New commentary from the Fannie Mae Economic and Strategic Research (ESR) Group is projecting a near-15% decline in home sales in 2020 as the coronavirus pandemic continues to take its toll on the American economy.
The government-sponsored enterprise now forecasts an annual rate of 5.14 million total home sales for the year, down 14.7% from 2019. Much of that decline is projected to come from existing-home sales, which Fannie anticipates will fall to an annual rate of 4.54 million units — down 15.0% from the prior year. New-home sales are expected to drop to an annual rate of 601,000 units, an 11.9% year-over-year decline.
Projected home sales for 2020’s second quarter — usually the active spring buying season — are also down, decreasing to an annual rate of 4.20 million. That’s down 29.5% from the same quarter last year, and down 34.2% from the strong first quarter that opened 2020.
That home sales pullback is expected to translate into a retreat in purchase originations from $1.28 trillion in 2019 to $1.11 trillion in 2020.
“Between declining purchase mortgage applications, falling new single-family for-sale home listings, and waning consumer confidence, it is evident that people are holding off on purchasing and selling homes in light of the major uncertainties surrounding the effects of the virus and the outlook for the economy,” the ESR Group report said.
“On the demand side, early indications are that the purchasing benefit of lower interest rates are being offset by the downturn in employment,” explained Doug Duncan, Fannie Mae senior vice president and chief economist. “On the supply side, the number of listings is falling, as those with homes to offer may either be hesitant to allow strangers to tour their home or worry that the lack of demand is placing downward pressure on the sales price they might otherwise receive.”
Despite the decrease in purchases, Fannie still expects single-family mortgage originations to grow year over year, thanks to a busy refinance market. With low rates expected to continue supporting strong refi volume, Fannie revised its refinance forecast upward by about $240 billion from last month’s estimate. Refinances are now anticipated to grow from $1.01 trillion last year to $1.41 trillion this year, making up 56% of 2020’s projected origination volume. Total volume for the year is predicted at $2.52 trillion, up from $2.30 trillion in 2019.
As for the economy as a whole, Duncan said that “the historically rapid decline in economic activity, the accompanying employment loss, and our limited, though improving, understanding of COVID-19 make this a particularly challenging forecast environment.”
The ESR Group now forecasts a 3.1% contraction in the nation’s gross domestic product, along with what Duncan calls a “solid-but-incomplete recovery exiting 2020.” Fannie expects 2021’s GDP growth at 4.8%, signaling the economy’s bounce-back with COVID-19 hopefully in the rearview.
Duncan acknowledged that variability around this latest forecast is wide, depending on the duration and severity of the ongoing outbreak, as well as the response of both policymakers and the population to new developments. With Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, saying that he expected coronavirus-related shutdowns to likely last until the end of May, Fannie’s baseline forecast assumes that economic activity begins to ramp up again around June.
The downside scenario involves longer shutdowns warranted by a prolonged outbreak, heightening the risk that cash-strapped companies unable to return to business will permanently close. In those conditions, 2020 GDP could plummet nearly 10%, with the 2021 rebound registering far more modestly. The upside scenario, which the ESR Group noted is less likely, is a quicker recovery from a first half slowdown, propelled by consumers emerging rapidly from social distancing and the government enacting expansive fiscal measures to make up for two downturned quarters. Output in 2020, in that case, would only retreat 1-2%, with a healthier resurgence in 2021.