Federal National Mortgage Association: Consumption and existing home sales improved in January, but headwinds for the economy and housing have intensified since then







Key points to remember:

  • Gross Domestic Product (GDP), adjusted for inflation, rose at a seasonally adjusted annualized rate (SAR) of 7.0% in the fourth quarter of 2021, according to the second estimate from the Bureau of Economic Analysis (BEA), an increase of one tenth from the preliminary figure. The upward revision primarily reflects increased investment as well as state and local government spending. Personal consumption and exports were revised down.
  • Personal income, adjusted for inflation, fell 0.5% in January, the fifth straight decline, according to the BEA. Excluding transfer payments, real personal income fell 0.2%. The personal savings rate fell 1.8 points to 6.4%, the lowest since 2013. Led by a 4.3% jump in consumption of real goods, real personal consumption rebounded, rising by 1.5% after falling 1.3% in December. The PCE price index rose 0.6% in the month, an acceleration of one tenth from December, and 6.1% on the year, the highest annual growth rate since 1982. The core PCE increased by 0.5% in January, matching the growth rate in December, and by 5.2%. percent per year.
  • The Conference Board Consumer Confidence Index fell 0.6 points in February to 110.5, the second consecutive monthly decline. Confidence in the current situation rose 0.6 points to 145.1 while consumer expectations for the future fell 1.3 points to 87.5. According to the press release, “inflation concerns rose again in February,” although “consumers remain relatively confident about near-term growth prospects.”
  • Sales of existing houses rose 6.7% to a SAAR of 6.5 million in January, according to the National Association of REALTORS®. Notably, however, revisions to historical data show that the previous three months saw slightly weaker sales than previously reported, which is partially offset by upward revisions to previous months. The number of existing homes available on the market fell 2.3% to 860,000, a new series low. Monthly supply fell by a tenth to 1.6, also a record high. The median selling price rose 15.9% from a year ago, an acceleration of eight tenths from December.
  • Sales of new single-family homes fell 4.5% to a SAAR of 801,000 in January, although the December figure was revised up 3.5% to a SAAR of 839,000, according to the Census Bureau. New homes sold but not started jumped 30.2% to a SAAR of 237,000, the highest number since May 2021, while homes sold under construction and completed fell 13.6% and 15, 2%, respectively. The monthly supply of homes for sale rose five ticks to 6.1, although this was almost entirely due to a 10.4% increase in homes for sale but not started.
  • The National Association of REALTORS® Pending Home Sales Index, which records existing home contract signings and typically leads one-to-two-month closings, fell 5.7% to 109.5 in January, the lowest level since April 2021.
  • The FHFA Buy-Only House Price Index, reported on a seasonally adjusted basis, rose 17.6% from a year ago in December, the same pace as in November. For the quarter, prices increased by 17.6% compared to the fourth quarter of 2020, a deceleration of 1 percentage point compared to the third quarter.

Expected impact:

Real personal income fell again as the expanded child tax credit expired and wages failed to keep pace with inflation. Nevertheless, actual consumption has increased faster than expected and will likely lead to a near-term increase in our forecast. However, the composition of the increase, which was entirely due to a jump in consumption of goods after a weak December, leads us to suspect that an unusual seasonal adjustment accounted for at least part of the increase of a month-to-month, so the upgrade may be lower than the January reading would otherwise imply. Still, improvements in the automotive industry, which are expected to continue throughout the year, have contributed to the increase in consumption of goods, and it is possible that the Omicron variant has weighed somewhat on the consumption of services in January. Inflation readings were slightly above our expectations, which helps partly explain the decline in consumer confidence despite seemingly robust spending, and will likely lead to a slight increase in our PCE inflation forecast. Additionally, we expect energy costs to rise further in the near term as geopolitical events unfold, which will likely drive headline inflation readings even higher.

Sales of existing homes have exceeded our expectations and will lead to an upward revision of our short-term forecast. Although historical revisions point to somewhat weaker home sales at the end of 2021 than previously thought, we continue to believe that part of this robust home buying activity is a surge in demand. in anticipation of higher interest rates in the future. Therefore, our short-term upward revision could be at least partially offset by a downward revision to our existing sales guidance later in the year, especially as January pending sales showed signs of decline amid higher rates and limited stocks. As for new home sales, the January report was slightly weaker than expected and will likely result in a slight downward revision to our near-term forecast, although the January figure may have been held back in part by the Omicron wave and abnormally cold weather during the month. We continue to expect new home sales to have a strong year, even given rising mortgage rates, as builders continue to work through their current construction backlogs and a historically tight supply of existing homes available at the sale is supporting demand for new construction. However, developments in monetary and fiscal policy, as well as recent geopolitical events, present a greater than usual risk to our outlook for interest rates and real estate activity. These developments will likely shape our outlook going forward.


Nathanael Drake
Economic and Strategic Research Group
February 25, 2022

The opinions, analyses, estimates, forecasts and other views of Fannie Mae’s Economic and Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions and are subject to change without notice. How this information will affect Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other points of view on information which it considers reliable, it does not guarantee that the information provided in these documents is accurate, up-to-date or suitable for a particular purpose. . Changes in the assumptions or information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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