Fannie Mae Says Housing Market Rebounded Faster Than Anticipated
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae economists believe the housing market has already hit its pandemic-related bottom.
Fannie said in its latest housing and economic outlook last week that the latest data points to continued improvement.
For example, pending sales jumped 44.3 percent in May. This means closings will rebound in June and early July after falling the previous two months. Purchase applications also rose significantly in June, which means better home sales over the subsequent weeks.
“We had expected a rebound in purchase activity to occur in May and June as shutdown measures began to be relaxed, but the magnitude to date has been remarkably strong,” read a section in Fannie’s report.
Fannie noted that many homebuyers intending to buy in March and April delayed those purchases during the early days of the pandemic. In addition, Fannie maintained that recent buyers may have accelerated purchases planned for later this year or next due to record low mortgage rates.
Even with the recent uptick in sales, Fannie still expects full-year existing home sales to fall 7.5 percent compared with 2019. This is largely due to the continued trend of low inventory. Sales are expected to rebound 4 percent in 2021 as the economy recovers.
Because of the low rates, Fannie has raised its forecast for refinance originations by 5.5 percent from last month’s forecast.
“At the current mortgage rate, we estimate that nearly 60 percent of all outstanding loan balances have at least a half-percentage point incentive to refinance,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
Fannie noted that the ongoing COVID-19 pandemic makes forecasting a challenge.
For example, more buyers may be in the market because of new home preferences caused by the pandemic. Anecdotally, people are requesting at-home swimming pools because of the risk of going to public aquatic centers. In addition, remote working arrangements mean less emphasis on locating near commercial centers.
“As attitudinal and market data becomes available, we expect to more explicitly take such preference shifts into account in the housing forecast; currently, they are a source of uncertainty,” Fannie said.
Another factor that could affect the mortgage market is the tightening credit standards. An indication of this is the average FICO score on loans. Ellie Mae reported in its latest Origination Insight Report that FICO scores on all loans increased from May to June.
“Homebuyers are taking advantage of these historically low rates to both buy and refinance but it does appear that lenders are looking for borrowers with better credit across all mortgage products as FICO scores have continued to increase across the board since March,” said Jonathan Corr, CEO of Ellie Mae.
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.
