.4 percent for real gross domestic product (GDP) in 2021.
An unexpected surge in pending sales in August – combined with recent strength in mortgage application data and a re-evaluation of the number of homes bought without a mortgage – drove the more optimistic outlook for home sales in 2021.
Sale of new and existing properties
Fannie Mae economists now expect sales of new and existing homes to soar 4.7 percent this year to 6.768 million when final numbers are in. This is an increase compared to a growth of 3.3 percent forecast in the September forecast for 2021.
And this despite the fact that sales of new buildings this year are expected to decline by 3.8 percent to 791,000 apartments, as building owners continue to struggle with a shortage of materials and skilled workers. The slowdown in new home sales is more than offset by existing home sales, which are forecast to grow 6 percent to 5.977 million in 2021.
A different story is expected for next year, however. New home sales are expected to jump 13 percent to 893,000 in 2022 as home builders begin bringing more inventory to the market. However, Fannie Mae economists expect existing home sales to fall 5.6 percent to 5.642 million units over the next year, with continued hike in home prices likely to dampen demand.
The supply of new offers coming onto the market is “not strong enough in our view to maintain the current sales pace, and combined with a moderate rise in mortgage rates, we expect home sales to decline over the next year,” said the economists at Fannie Mae.
Annual home price revaluation by quarter
The lack of supply continues to put upward pressure on home prices, Fannie Mae forecasters said.
“We now expect that the annual house price increase in 2021 will be 16.6 percent compared to 14.8 percent, while our forecast for house price growth in 2022 has been raised by 2.3 percentage points to 7.4 percent,” says the October forecast .
In September, Fannie Mae economists expected annual home price increases to fall into single digits by mid-year, to 6.8 percent in the second quarter and 5.1 percent in the last three months of the year. The latest forecast is for double-digit annual increases in home prices through the second quarter of next year.
Higher home prices “bode well for new home construction, and ultimately more completed units should help keep prices cool,” the forecast said. “However, ongoing delivery bottlenecks continue to limit the pace of the launches.”
Ultimately, however, the appreciation of home prices is expected to slow down over the next year, “as affordability restrictions weigh on demand and add some housing supply”.
âWhile still modest by historical standards, given the rapid rise in house prices, the rise in mortgage rates is likely to lead to heightened affordability constraints, which should help dampen house price growth over the next year compared to the rapid pace of last year âSaid Fannie Mae forecasters said.
Rising home prices mean that while home sales are expected to decline in 2022, mortgage lenders could still increase the volume of dollar purchase loans.
Fannie Mae predicts that after growing 18 percent in 2021 to $ 1.851 trillion in 2022, purchase credit volume will grow another 9 percent to $ 2.012 trillion.
The refinancing boom, fueled by record-low mortgage rates during the pandemic, is expected to come to an abrupt end, with mortgage refinancing volumes expected to fall 46.7 percent to $ 1.318 trillion in 2022.
Fannie Mae noted that annual benchmarking against the Home Mortgage Disclosure Act data resulted in a 2020 update of total single-family mortgages, revised down by $ 162 billion to $ 4.374 trillion.
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