Mortgage

Fannie Mae Forecasts a “Return to ‘New’ Normal”

Fannie Mae Forecasts a “Return to 'New' Normal”
Written by Publishing Team

Fannie Mae’s Economic and Strategic Research (ESR) group wrote that it expects 2022 to be a “transition year for both the economy and the housing market.” As he hedges her bet on whether COVID-19 will end anytime soon, she expects the pandemic-led market and policy choices to be gradually replaced by more typical pre-COVID economic and housing patterns.

It won’t happen overnight, and the group says the changes may not be completely reversed. Adjustments to work, school and housing arrangements could be long-term, and while inflation is expected to slow, it may remain above the pre-COVID range for the foreseeable future. However, this month’s economic commentary from the ESR describes next year as Back to the ‘new’ normal.

With the unemployment rate below 4 percent and the Federal Reserve expected to increase rates starting in March, the economy appears to be entering the maturation phase of the business cycle, during which growth slows toward the long-term trend. The demand for labor and the need to rebuild stocks should mean strong economic growth in 2022, but the period of rapid recovery has passed. The group expects improvement for supply chain difficulties, but risks about how quickly this will happen, how long high inflation will persist, and the reaction of the policy maker and financial markets to these economic conditions remain.

The latest economic forecast from Fannie Mae was noteworthy Many reviews To economic and housing-related expectations, metrics usually move higher. They say the January report includes only modest changes. The cumulative rate of growth in 2021 is still expected to be 5.5 percent, the highest rate since 1984, but growth this year fell 0.1 point to 3.1 percent with 2023 expected at 2.2 percent. Likewise, recent inflation data was in line with previous expectations, so related adjustments were also modest.

Omicron variable effect will probably Less severe than previous waves, resulting in smaller economic impacts and changes in consumer behavior and likely to be felt on the supply side due to the volume of cases and the number of workers seeking illness or needing to be quarantined. This could delay supply chain improvements and increase pressure on inflation.

When it comes to housingThe report says: “Last year’s increase in demand was driven by a combination of factors, lower mortgage rates, down payments backed by stimulus checks and other savings, and the re-mixing of preferences driven by the pandemic and timing of transition by many households, all of which are expected to fade. The recent rapid rise in home prices and rising mortgage rates will further constrain affordability, depressing home sales, but will also likely limit price increases at a more sustainable pace.”

Economists do not expect a A soft year for home sales, existing sales will slow just 3.2 percent this year, hitting the second-fastest annual pace since 2006. But they expect extremely limited inventories to lead to “highly competitive bidding wars” in which potential homebuyers are driven out of the market. Rapid price growth will outpace wage gains and diminish stimulus measures and accumulated savings, which will make it increasingly difficult for many potential buyers. Mortgage-backed securities issuance data continues to show increased average debt-to-income (DTI) ratios for borrowers, indicating rising affordability pressures. There appears to be an abundance of potential home buyers currently, but it is likely that their volume will decrease as the year begins.

Changes in sales forecast are minimum. Total home sales are expected to fall 1.2 percent, an improvement from last month’s 1.4 percent forecast. The slowdown in 2023 was revised from -3.8 percent to -3.6 percent.

Deteriorating affordability It is still expected to limit home price growth, but Fannie Mae expects price growth to slow to 7.6 percent from 17.3 percent in 2021. This is still well above the average pace of 5.4 from 2012 to 2019. Price growth will slow further to 3.3 percent in 2023. The current estimates are higher than the December forecasts of 7.4 and 2.9 percent.

Economists see stocks improving, but slowly. The total number of homes under construction, including single-family units and multi-family units, is the highest since 1973 and homebuilders have acquired and are developing a promising number of lots. However, supply chain disruptions and persistent labor scarcity issues are delaying many projects from completion.

house builder Sell ​​orders continue to be reported because they can’t keep up with demand, while recent surveys continue to report increased buyer traffic. While the Omicron COVID wave may further disrupt employment and supply, ESR Group expects an increase in home deliveries and new home sales later this year, helping to ease a generally tight housing market as both rental units and existing owned homes are vacated. For these new units.

Fannie Mae still believes that a lot of housing demand over the past year has been due to many buyers move forward Their plans to buy a home, take advantage of low interest rates and their ability to work from home. Initially it was driven by higher income renters who moved away from urban areas to buy. The patterns have widened over time to include a wave of early retirement which is now reflected in a lower rate of workforce participation among older workers and is likely to accelerate many moving plans that include retirement sites. In some cases, pre-COVID migration patterns were simply accelerated. Successive waves of stimulus checks and increased savings have also helped ease down payments, and over the past quarter, survey evidence published by Redfin indicates that many buyers have rushed ahead with higher mortgage rates.

These pandemic effects should diminish going forward, helping to moderate the pace of sales in the coming quarters, but it remains unknown how long the reshuffle will last. As families re-evaluate new work, living, and education arrangements, there may be a continuing level of re-sorting between urban and suburban areas, as well as broader regional migration shifts leading to a higher level of home sales.

Expectations also point to the recent shift in home sales away from first-time home buyers to a higher share of investor and cash purchases, especially in hot markets. Vacant rental rates have increased interest in single-family rental properties, and Redfin estimates that investors purchased 18.2 percent of single-family homes in the third quarter of 2020 compared to 11.2 percent a year earlier. Demand may not hold, but the ESR says the long-term shortage of inventory suggests it could. However, a lot of the activity could be “hot” money favoring residential real estate performance with its current low cost leverage over low yield alternatives. Higher interest rates and slowing economic activity can quickly reverse investor demand for housing, leading to lower sales and lower appreciation, less competition among homebuyers, and improved affordability.

December Fannie Mae Mortgage creation forecast in 2021 Volumes were revised lower based on incoming data but expectations for future growth were revised higher due to strong expectations for an increase in house prices. Purchase volumes increased this year by $17 billion to reach $2 trillion and to $2.1 trillion next year, an increase of $27 billion over previous forecasts.

the refinancing The origin of 2021 was also revised upwards by $5 billion compared to last month, while the 2022 forecast was downgraded by $25 billion to $1.3 trillion. The 2023 outlook is essentially unchanged from last month’s $1.1 trillion, as the impact of higher home prices and higher interest rates are expected to offset each other. With a current mortgage rate of 3.22 percent, the group estimates that about 32 percent of outstanding mortgage balances have at least a 50 basis point incentive to refinance.

Finally, the company says there is significant uncertainty about the direction of the overall economy and interest rates. Stronger-than-expected inflation, the 7 percent rate in December was the highest since 1982, and could push the Fed to a faster pace of monetary tightening. ESR Group expects the first of three price increases to occur in 2022 in March instead of June, and there are hints of four. There were also suggestions at the Fed’s December meeting that, instead of simple declining asset purchases, the Fed might trim its balance sheet, perhaps not long after it first raised rates. With so little history of such a procedure, it is unclear what the results will be.

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