Fannie Mae raised its forecast for 2020 home-price gains, saying low mortgage rates and a strong labor market will pump up demand for properties.
Single-family home prices probably will increase at a 4.6% pace this year, Fannie Mae said in a forecast on Tuesday. That compares with the 4.1% advance for 2020 the mortgage giant predicted a month ago.
The forecast is based on the Federal Housing Finance Agency‘s home-price index that measures single-family homes purchased using conventional mortgages.
“Think about someone focused on the size of payment they can afford,” Doug Duncan, Fannie Mae’s chief economist, said in an interview. “If you hold the size of the payment constant and interest rate component shrinks, that give you some latitude to bid up prices. That’s what’s happening.”
Price gains will push the volume of mortgage originations used for home purchases to a record $1.37 trillion, Fannie Mae said.
The average U.S. rate for a 30-year fixed mortgage probably will be 3.7% in 2020 and 2021, according to the forecast. That compares with 3.9% in 2019 and 4.5% in 2018, Fannie Mae said.
The labor market will continue to be robust, the forecast said. The U.S. unemployment rate probably will average 3.8% in 2020, compared with a 50-year low of 3.7% in 2019, the mortgage financier said.
However, the market continues to grapple with a supply shortage.
The number of single-family homes for sale dropped to 1.45 million in November, the lowest level for that month in a data series that goes back to 1982, according to the National Association of Realtors. The U.S. has added 96.5 million people in the intervening years.
Help is one the way, though. December’s housing starts spiked to a 13-year high, according to government data. For all of 2020, builders are expected to break ground on 975,000 single-family homes, according to Fannie Mae’s forecast. That would be the highest since 2007.
“Builders are accelerating their production, but there’s a lot of pent-up demand from household formation,” Duncan said. “They’re not going to be able to make it up in the short run.”
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