Fannie, Freddie up prospect for 2022 regardless of probably fee hike

Economists at government-sponsored firms diverge from their year-over-year projections for industry volume, with Fannie Mae forecasting a slight decline while Freddie Mac contemplates increased origination activity.

Both companies are now forecasting total sales of over $ 4 trillion this year, while Freddie Mac is forecasting total sales of $ 4.46 trillion this year, up from the $ 3.93 trillion forecast in July .

The volume for 2020 is now $ 4.44 trillion; Three months ago it was valued at $ 4.1 trillion for the past year.

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

"Even if mortgage rates are expected to rise and home prices continue to rise, homebuyer demand remains stable as inventory problems have improved slightly," said Sam Khater, Freddie Mac's chief economist, in a press release. As a result, we expect strong house price growth in 2022, which will boost home mortgage lending by more than $ 500 billion from 2020. "

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

Any housing impact due to the likely tightening of US monetary policy by the US Federal Reserve through 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 its GDP growth expectations for 2021, this time from 5.4% in September to 4.9%. Meanwhile, it raised its inflation forecast from 5.4% to an annual rate of 5.7%.

“While we still view the supply chain disruptions and, to a lesser extent, the tightness of the labor market as largely temporary, we now expect both to last longer than we previously forecast – and probably longer than the Federal Reserve expects "said Doug. Duncan, Fannie Mae senior vice president and chief economist, said in a press release. "Coupled with our expectation that inflation will be above target over the forecast period, we expect market participants to see growing calls for the Fed to tighten monetary policy: first by tapering bond purchases and then in the fourth quarter of 2022 by a Increase in the target range of the federal funds rate for the first time since December 2018.

This tightening should result in mortgage rates rising to 3.4% by the fourth quarter of 2022, 0.2 percentage points higher than Duncan's September forecast.

"Even a modest tightening of monetary policy would of course have an impact on housing construction, but we expect the impact to be largely subdued given current market conditions," said Duncan. "Mortgage rates could rise in response to the closer environment, but we expect the severe shortage of properties for sale will remain the main driver of sharp appreciation in home prices through at least 2022, thereby reducing the interest rate effects on home sales and home prices be limited. "

Duncan raised its emissions forecast for 2022 from $ 3.25 trillion a month ago to $ 3.33 trillion.

Its forecast for this year has been lowered slightly from $ 4.33 trillion to $ 4.32 trillion. However, Duncan revised his 2020 numbers 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 be only 1% less than the 5% change in the September forecast from last year. In the past, industry economists have revised previous activity based on government data releases.

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

“While an existing homeowner may have more purchasing power because the equity of their home has increased as prices have increased, the price of the bigger and better home they are interested in has also increased. And even when the owner has the purchasing power, it's difficult to buy what's not for sale, "Fleming said." While the inventory of new and existing homes has increased modestly in recent months, it remains near historic lows. "

And now that prices are set to rise, existing homeowners have even less motivation 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 market mortgage rate exceeds the homeowner's existing mortgage rate, the greater the lock-in effect."

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