Why home buyers aren’t taking advantage of lower mortgage rates

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The historically low level of inventory for sale suggests that any tariff-related increase in sales will be constrained by inadequate listings required to meet higher customer demand. This softer selling reaction also suggests increasing upward pressure on prices.

Low mortgage rates are helping to revive homeowners’ motivation to refinance their loans, but a developer lag, persistent shortage of listings, and rising home prices are likely to stave off a similar crush from home buyers hoping to take advantage of the rate cut.

This is according to the latest forecast of economists Fannie Mae, which now predict home sales will grow just 3.1 percent this year, up from the 3.8 percent annual growth forecast for July.

But with mortgage rates expected to remain low for the rest of the year, the economic and strategic research group Fannie Mae now expects lenders to refinance $ 2.5 trillion in mortgages in 2021, up $ 143 billion from last month’s forecast.

The rise in COVID-19 cases fueled by the Delta option and slower-than-expected growth in the second quarter helped lower rates. And while economists at Fannie Mae believe the Federal Reserve may announce its intention to cut back on purchases of mortgage-backed securities by the end of the year, they predict that rates will rise only marginally next year.

Fannie Mae mortgage rate prediction

Average rates for 30-year fixed rate loans quarterly. Rates after the second quarter of 2021 are projected. Source: Fannie Mae Economic and Housing Outlook, August 2021.

Last month, the economic and strategic research group Fannie Mae predicted that rates on 30-year fixed-rate loans would rise to 3.1 percent by the end of the year. They now predict that 30-year loans will not hit the 3 percent mark until the third quarter of 2022.

But Fannie Mae economists lowered their forecast for home sales in the second half of 2021 – mainly due to weaker forecasts for new home sales, which fell 6.6 percent in June to an annualized level of 676,000 homes.

The drop could be the result of developers abandoning orders to give themselves time to catch up on unfinished construction. In their second-quarter profit and loss statements, many builders “talked about cutbacks in their orders due to supply disruptions, high material costs and labor shortages,” said Fannie Mae forecasters. “We expect sales to decline soon as this dynamic takes some time to play out, but eventually builders will fill their backlog and start taking more orders.”

Projected home sales

Projected sales of new and existing homes. Sales are forecast for 2021 and 2022. Source: Fannie Mae Economic and Housing Outlook, August 2021.

Fannie Mae economists now forecast 801,000 new home sales in 2021, up from 874,000 last month. Existing home sales are currently projected at 5.86 million, up 30,000 from the July forecast.

“The last two months of declines in mortgage rates usually lead us to expect a larger increase in home sales in the second half of the year, as rate changes usually lead to an increase in home purchases,” economists at Fannie Mae say. “But the historically low level of inventory for sale suggests that any tariff-related increase in sales will be constrained by inadequate listings needed to meet higher customer demand. This softer selling reaction also suggests stronger pressure on prices. ”

New home sales are expected to rise to 871,000 next year as builders begin to catch up with demand. But while price increases are expected to subside, Fannie Mae also expects existing home sales to fall to 2020 levels.

Projected mortgages by loan type

Projected sources of mortgage and purchase loan refinancing. Source: Fannie Mae Economic and Housing Outlook, August 2021.

Lower interest rates are expected to boost refinancing: Analysts at Fannie Mae estimate that about 51 percent of all homeowners with mortgages could potentially lower their interest rate by at least 50 basis points, or half a percent. At the current projected level of $ 2.5 trillion, refinancing will not equal last year’s peak of $ 2.9 trillion and is expected to fall 47 percent next year to $ 1.3 trillion.

Purchase loans are expected to grow 12 percent this year to $ 1.8 trillion, outpacing projected 3.8 percent growth in home sales thanks to double-digit increase in house prices… Purchase loans are projected to rise another 7 percent to $ 2 trillion next year.

“While the recent surge in COVID-19 cases appears to be affecting consumer behavior, the economic response has so far been modest compared to last year’s outbreak, and its impact on our latest forecast is also small, albeit with a downside,” she said. Fannie. Deputy Chief Economist May Mark Palim in a statement summarizing the forecast. “For the housing market, at current business levels, the lack of stocks of homes for sale and the continuing supply chain bottlenecks faced by developers remain major constraints to buying. Moreover, while mortgage rates have come down and theoretically provide more purchasing power for potential borrowers, in practice, given the current supply and affordability concerns, we expect this benefit to be limited. ”

Email Matt Carter



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