Housing Market & Residential Lending Forecast August 2021

Fortunately Fannie Mae and the MBA release monthly forecasts for residential lending volumes, new and existing home sales and interest rates. They do not, however, look through the same glasses when prognosticating the future, however. Core to housing and residential lending are interest rates that remained below 2.9 percent once again this week according to Freddie Mac. The latest forecasts are shown in the table. Fannie Mae trimmed their 2021 30-year convention mortgage forecast from 3.0 percent in July to 2.9 percent as of August and with an corresponding cut from 3.2 percent for 2022 to 3.1 percent. The MBA dropped their 2021 number from 3.4 percent to 3.2 percent and shaved from 4.3 percent for 2022 to 4.2 percent.

Existing Home Sales Sales numbers on a seasonally adjusted annualized basis and median price expectations are shown in the next two tables. While Fannie Mae and the MBA each see sales rising in 2021, the MBA expectation is more than double that of Fannie Mae at 8.0 percent and 3.9 percent, respectively. The diverge in 2022 with the MBA forecasting a 6.2 percent gain while Fannie Mae sees existing home sales slip 3.0 percent. The positions are switched regarding median prices, with Fannie Mae seeing a 7.8 percent gain in 2022 and the MBA expecting a 4.2 percent drop.

New Home Sales and Median Prices The MBA is more optimistic for new home sales with an expectation of 1 million in 2022 – the first time back in seven digits since 2006. The Census Bureau reported July 2021 new home sales totaled just 708,000 on a seasonally adjusted annualized rate, down 27 percent year-over-year. Builders continue to face the headwinds of skilled-labor shortages, rising input costs and minimal lot availability.

Consistent with their expectation of declining existing home prices in 2022, the MBA is calling for a dip in new home median prices in 2022.

Residential Lending Lending forecasts are detailed for both purchase and refinance transactions. The story is in the expected halving of refi volumes in 2022, though purchase lending is expected to rise 12.8 percent (average) in 2021 and 6.8 percent in 2022.

The next table shows the expected percentage change in lending volumes year-over-year on a quarterly basis.

The last table combines the median price and interest rate forecasts and shows the respective principal and interest payment assuming a 20 percent down payment. The estimates are for P&I monthly payment to increase from 26.4 percent to 32.1 percent from 2020 to 2022, dramatically impacting affordability.

To view and download these forecasts, click the following links:



Restated for the third month in a row:

“As shown, even the experts differ on where housing markets are heading, but agree on a declining refinance lending segment this year and next.. Following interest rates is the key to where the housing and lending markets are heading.”

When it comes to interest rates -- the key to the housing market -- things change. When rates rise all bets are off as not only will refi lending volumes plunge, but also home sales and home price gains. For now however, it remains a great market.