Fannie, Freddie improve 2022 outlook despite likely rate hike


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Economists at government-sponsored companies diverge on their year-over-year forecasts for industry volume, with Fannie Mae predicting a slight decline, but Freddie Mac seeing increased origination activity.

The two companies now forecast a total volume of over $ 4 trillion this year, while Freddie Mac forecasts a total volume of $ 4.46 billion this year, up from the previous year. $ 3.93 trillion he predicted in July.

It now puts the 2020 volume at $ 4.44 trillion; three months ago, he estimated at $ 4.1 trillion for last year.

For 2022, Freddie Mac raised his forecast to $ 3.11 trillion, from $ 2.63 trillion in July.

“Even though mortgage rates are expected to rise and home prices continue to rise, homebuyer demand remains stable as inventory issues have improved slightly,” said Sam Khater, chief economist at Freddie Mac, in A press release. Therefore, in 2022, we expect the strong growth in house prices to increase mortgage origination for the purchase of a home by more than $ 500 billion compared to 2020. “

Freddie Mac predicts a purchase volume of $ 1.92 trillion this year and $ 2.11 trillion next year, up from $ 1.59 trillion in 2020.

Any housing impact due to the Federal Reserve likely tightening US monetary policy until the end of 2022 will be offset by current market conditions which remain the status quo, according to Fannie Mae’s latest forecast.

For the third month in a row, Fannie Mae cut his forecast for gross domestic product growth for 2021, this time to 4.9% from 5.4% in September. At the same time, it raised its inflation projections to an annual rate of 5.7% against 5.4%.

“While we still see supply chain disruptions and, to a lesser extent, labor market tension as being largely transient, we now expect both to last even longer than expected – and possibly also longer than the Federal Reserve expected, ”said Doug Duncan, senior vice president and economist chief of Fannie Mae, in a press release. we expect inflation to exceed target over the forecast horizon, we expect increasing demand from market participants for the Fed to start tightening monetary policy: first by reducing asset purchases, then, in the fourth quarter of 2022, increasing the federal target fund rate range for the first time since December 2018. “

This tightening is expected to lead to mortgage rates rising to 3.4% by the fourth quarter of 2022, 0.2 percentage points higher than Duncan’s forecast in his September forecast.

“Even a modest tightening of monetary policy would of course have an impact on housing, but we expect the effects to be largely mitigated given current market conditions,” Duncan said. “Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the main driver of a strong appreciation in house prices until at least 2022, limiting the effects of interest rates on sales and house prices. “

Duncan raised his creation forecast for 2022 to $ 3.33 trillion, from $ 3.25 trillion a month ago.

Its projection for this year has been reduced slightly to $ 4.32 trillion from $ 4.33 trillion. However, Duncan revised his figures for 2020 to $ 4.37 trillion; in September, it pegged last year’s market at $ 4.57 trillion. This means that this year’s total volume will only decline by 1%, instead of the 5% year-over-year change in the September forecast. In the past, industry economists have revised past activity based on government data releases.

When house prices go up, so do home sales, but this relationship is Not that easyAmerica’s first chief economist Mark Fleming said in this month’s publication of the Potential Home Selling Model.

“While an existing homeowner may have more purchasing power because the equity in their home has increased as prices have appreciated, the price of the bigger and better home they are interested in has also increased. . And even if the owner has the purchasing power, it’s difficult to buy what isn’t for sale, ”Fleming said. “Although inventories of new and existing homes have risen slightly in recent months, they remain near their all-time lows.”

And now that rates are set to rise, existing homeowners have even less incentive to list their property and buy a new one.

“Rising mortgage rates mean it costs more to borrow the same amount the homeowner owes on their existing mortgage,” Fleming said. “The more the prevailing mortgage rate in the market exceeds the owner’s current mortgage rate, the greater the blocking effect.

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