Fannie Mae lowered its housing forecast on Friday, saying existing home sales will decrease this year compared with 2018. It was the first time the mortgage giant projected a 2019 decline.
The projection comes at a time when mortgage rates are near three-year lows and housing optimism is at an all-time high. A Fannie Mae report earlier this month said a record amount of people believe now is a good time to buy a home. But, there’s something that trumps low rates and elevated optimism, the mortgage giant said: Supply shortage.
“Strong housing sentiment does little in the face of limited supply,” Fannie Mae said in commentary accompanying the forecast. “The likely cause of this decline is the persistent issue of limited housing supply, which restricts the potential for a sustained growth in home sales.”
The inventory of homes for sale in June matched the year-earlier month that was a record low for June, in a data series that goes back to 2000. The biggest reason is: The homebuilding industry, decimated during the housing crash, still hasn’t returned to a normal level of production that would meet the demand created by increasing household formation.
Seasonally adjusted single-family housing starts were at an 876,000 annualized pace in July, the Department of Commerce said on Friday. In July 2001, while the U.S. was in a recession after the dot-com bubble burst, the rate was 1.3 million.
“Despite positive sentiment and a continued decline in mortgage rates over the month, purchase mortgage applications have declined in every week since mid-July,” Fannie Mae said.
Fannie Mae now is calling for a 2019 decline of 0.1% in existing home sales to 5.335 million, compared with 2018’s 5.34 million sales. Last month, the mortgage company projected a 0.2% increase in sales of existing homes this year.
In addition to its housing forecast, Fannie issued a slate of economic forecasts. It bumped up its prediction for U.S. GDP growth to 2.2% this year, from the 2.1% it called for last month.
Signalling the expectation for tame inflation, it lowered its forecast for core Consumer Price Index growth – meaning the CPI minus food and energy, the Federal Reserve’s preferred inflation gauge. Fannie now is expecting the U.S. will see a 2% increase in core CPI in 2019, down from the 2.1 it predicted a month ago.
The unemployment rate probably will average 3.7% in 2019, Fannie said, matching its month-ago forecast. For 2020, the unemployment rate probably will be 4%, the mortgage company said.