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Press Release

Economy Transitioning from Consumer-Led Recovery to More Balanced Growth as Inflation Risks Remain

July 19, 2021
Historically High Home Price Growth Expected to Moderate but Add to Overall Inflation Pressure

WASHINGTON, DC – Expectations for full-year 2021 real GDP growth at 7.0 percent were little changed from the previous outlook, but meaningful compositional and temporal shifts are now projected for the underlying sources of economic growth, according to the July 2021 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. Modestly weaker-than-expected consumer and construction spending data and an updated federal spending timeline from the Congressional Budget Office led the ESR Group to update its forecast to reflect a larger share of 2021 economic growth occurring in the second half of the year. Second quarter growth is now expected to clock in at 8.1 percent, down from last month’s projected 10.1 percent, while third and fourth quarter growth projections were revised upward by 0.7 and 1.2 percentage points, respectively, to 7.1 percent and 6.6 percent. Additionally, the ESR Group expects that business inventory investment and government spending will account for an increasing share of near-term economic growth, as spending by consumers shifts toward services and away from goods. Risks to the forecast are weighted to the downside, including future COVID-19 developments, supply chain and labor shortages, and inflation risk. The ESR Group expects higher-than-consensus levels of inflation through the end of 2022, in part due to anticipation that some of the more transitory price pressures will give way to housing-driven inflationary pressure.

Amid record demand for housing and extremely limited inventory in the first half of the year, the ESR Group significantly upgraded its home price forecast, as measured by the FHFA Purchase-Only Index, to 14.8 percent annualized in 2021, up from its prior forecast of 8.0 percent. However, home purchase demand is expected to soften modestly moving forward. Combined with supply chain disruptions, material costs, and labor shortages easing – which should allow homebuilders to ramp up production – the ESR Group expects home price growth to moderate to 5.1 percent in 2022. In addition to its upgraded home price growth projections, the ESR Group also lowered modestly its interest rate forecast. As such, 2021 mortgage originations are now forecast at $4.2 trillion, up from last month’s forecast of $4.1 trillion, with both purchase and refinance origination activity projected to be higher.

“While recent home price growth has been historically high, we’re forecasting further home price appreciation to moderate through the remainder of the year and into 2022,” said Mark Palim, Fannie Mae Vice President and Deputy Chief Economist. “On the supply side, we think homebuilders will be able to increase production as supply chain disruptions and labor shortages alleviate, which should add to the inventory of new and existing homes available for sale. On the demand side, we expect the increase in housing demand we saw over the past year to ease, as the impact of unique recent factors lessens, including adjustments to accommodate pandemic-related remote work arrangements, stimulus checks bolstering household savings, and record-low mortgage rates. However, demographic trends remain favorable for a strong housing market over the next few years, and, combined with the chronic undersupply of homes built over the last decade, upward pricing pressure is likely to remain through the forecast horizon – just not at the rate seen this spring. Nevertheless, we expect home price growth to become one of the more persistent drivers of inflation going forward, as other, more transitory factors diminish.”

Visit the Economic & Strategic Research site at to read the full July 2021 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.

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Fannie Mae Newsroom

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Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.