Published on: May 21, 2021
BY TED C. JONES, PH.D.
Fannie Mae and the MBA continued to tweak their monthly forecasts for 2021 and 2022 in the U.S. residential housing and lending markets. The two still diverge on where interest rates are heading. In their May 2021 forecast, Fannie Mae now believes that the conventional, fixed-rate 30-year residential mortgage rate is going to dip slightly to 3.0 percent average for the year, down from 3.1 percent in 2020, and rise to 3.4 percent in 2022. The MBA though, sees rates rising in 2021 -- to 3.5 percent, now up 70 basis points from 2020 -- but at a slower pace than their April 2021 forecast of 3.8 percent. The MBA then expects residential mortgage rates to increase another 70 basis points in 2022 to 4.2 percent. The table below shows the interest forecasts as of May 2021. Though Freddie Mac does a similar forecast, it is updated just quarterly rather than monthly and thus is not included.
Both Fannie Mae and the MBA see existing home sales rising in 2021. MBA’s forecast gain of 8.3 percent, however, is almost double the 4.8 gain expected by Fannie Mae. They diverge in 2022 with the MBA forecasting the number of sales up 5.4 percent while Fannie Mae expects a 4.8 percent decline.
Each see median prices for existing home sales rising, though Fannie Mae’s 12.2 percent gain in 2021 is three times that of the 3.1 percent expectation of the MBA. That ratio continues into 2022, but at a much lower 3.9 percent and 2.2 percent price gain, respectively, by Fannie Mae and the MBA.
A similar pattern between the two forecasters is applicable to new home sales expectations. Fannie Mae sees new home sales up 16.3 percent in 2021 while the MBA is at 12.7 percent. Just like existing home sales in 2022, Fannie Mae sees a 6.9 percent decline in new home sales while the MBA is forecasting a 9.9 percent increase. Builders are dealing with multiple headwinds including minimal lot inventory, escalating material costs and shortages of skilled labor, materials and appliances. The cost for lumber needed to frame a typical new home has increased prices by $35,872 since April 2020 according to the National Association of Home Builders (NAHB). Nine-in-10 homebuilders reported serious difficulty in obtaining new appliances per a NAHB survey. Availability and timely delivery of new appliances are so restricted that some builders are selling homes without any. Inventory of residential lots was down 24.2 percent in Q1 2021 compared to the same time in the prior year according to Zonda’s New Home Lot Supply Index and off 10.1 percent from the prior quarter.
New home median prices mirror existing home expectations though at different levels, with Fannie Mae at a 9.6 percent gain in 2021 (six times MBA’s 1.5 percent) and up another 4.1 percent in 2022 -- double the MBA’s expected 2.0 percent increase.
The largest change within 2021 and 2022 forecasts is in refinance lending volumes. While the forecast Fannie & MBA purchase lending volume gain in 2021 ranges from 12.0 to 15.6 percent, refinance is expected to plunge a material 22.6 percent to 27.2 percent in 2021 and decline another 48.6 percent to 67.1 percent in 2022 as interest rates rise. This says there will be fewer loan officers needed in 2023 compared to today.
To access the monthly forecasts from Fannie Mae and the MBA click:
Fannie Mae https://www.fanniemae.com/research-and-insights/forecast/forecast-monthly-archive
Expectations are for another great housing market in 2021, but cooling somewhat in 2022. Rising interest rates, however, will melt the demand for refinance lending volume in 2021 and more so in 2022. The average total lending estimate of $3.75 trillion in 2021, however, would still be the second largest in history if realized.