With home price growth showing few signs of losing momentum, Fannie Mae’s Economic and Strategic Research (ESR) Group made a significant upward adjustment to its home price forecast for 2021, now projecting annual price growth of 14.8% for the year.
That’s a big bump from the previous forecast of 8.0%, as torrid housing demand and an acute lack of inventory strapped rockets to home prices during the first half of the year. Fannie still expects price moderation moving forward, thanks to a modest softening of home purchase demand coupled with the easing of a number of housing supply constraints. That should pull back home price growth to 5.1% in 2022, the ESR group predicted.
“While recent home price growth has been historically high, we’re forecasting further home price appreciation to moderate through the remainder of the year and into 2022,” said Mark Palim, Fannie Mae vice president and deputy chief economist. “On the supply side, we think homebuilders will be able to increase production as supply chain disruptions and labor shortages alleviate, which should add to the inventory of new and existing homes available for sale.
“On the demand side, we expect the increase in housing demand we saw over the past year to ease, as the impact of unique recent factors lessens, including adjustments to accommodate pandemic-related remote work arrangements, stimulus checks bolstering household savings, and record-low mortgage rates.”
Palim clarified that demographic trends remain in place for a strong housing market over the next few years. Combined with “the chronic undersupply of homes built over the last decade,” that means upward pricing pressure is expected through the forecast horizon — just not at the sizzling rate seen this spring.
“Nevertheless,” he continued, “we expect home price growth to become one of the more persistent drivers of inflation going forward, as other more transitory factors diminish.”
In the meantime, the ESR cited ongoing supply constraints hampering homebuilders as the reason for a slight downgrade to its short-term home sales outlook. Fannie’s forecast for second and third quarter total home sales was revised downward, pulling back the total 2021 home sales forecast to an annual increase of 3.8%, compared to projected growth of 4.2% last month.
The ESR group also modestly lowered its interest rate forecast to 3.0% in 2021. With a stronger house price estimate and reduced sales growth figure, Fannie’s 2021 mortgage originations forecast has been pushed upward to $4.2 trillion, up from $4.1 trillion. The originations forecast for the next year was upgraded as well, moving to $3.2 trillion from $3.1 trillion.