According to the July 2021 commentary from the Fannie Mae’s Economic and Strategic Research (ESR) Group, projected GDP growth for 2021 is 7%, which is hardly a difference from the previous outlook; however, compositional and temporal shifts are forecasted for other sources of economic growth.
According to the Congressional Budget Office (CBO), second quarter economic growth is expected to reach 8.1%, falling short of last month’s projected 10.1%. Meanwhile, third and fourth quarter growth projections were greater than expected at 7.7% and 6.6%.
The ESR group heavily revised home price projections after seeing record high demand amid low inventory for the first half of the year. The home price projection, measured by the FHFA Purchase-Only Index, was revised to 14.8% annualized in 2021 from its prior 8%.
However, the ESR group predicts home prices to soften modestly in the coming months. Supply chain disruptions, increased material cost, and labor shortages are slowly beginning to ease, which should allow home price growth to slow to a moderate 5.1% in 2022.
Mark Palim, Fannie Mae vice president and deputy chief economist, said, “On the supply side, we think homebuilders will be able to increase production as supply chain disruptions and labor shortages alleviate, which should add to the inventory of new and existing homes available for sale.”
The ESR group also lowered the interest rate forecast modestly. Previously, mortgage originations were forecasted to reach $4.1 trillion, but are now forecasted to reach $4.2 trillion with purchase and refinance activity projected to be higher.
“On the demand side,” Palim continued, “we expect the increase in housing demand we saw over the past year to ease, as the impact of unique recent factors lessens, including adjustments to accommodate pandemic-related remote work arrangements, stimulus checks bolstering household savings, and record-low mortgage rates. However, demographic trends remain favorable for a strong housing market over the next few years, and, combined with the chronic undersupply of homes built over the last decade, upward pricing pressure is likely to remain through the forecast horizon – just not at the rate seen this spring. Nevertheless, we expect home price growth to become one of the more persistent drivers of inflation going forward, as other, more transitory factors diminish.”
Click here for more information on the July 2021 commentary, including charts and further analysis from the ESR group.
