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Fannie Mae cuts origination forecast for 2022

GSE points to supply chain disruptions and labor market tightness as factors

Limited inventory, supply chain disruptions and concerns about inflation have led economists at Fannie Mae to lower their mortgage origination forecasts for the remainder of this year and into 2022.

Fannie Mae dropped its projected origination volume for 2021 to $4.33 trillion from the $4.36 trillion it projected in August. It also downsized its 2022 mortgage origination volume forecast by $55 billion to $3.25 trillion.

Fannie’s predictions this year have been in a constant state of fluctuation, with August results projecting a 6.3% GDP growth rate for 2021, while July had a 7.0% growth projection. Meanwhile, at the beginning of the year, Fannie forecasted GDP to grow at a rate of 5.3%.

According to Fannie, the slimming in projections by the Economic and Strategic Research (ESR) Group are a result of supply chain disruptions and labor market tightness, which “impede the housing market.”

Additionally, inflation was noted as a “key concern,” putting downward pressure on Fannie’s latest forecast. The company added that it believes the consumer price index will remain above 5% until the second quarter of 2022.

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“Economic growth continues to be held back by supply chain and labor market constraints, both of which we expect to continue well into 2022,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “We also expect inflation to remain elevated through much of next year, even if the crest of the recent surge is behind us. Given the strength of recent house price appreciation and rent growth, we continue to believe that the contribution from housing to underlying inflation has yet to be fully realized within the official measures of inflation.”

Fannie also said that home sales activity, including purchase mortgage application and pending home sales, point to “near-term softening of the market.” The reason for the slowdown stems from a problem that continues to persist: a lack of inventory .

The government sponsored enterprise remarked that the “supply of inventory [is] near historical lows and the pace of new listings [is] too low to sustain the current sales pace.”

“Home construction is also being held back by supply problems, and as such the ESR Group downgraded its expectations for fourth quarter new home sales from 846,000 units to 789,000 units,” Fannie’s report said.

Duncan also added that “affordability remains a challenge, even with mortgage rates near historic lows; if the pace of income growth doesn’t keep up with inflation and interest rates rise more than expected, we’d expect housing activity to slow from our current projections.”

Overall, the government sponsored enterprise forecasts that purchase mortgage originations will increase by 6.3% in 2022. Concurrently, refi origination volume is expected to decline from a 58% share of total origination activity to 40% in 2022, the company said.

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