Homebuyers have yet to falter in the face of relentlessly rising home prices, leading economists at Fannie Mae to “significantly improve” their forecast for existing home sales in the last half of the year. year.
While housing demand remains strong, there are no signs of relief on the supply side, and listing shortages are expected to continue to push up home prices and reduce sales of existing homes in 2022. , predict Fannie Mae forecasters in their October economic and real estate outlook.
Mortgage rates have risen as the Federal Reserve prepares to begin withdrawing the support it provided to mortgage markets later this year. But Fannie Mae economists don’t expect rates to rise quickly and see listing shortages and rising prices as the biggest hurdle to home sales.
Mortgage rate forecasts from Fannie Mae and MBA
“Mortgage rates could rise in response to the tightening environment, but we expect the severe shortage of homes for sale to remain the main driver of a sharp appreciation in house prices until at least 2022, limiting the effects of interest rates on sales and house prices, “said Fannie Mae, chief economist, Doug Duncan, in a declaration.
Fannie Mae forecasters expect Fed policymakers to announce a schedule for reducing the Fed’s purchases of mortgage-backed securities at their next meeting in November. But they only forecast a modest increase in mortgage rates, with 30-year fixed-rate mortgages averaging 3.3% in 2022.
That’s up from the 3.1% forecast for September, but other forecasters are more pessimistic about the prospects for rapid rate acceleration. In a September forecast, economists from the Mortgage Bankers Association predicted that 30-year fixed-rate loan rates would average 4% by the last quarter of 2022.
Forecasters at Fannie Mae have taken a more pessimistic view of how long it will take to resolve ongoing supply chain disruptions that have slowed economic growth. They now think the economy will grow 4.9% this year, down from September’s projection of 5.4% real gross domestic product (GDP) growth in 2021.
An unexpected jump in pending sales in August – combined with recent strength in mortgage application data and a reassessment in the number of homes bought without a mortgage – led to the more optimistic projections for home sales in Canada. 2021.
Sales of new and existing homes
Fannie Mae economists now expect that, when the final numbers are known, new and existing home sales will rise 4.7% this year, to 6.768 million. This represents an increase from a forecast growth of 3.3% in 2021 in the September forecast.
This is despite the fact that new home sales are expected to fall 3.8% this year, to 791,000 homes, as builders continue to face shortages of materials and skilled labor. The slowdown in new home sales will be more than offset by existing home sales, which are now expected to increase 6% in 2021, to reach 5.977 million.
However, next year should be a different story. New home sales are expected to increase 13% in 2022, to 893,000, as builders begin to put more inventory on the market. But economists at Fannie Mae see existing home sales plummet 5.6% next year to 5.642 million units, with continued appreciation in home prices dampening demand.
The supply of new listings in the market is “not strong enough in our view to support the current pace of sales and, combined with a modest increase in mortgage rates, we expect home sales to decline. next year, ”Fannie Mae economists said.
Annual home price appreciation, by quarter
The lack of listings also continues to put upward pressure on home prices, forecasters Fannie Mae said.
“We now forecast an annual house price appreciation in 2021 of 16.6%, down from 14.8%, while our forecast for house price growth in 2022 has been revised upwards by 2.3 percentage points at 7.4%, “the October forecast indicated.
In September, economists at Fannie Mae expected annual home price appreciation to drop to single digits by mid-year, falling to 6.8% in the second quarter and 5.1 % in the last three months of the year. The latest forecast calls for a double-digit annual home price appreciation through the second quarter of next year.
Rising home prices “bode well for new home construction and ultimately more units completed should help cool prices,” the forecast noted. “However, ongoing supply constraints continue to limit the pace of housing starts.”
Eventually, however, home price appreciation is expected to slow next year “as affordability constraints weigh on demand and some housing supply is added.”
“While still modest by historical standards, given the rapid appreciation in house prices, the upward movement in mortgage rates is likely to lead to growing affordability constraints, which should help to curb the growth in house prices next year compared to the breakneck pace of last year, “Fannie Mae told forecasters.
Rising house prices mean that even though home sales are expected to decline in 2022, mortgage lenders could still increase the volume of purchase loans.
Fannie Mae predicts that after increasing by 18% in 2021, to reach $ 1.851 billion, the volume of loans to purchase will increase by another 9% in 2022, to reach $ 2.012 billion.
The refinancing boom fueled by record mortgage rates during the pandemic is expected to come to an abrupt end, with mortgage refinancing volume plummeting 46.7% in 2022, to $ 1.318 trillion.
Fannie Mae noted that the annual benchmarking of Home Mortgage Disclosure Act data resulted in an update of total single-family mortgage originations for 2020, which were revised downward from $ 162 billion, to 4. $ 374 billion.
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