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Supply And Labor Constraints Impede Economic Growth, Home Sales

Navi Persaud
Sep 20, 2021
Photo of chains near a docking area.

Near-term real GDP growth expectations were lowered due largely to supply chain disruptions and labor market constraints.

Fannie Mae's Economic and Strategic Research Group are walking back previous expectations for 2021's full-year real GDP. The group's initial projection of 6.3% in growth has been lowered to 5.4%. Meanwhile, supply constraints are continuing to cripple the housing market's growth, despite stronger than expected existing home sales. Additionally, continuous labor scarcity also contributed to the ESR Group's revised projections for 2021. 

Fannie Mae's ESR Group is now pushing its previous projections of second-half 2021 economic growth into 2022, upgrading the previous economic growth projections from 3.2% to 3.8%. Inflation is also causing the group to exercise more caution in its projections, as it forecasts the Consumer Price Index to end the year at an annualized pace of 5.4% and remain about the 5% mark until Q2 2022. 

Meanwhile, purchase mortgage applications and pending home sales are beginning to taper off. The lack of inventory available for buyers was cited as the major “impediment” in housing market growth. Inventory now sits at historical lows, with the pace of new listings simply too low to sustain the current pace of sales, according to the ESR Group. 

“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,” according to the report. “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.”

“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,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “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.”

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