The most recent data on home sales showed that sales may be back on track after stumbling earlier in the Spring. As a result, some of the housing industry’s leading economists continue to expect home sales to increase this year over last year.
In a new economic forecast, Fannie Mae’s Economic and Strategic Research Group said that it expects home sales to increase by 6.3% in 2021 over 2020’s figures. That increase comes in spite of a lack of inventory that is driving prices higher at a record pace.
The lack of supply is being seen in both new and existing homes, although Freddie Mac’s economists project new home sales to rise by nearly 25% this year.
“While a lack of existing homes for sale is heightening the demand for new homes, supply constraints – most notably lumber – and a dearth of buildable lots, as well as hiring difficulties, are limiting homebuilders’ pace of single-family construction, which is still forecast to be 24.8% higher in 2021 than 2020,” Freddie Mac’s economists stated.
As for the mortgage market, Fannie Mae’s economists forecast a total origination volume of $4.1 trillion in 2021, with a recent dip in interest rates potentially driving an increase in refinances.
However, as Fannie Mae Senior Vice President and Chief Economist Doug Duncan notes, there are many macroeconomic factors that could impact the housing market over the rest of the year.
“While most indictors point toward brisk economic growth over the second quarter, the combination of a disappointing employment report and an unexpectedly strong burst of inflation has raised in the minds of many market participants the potential confluence of broad-based supply restraints, very strong house price growth, and the posture of monetary and fiscal policies,” Duncan said.
“Supply constraints across multiple sectors are pointing toward ongoing price pressure, most prominently in microchips and the auto sector,” Duncan added. “This has yet to significantly affect mortgage rates, except to the extent that the rise in the 10-year Treasury since the beginning of the year contains an increased expected inflation component and has prevented mortgage rates from retreating further from their temporary recent peak.”
Duncan cautions that “stronger inflation and a resultant move in interest rates” are risks to the economy that need to be closely watched.
“As the effects of expansionary monetary policy continue to work their way through the economy, inflationary expectations may continue to rise. This could lead to prices rising further even with growth concurrently slowing in the presence of diminished labor market slack and waning fiscal policy support,” Duncan said.
“If such a scenario were to play out, the question then becomes whether this necessitates a response by the Federal Reserve,” Duncan concluded. “While momentum in the housing market will likely continue in the near term, this is an increasingly important consideration for 2022.”