Fannie Reports on Short-term Housing Recovery
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae said its long-term outlook for the housing market is “cautiously optimistic.”
On the one hand, purchase applications have rebounded since April, when the COVID-19 pandemic all but halted real estate transactions. Purchase activity plummeted 30 percent at its lowest point.
In two months, purchase applications reached the second highest weekly level of the year, a 12 percent increase from a year earlier.
“After the Great Recession, it took more than 10 years for purchase demand to rebound to normal, but during the COVID crisis, it took less than 10 weeks for demand to bounce back,” said Fannie Mae in its latest quarterly forecast released last week.
The refinance market also remains strong due to record low mortgage rates. Fannie anticipates low rates continuing into next year, forecasting an average of 3.2 percent for the 30-year fixed rate for 2021.
While Fannie says the stimulus money has boosted housing in the short-term, its outlook still cautions about the long-term economic impact of COVID-19. “The pandemic has caused a tremendous amount of damage to the labor market and small businesses that is still unfolding,” read the report.
Fannie also noted that the recent recovery in purchase applications may be due to deferred sales and buyers not affected by the pandemic taking advantage of low mortgage rates.
Due to the impact of COVID-19, Fannie expects home sales to fall to 4.8 million in 2020 and then rebound to 5.6 million in 2021, below the 6 million experienced in 2019. House price growth is projected to decelerate from 2.3 percent in 2020 to 0.4 percent in 2021.
Fannie is projecting refinance originations to reach $1.9 trillion in 2020 and then decline to $1.3 trillion in 2021. Purchase originations are expected to decline to $1 trillion in 2020, and then rise to $1.2 trillion in 2021.
Residential construction has also rebounded from April lows, but are still well below 2019 levels.
The Census Bureau reported last week that housing permits rose 14.4 percent between April and May, but were 8.8 percent lower than last year.
Housing starts increased 4.3 percent from April to May, but came in more than 23 percent lower than May 2019.
Housing completions fell 7.3 percent month-to-month and were down 9.3 percent year-over-year.
In another sign that the economy is still in recovery mode, last week the Federal Housing Finance Agency extended the moratorium on foreclosures and evictions. It had been set to expire in June 30, but will continue until at least August 31.
“There are still great unknowns about the evolution of the recovery and future policy response, so our outlook for the housing market is cautiously optimistic,” Fannie wrote.
About the Author
As an NAMU® 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.
