For the second month in a row, the economists at Fannie Mae revised expectations for near-term real GDP growth downward—and outward—due to persistent supply chain disruptions and labor market tightness, according to the September 2021 commentary from the GSE's Economic and Strategic Research (ESR) Group. Those factors, they say, will affect the housing market as the economy at large.
While existing home sales recently came in stronger than expected, other indicators of home sales activity, including purchase mortgage applications and pending home sales, point to near-term softening. However, the lack of inventory of homes for sale continues to be the primary impediment, with the months' supply of inventory near historical lows and the pace of new listings too low to sustain the current sales pace. Home construction is also being held back by supply problems, and as such the ESR Group downgraded its expectations for fourth quarter new home sales from 846,000 units to 789,000 units. The forecast for purchase mortgage originations was little changed for 2021 but now envisions a 6.3% increase for 2022; meanwhile, refinance origination volumes are expected to decline from a 58% share of total mortgage origination activity to 40% in 2022.
"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 Doug Duncan, Fannie Mae SVP and Chief Economist. "We also expect inflation to remain elevated through much of next year, even if the crest of the recent surge is behind us. 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. 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."
Visit the Economic & Strategic Research site at fanniemae.com to read the full September 2021 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.