Existing home sales were stronger than expected in July, but forecasters at Fannie Mae expect buyer demand to cool for the rest of the year and into the next year, citing the lack of homes. to sell as the main obstacle to sustained growth.
In their latest monthly forecast, economists at Fannie Mae now forecast home sales to rise 3.3% this year to 6.68 million homes, up from August forecast of 3.1% annual growth.
The slightly more optimistic forecast for 2021 this month was largely due to an unexpected 2% jump in existing home sales from June through July. But economists at Fannie Mae say the pace of sales is unlikely to be sustainable, as stocks for sale remain near all-time lows and new listings are not coming to market quickly enough to meet demand. Requirement.
Next year, Fannie Mae predicts that sales of new and existing homes will fall by almost 2%. Fannie Mae economists expect new home sales to rise next year, but not enough to offset an expected drop in existing home sales.
Several indicators of home sales activity – including mortgage applications and pending home sales – point to a near-term slowdown, according to Fannie Mae forecasters, with the annual pace of existing home sales set to drop. to about 5.7 million homes for the rest of the year. .
Annual pace of home sales, by quarter
That’s down from the record 6.66 million existing home sales per year seen in the last three months of 2020, when pent-up demand in the second quarter of 2020 – the start of the pandemic – was triggered.
âWe believe home purchase demand is cooling down somewhat as the housing market normalizes,â economists Fannie Mae said. âAccording to Redfin, the share of houses with offers written by their agents with multiple bidders fell to 59% in August. While still high, it is down from 74 percent last spring. Yet we continue to see the main obstacle to sales being the lack of homes for sale. “
There were only 2.6 months of listings on the market in July, and new listings are still entering the market at the same rate as in 2019, too slow to maintain the pace of sales seen in July. .
A monthly Fannie Mae survey of homebuyer sentiment remains near all-time lows, and those who say it’s a bad time to buy are likely to cite high home prices and lack of supply as the main one. justification.
Fannie Mae economists expect the double-digit annual home price appreciation seen during much of the pandemic to cool dramatically, but not until next year.
Annual home price appreciation, by quarter
Fannie Mae forecasters also don’t expect inventories to increase significantly due to foreclosures or the construction of new homes.
About 1.6 million homeowners who suspended mortgage payments during the pandemic will soon lose protection from forbearance programs, and a moratorium prohibiting foreclosure proceedings against homeowners with federally guaranteed mortgages expired in late July.
But Fannie Mae economists only anticipate “a modest increase in the number of homes put on the market as the foreclosure moratorium ends,” in part because of improving labor markets and high levels of employment. home equity.
“Of course, some of the forbearance homes will likely end up going up for sale, but given the current tightening in supply, we don’t think ending the moratorium will fundamentally change the pace of sales or the trajectory of the market. house prices appreciate over the next year, âforecasters Fannie Mae said.
Home builders continue to face supply constraints, including a shortage of skilled trades workers, which has led Fannie Mae economists to push back some of the new home sales they expected to see in the fourth quarter until 2022.
Sales of new and existing homes
Although Fannie Mae predicts new home sales will rise 11.5% next year, to 881,000, that would not be enough to offset a projected 3.6% drop in existing home sales, to 5.676 million.
In total, Fannie Mae economists predict that new and existing home sales will fall 1.8% in 2022, to 6.557 million.
The pandemic could prevent home sales from reaching these levels next year, due to “varying responses from consumers, the labor market and policymakers to evolving health risks” that remain. The other key risk to the housing forecast “is a possible rise in mortgage rates precipitated by a more persistent rise in inflation or inflation expectations,” warned economists at Fannie Mae.
Fannie Mae Mortgage Rate Forecasts
For now, Fannie Mae sees mortgage rates rising slowly next year, averaging 3.2% in the last three months of 2022. That would be even lower than entering the pandemic.
But Fannie Mae’s chief economist Doug Duncan said his team expects inflation to stay high next year and rising house prices and rents could put additional pressure on it.
“Given the recent appreciation in house prices and rental growth, we continue to believe that the contribution of housing to core inflation has not yet been fully realized as part of the official measures of the ‘inflation,’ Duncan said in a statement. âPlus, affordability remains a challenge, even with mortgage rates close to historic lows; If the pace of income growth does not keep pace with inflation and interest rates rise more than expected, we expect real estate activity to slow down from our current projections.
Mortgages and refinancing
Fannie Mae predicts that even with the expected decline in home sales, rising home prices will help increase the volume of purchase mortgages by 6.3% in 2022, reaching $ 1.941 billion.
Rising mortgage rates, however, are expected to dampen mortgage refinances, which are expected to fall 47.7% next year to $ 1.31 trillion.
In total, mortgage lenders are expected to do 25% less business next year, with the volume of purchase and refinancing loans falling from $ 4.33 trillion this year to $ 3.25 trillion in 2022.
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