Housing Market Shortages Have Fannie Mae Changing Several 2021 Economic Forecasts

Fannie Mae’s Economic and Strategic Group (ESR) has revised several of its 2021 forecasts. A full month of sub 3% mortgage rates, ongoing housing market supply constraints, and a 300% increase in lumber pricing over the past 15-months prompted the forecast revision. The ESR March’s existing home sale report is a perfect example of the country’s core housing market issues. A decade of under-building led to a decline in transaction from the prior month, even though there has never been more demand for a home. Doug Duncan, Fannie Mae’s chief economist, said to closely watch for stronger inflation and a resultant move in interest rates. As the effects of expansionary monetary policy continue to work their way through the economy, inflationary expectations may continue to rise. “This could lead to prices rising further even with growth concurrently slowing in the presence of diminished labor market slack and waning fiscal policy support,” Duncan said. “If such a scenario were to play out, the question then becomes whether this necessitates a response by the Federal Reserve. While momentum in the housing market will likely continue in the near term, this is an increasingly important consideration for 2022.”