Projected growth in new home sales wouldn’t offset expected drop in existing home sales

The level of existing home sales in July exceeded forecasts, but Fannie Mae economists predict that home buyer demand will slow for the rest of this year and next, due to the limited number of homes available on the market.

The economists at Fannie Mae have updated their latest monthly forecast and now predict home sales will rise by 3.3% this year, to 6.68 million homes, up from their previous forecast of 3.1% growth.

Sales of existing homes saw a slight increase of 2% in June-July, contributing to the higher than expected forecast for this year’s sales.
Fannie Mae economists maintain that sales pace may not be sustainable because for-sale inventories are at low levels, new listings aren’t coming on the market quickly enough to meet demand, and new listings aren’t being created quickly enough.

According to Fannie Mae, next year sales of new and existing homes are expected to drop by 1.9%.
New home sales are expected to increase in 2013, but not enough to compensate for a decrease in existing home sales.

Purchase mortgage applications and pending home sales point to a near-term softening, with the annual pace of existing home sales expected to drop to 5.7 million homes by the end of the year, according to the Federal National Mortgage Association (Fannie Mae).

Annual pace of new and existing home sales, by quarter. Second quarter of 2021 and beyond are projected. Source: Fannie Mae Economic and Housing Outlook, September 2021.

The vacation-home market has boomed over the past year and is not likely to slow any time soon, even as the rest of the housing market starts to cool, Lawrence Yun, chief economist for the National Association of REALTORS®, told The Escape Home, a newsletter for second-home owners.

Even as companies bring employees back to the office, vacation homes will remain in demand, Yun said. Part of vacation homes’ rise in popularity has been attributed to the growth in remote work.

Overall, home sales are showing some signs of cooling. Many first-time home buyers are getting priced out of the market, Yun said. The median existing-home price for all housing types was $359,900 in July, nearly an 18% increase from a year ago. Mortgage rates are likely to increase, which could make buying even more expensive, he added. NAR predicts mortgage rates will rise to 3.5% by mid-2022, as the Federal Reserve likely will begin to reduce its bond purchases before the end of the year.

But vacation homes will remain a hot commodity. Rental prices for vacation homes will likely continue to rise too, Yun said.

“One near-certain aspect of the post-pandemic economy, when it comes, is the flexible work schedule,” Yun told The Escape Home. “It is very hard to envision five days a week in the office. Therefore, vacation-home sales will continue to move higher, this year, next year, and for the foreseeable future.”

Lawrence Yun

Lawrence Yun is Chief Economist and oversees the Research group at the NATIONAL ASSOCIATION OF REALTORS®. He supervises and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.4 million REALTORS®.

It’s been some time since I posted a blog, I’ve been asked so many questions about the market, it’s time I share my data and thoughts.

Mortgage rates for the seventh week in a row were 2.9% or lower.
Nadia Evangelou, a senior economist and director of forecasting for the National Association of REALTORS, suggests that home buying will have returned to a more regular seasonal trend of cooling off.

She noted that both buyers and sellers dislike moving their families while school is in session, they prefer to wait until the end of the year when they have more free time for the relocation.
Between August and September, she predicted that sales would fall by 15 percent.
It’s usual to see the market cooling off in the coming months, even at record low rates.
According to NAR, total house sales are expected to decrease by 10% in the last quarter of this year.

Mortgage demand has dropped to the two-month low.

According to Freddie Mac’s chief economist, “Even as the economy expands, it has lost speed since the recent wave of new COVID cases has resulted to worse employment, fewer spending, and a drop in consumer confidence.”
In addition, because of increasing supply and demand imbalances, mortgage rates have remained stable despite increases in inflation.
These low and consistent mortgage rates provide consumers more time to search for homes.

The following nationwide averages for mortgage rates were reported by Freddie Mac during the week ending September 9:

30-year fixed-rate mortgages had an average interest rate of 2.88%, with an average one-tenth of a point (0.7%). This significantly increased from the previous week’s average of 2.87%.
Just one year ago, 30-year interest rates averaged 2.86%.

A 15-year fixed-rate mortgage had an average interest rate of 2.19%, with an average 0.6 point.
A year ago, fifteen-year interest rates averaged two and one-half percent.

2.42% average 5-year hybrid adjustable-rate mortgages: down from last week’s 2.43% by 0.3 points.
Five-year adjustable-rate mortgages (ARMs) averaged 3.11% one year ago.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

Source: Freddie Mac and “Instant Reaction: Mortgage Rates, September 9, 2021,” National Association of REALTORS® (Sept. 9, 2021