Fannie Mae slashed 2021 mortgage forecast over lack of supply

Inventory and inflation concerns caused Fannie Mae to cut its mortgage origination forecast for the rest of 2021 and 2022.

The government-sponsored enterprise's September outlook dropped to $4.33 trillion in total lending volume for 2021, down from $4.36 trillion in August. It also slashed its 2022 forecast by $55 billion, reducing it to $3.25 trillion from nearly $3.31 trillion the month prior.

Fannie Mae also tempered its expectations for 2021's gross domestic product growth rate to 5.4% from 6.3% in August while it raised 2022’s rate to 3.8% from 3.2%. Supply chain and labor market limitations restrain economic and housing activity, according to Doug Duncan, Fannie Mae senior vice president and chief economist.

“Given the strength of recent house price appreciation and rent growth, we continue to believe that the contribution from housing to underlying inflation has yet to be fully realized within the official measures of inflation,” Duncan said in the report. “Further, affordability remains a challenge, even with mortgage rates near historic lows; if the pace of income growth doesn't keep up with inflation and interest rates rise more than expected, we'd expect housing activity to slow from our current projections."

Fannie boosted its total home sales projection to nearly 6.68 million units and a 3.3% year-over-year increase for 2021, up from 6.66 million units and 3.1% in August. Meanwhile, 2022 is expected to see 6.558 million units sold and dip 1.8% from 2021, compared to the 6.556 million and 1.6% decrease predicted one month earlier. The forecast for total housing starts in 2021 declined to 1.6 million units from over 1.61 million predicted in August.

Fannie downgraded its 2021 purchase origination volume to $494 billion in the second quarter, $515 billion in the third and $458 billion in the fourth, from August’s forecast of $496 billion, $521 billion and $465 billion, respectively. Refinances, though they fell to $657 billion from $714 billion in the second quarter, are expected to rise to $558 billion and $390 billion in the final two quarters of the year from $537 billion and $365 billion predicted last month.

Fannie estimates the median new and existing home sales prices to hit $385,000 and $346,000 for the year and jump to $415,000 and $373,000 in 2022. In 2020, the median new and existing homes sold for $335,000 and $295,000.

The GSE’s September outlook calls for the 30-year fixed-rate mortgage to hold at 2.9% for the rest of 2021 before rising to 3.1% for 2022.