Housing supply shortage will restrict growth into 2022: Fannie Mae

As vaccination rates climb and restrictions lift, the economy’s rebound should continue into the summer, but encumbrances to growth likely hamper the mortgage market into next year.

Moderate employment gains coupled with severe supply shortages — both in lumber and for-sale homes — and an “unexpectedly strong burst” of inflation limit potential lending activity, according to Fannie Mae SVP and chief economist Doug Duncan. Even Fannie’s most recent Sentiment Index showed that potential homebuyer optimism hit an all-time low due to the scarcity of listings.

While the government-sponsored enterprise’s May forecast predicts 6.3% growth in the number of home sales to 6.87 million in 2021 from 6.46 million in 2020, it would be even higher if there were more inventory, given the intense consumer purchase demand. Fannie projects a 5% annual decrease in sales to 6.52 million in 2022.

“Stronger inflation and a resultant move in interest rates are risks that we believe should be monitored,” Duncan said in a press release. “This could lead to prices rising further... While momentum in the housing market will likely continue in the near term, this is an increasingly important consideration for 2022.”

After a record $4.54 trillion in origination volume in 2020, Fannie anticipates that number to fall to $4.1 trillion in 2021 and $3.04 trillion in 2022. Refinance totals are expected to bring down the overall volume, dropping to $2.24 trillion in 2021 and $1.15 trillion in 2022 from 2020’s $2.89 trillion. Fannie projects purchases to steadily increase, rising to $1.84 trillion in 2021 and $1.89 trillion in 2022 from $1.65 trillion in 2020.

The steep decline in refis comes with expected interest rate growth to an average of 3.4% in 2022 from 3% in 2021.