What will happen to housing activity?
Fannie Mae’s Economic and Strategic Research (ESR) Group has downgraded its 2021 real GDP growth forecast to 5.4% due to persistent supply chain disruptions and labor market tightness.
The group’s new projection compares to the previously predicted 6.3% economic growth. Fannie Mae said that much of the previously projected second-half growth will likely take place in 2022 instead – upgrading its forecast from 3.2% to 3.8%.
“Economic growth continues to be held back by supply chain and labor market constraints, both of which we expect to continue well into 2022,” said Fannie Mae chief economist Doug Duncan.
Duncan added that inflation would remain elevated through much of next year, even if the peak of the recent surge is over. The ESR Group expects the Consumer Price Index to close the year at an annualized pace of 5.4% and stay above 5% until the second quarter of 2022.
“Given the strength of recent house price appreciation and rent growth, we continue to believe that the contribution from housing to underlying inflation has yet to be fully realized within the official measures of inflation,” Duncan said.
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Supply constraints also continue to impede the housing market, Fannie Mae said. As a result, it downgraded its forecast for fourth-quarter new home sales from 846,000 units to 789,000 units. The forecast for purchase mortgage originations was slightly changed for 2021, with a 6.3% increase for 2022 now anticipated. Meanwhile, refinance origination volumes are predicted to fall from a 58% share of total mortgage origination activity to 40% in 2022.
“Further, affordability remains a challenge, even with mortgage rates near historic lows; if the pace of income growth doesn’t keep up with inflation and interest rates rise more than expected, we’d expect housing activity to slow from our current projections,” Duncan said.