Fannie Forecasts Some Improvement in Housing Late This Year
Written By: Joel Palmer, Op-Ed Writer
Every economic and housing indicator is on the decline due to the COVID-19 pandemic.
Fannie Mae delivered this assessment last week in its latest Economic and Housing Outlook.
The nation’s gross domestic product (GDP) fell 4.8 percent year-over-year in the first quarter. Fannie anticipates a 35-percent annualized decline in the second quarter and a full-year drop of 5.3 percent.
Existing home sales fell 8.5 percent in March, which was greater than previously expected. Fannie is predicting sales to plummet 30 percent in the second quarter before stabilizing to a 15-percent drop for the full year.
New home sales fell 15.4 percent in March, the largest monthly decline in nearly seven years. Single-family housing starts dropped 17.5 percent in March, to the lowest level in nearly a year, and residential construction employment declined in April. For the year, single-family starts and sales are forecast to decline 10.1 percent and 14.6 percent, respectively.
Multifamily construction also fell in March, with starts down 31.7 percent. Fannie forecasts multifamily starts to decline 43.5 percent in the second quarter and to be down 10.5 percent for all of 2020.
Fannie said that while prospective buyers are hesitant to make a long-term commitment to the pandemic, potential sellers are also keeping their homes off the market because of the perception that conditions are unfavorable. The report cited Corelogic data showing single-family listings in April were 40 percent lower than in April 2019.
Fannie is, for now, maintaining its projections for purchase origination mortgage volume at $1.1 trillion for 2020, which would be a decline of 15 percent from 2019.
For all the bad news regarding 2020, Fannie is forecasting a rebound leading into 2021. This includes:
Full-year GDP growth of 5.2 percent in 2021
A recovery in the housing market starting later this year
A slight increase in purchase mortgage volume in 2021
The highest level of refinance activity this year since 2012
Fannie is revising upward its forecast for refinance mortgages. The new projection is $1.5 trillion for the year, an increase of $119 billion over previous forecasts. This is based on the expectation that mortgage rates will remain low and may even fall further.
“With the 10-year Treasury averaging around 0.7 percent in April and our expectation that it will not rise above 1.0 percent in the near future, we believe the currently wide mortgage spreads will narrow as capacity constraints are alleviated, leading mortgage rates to fall further,” read the report. “By the beginning of 2021, we believe mortgage rates could fall below 3.0 percent.”
“We expect the contraction in the second quarter of 2020 to represent the floor of the sudden and historic drop in economic activity associated with the coronavirus,” said Doug Duncan, senior vice president and chief economist for Fannie Mae.
“The timing and pace of recovery remains in many ways unknown, as it depends on the dissipation or treatment of the disease and the reaction of the public to its incidence, duration, and severity. Thus, most forecasts are more accurately characterized as scenarios.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
