Fannie Mae boosts 2020 housing forecast 'significantly'

KEY POINTS

• After increasing just over 1% annually this year, growth in single-family housing starts will accelerate to 10% during 2020 and top 1 million new homes in 2021, Fannie Mae's Economic and Strategic Research Group predicts.
• That would mark a post-recession high but is still far below the annual peak of about 1.7 million single-family starts in 2005 and the 1.2 million annual pace experienced in the late '90s.

Construction workers build an apartment complex in Lawrence, Kan., Wednesday, May 16, 2012. U.S. builders started work on more homes and apartments last month and requested more permits to build single-family homes. The increases suggest the battered housing market is healing. The Commerce Department said Wednesday that builders broke ground in April at a seasonally adjusted annual pace of 717,000 homes. That's a 2.6 percent increase from an upwardly revised March figure and near January's three

Orlin Wagner

Strong reads on the economy have researchers at mortgage giant Fannie Mae revising their 2020 housing forecast much higher.

Fannie Mae's Economic and Strategic Research Group predicts builders will expand production more than previously expected, due to a strong labor market and robust consumer spending. Low mortgage rates will also help.

After increasing just over 1% annually this year, growth in single-family housing starts will accelerate to 10% during 2020 and top 1 million new homes in 2021, the group predicts. That would mark a post-recession high but is still far below the annual peak of about 1.7 million single-family starts in 2005 and the 1.2 million annual pace experienced in the late '90s.

Single-family housing starts have been improving steadily since May, and building permits, an indicator of future construction, are also trending higher.

"It will likely take several years, even at a more robust pace, for new construction to address the existing pent-up demand for additional housing, as suggested by a still-increasing share of 25- to 34 year-olds living at home with their parents," according to the report.

The shortage of existing homes for sale has pushed more potential buyers to the new-build market. Mortgage applications to purchase a newly built home were up 27% annually in November, according to the Mortgage Bankers Association. Homebuilder sentiment jumped to the highest level in 20 years in December, according to the National Association of Home Builders.

"We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales activity," said Fannie Mae chief economist Doug Duncan.

The increase in construction, however, is unlikely to ease the overall housing shortage. Researchers at Fannie Mae are predicting a modest decline in existing home sales through the third quarter of 2020, due to the shortage of listings.

Overall housing demand is incredibly high, especially at the lower end of the market, where builders are least active. Prices are rising fastest on the low end, sidelining some first-time buyers.

"This stronger price appreciation is also having the unfortunate effect of partially offsetting savings to potential homebuyers from lower mortgage rates," Duncan said.

The average rate on the 30-year fixed mortgage is hovering just below 4%, a full percentage point lower than where it was a year ago. Low rates are boosting already strong demographic demand drivers in the market. Millennials, who delayed buying homes because of the recession, are now flooding into new and existing homes.

"Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021," said Duncan.