The full-year 2021 real GDP growth forecast has been revised modestly downward due in part to the expectation that COVID-related disruptions to consumer spending and supply chains will more greatly hinder economic activity in the second half of the year than previously forecast, according to the August 2021 commentary from Fannie Mae’s Economic and Strategic Research (ESR) Group.
A weaker than previously anticipated second quarter real GDP reading also contributed to the downward revision to the full-year 2021 growth outlook from last month’s 7% to this month’s 6.3%. However, the downgrade was offset partially by an upgraded 2022 growth forecast from 2.8% to 3.2%. The ESR Group continues to expect inflation, as measured by the Consumer Price Index (CPI), to remain around 5% by the end of 2021, as broader inflationary pressure from wage and home price growth replaces some of the more transitory factors driving the recent upward movement. By the end of 2022, the ESR Group forecasts CPI to decelerate meaningfully to a still-elevated level nearer 3%.
The ESR Group downgraded its forecast for single-family home sales through the second half of 2021 due to ongoing inventory and supply chain constraints. On a full-year basis, the ESR Group expects total home sales of 6.66 million, down from last month’s projected 6.71 million – which would still represent a 3.1% increase compared to 2020. Due to recent declines in long-term interest rates, the ESR Group projects the refinance share of mortgage origination activity to be 58% in 2021, up from the projected 56% last month, before falling to 41% in 2022. Further, home prices, as measured by the FHFA Purchase-Only Index, are expected to rise 14.8% in 2021.
“While the recent surge of COVID-19 cases appears to be affecting consumer behavior, the economic response so far has been modest compared to last year’s outbreak, and its impact on our latest forecast is similarly slight, albeit to the downside,” explains Mark Palim, Fannie Mae’s vice president and deputy chief economist. “For the housing market, at current case levels, the lack of inventories of homes for sale and continued supply chain bottlenecks experienced by homebuilders remain the primary constraints on home purchase activity. Moreover, while mortgage rates have drifted downward and in theory provide greater purchasing power to potential borrowers, in practice, given current supply-side and affordability challenges, we expect that benefit to be limited.”
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