Fannie Mae increased its inflation forecast for 2021, according to its Economic and Strategic Research Group’s latest commentary, in addition to projecting that interest rates will continue to slowly rise through the end of the year as the U.S. economy moves past the COVID-19 pandemic.
The mortgage giant elevated its inflation rate forecast to 6.2% annually in the fourth quarter, but expects recent price gains to begin moderating over the next few quarters. However, it said the buildup of strong inflation pressure leaves it significantly above the Federal Reserve’s 2% target through 2023. It also expects the Fed will begin raising interest rates in 25-point increments as early as the fourth quarter of 2022, and could begin even sooner if inflation continues to surge.
"The principal risks to the forecast remain the pace of global supply recovery, the availability and cost of labor, and the extent of Federal monetary and fiscal largesse," the company stated in its forecast.
If you want to take advantage of interest rates in today’s real estate market while they remain near record lows, consider refinancing your home loans to save money on your monthly payments. Visit Credible to find your personalized refinance rate and see how much you could save.
Inflation not transitory, mortgage rates could rise
In a Dec. 1 hearing before the Senate Banking Committee, Federal Reserve Chairman Jerome Powell said that it may be time to stop using the word "transitory" when referring to inflation.
"We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation," he said at the hearing. "I think it’s a good time to retire that word and try to explain more clearly what we mean."
Now, Powell is beginning to consider spreading up the end to its tapering and slow its asset purchases further as the Fed sets itself up to be able to raise the federal funds rate.
"The Fed is in motion, pushed by inflation running ahead of their forecasts and looking less transitory than they had anticipated," said Doug Duncan, Fannie Mae senior vice president and chief economist. "They left themselves some room for policy change by committing to the speed of tapering assets for only two months, where adjustments could be made thereafter."
"Economic growth continues to slow, but not precipitously; and as rates have not yet reacted strongly, housing and mortgage activity remain very strong," Duncan said. "Market participants will have one eye on the monthly inflation releases and the other eye on the Fed in the months ahead. How credible investors, business leaders, and consumers find the Federal Reserve’s evolving beliefs regarding the passing or sustained level of inflation and resulting monetary policy actions will be key – their choices will impact economic growth as well as housing and mortgage activity."
Fannie Mae projects that because the Fed will begin raising rates in 2022, the average 30-year fixed-rate mortgage will see higher rates – averaging 3.3% next year and move up to an average rate of 3.5% in 2023, according to its mortgage rate forecast.
If homeowners want to take advantage of low mortgage rates now, which are hovering just above 3% for the 30-year mortgage according to the latest data from Freddie Mac, they can consider refinancing their mortgage and save up to hundreds of dollars on your monthly payment. Visit Credible to compare multiple mortgage lenders at once and see how much you could save.
Mortgage refinances to slow in 2022
As mortgage interest rates rise, Fannie Mae projects total borrowers looking to refinance will drop and that refinance volumes in the U.S. will hit $2.5 trillion in 2021. Subsequently, the company expects volumes to drop in 2022 and 2023 to $1.3 trillion and $1.1 trillion, respectively.
However, as refinances slow and mortgage rates rise, home purchase volumes are forecasted to increase as the homebuying market remains strong and prices increase. Fannie Mae expects mortgage purchase volume to hit $1.9 trillion in 2021 before rising by 6.8% to $2 trillion in 2022.
If you want to take advantage of current mortgage rates before they begin to rise, consider refinancing your mortgage loan now. Contact Credible to speak to a home loan expert and get all of your questions answered.
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