Freddie Mac’s first quarter 2021 economic forecast is unusually
short, and, unlike recent forecasts from either of the GSEs, has relatively few
revisions. The company’s economists say that nearly a year after the first cases
of COVID-19 were diagnosed in the U.S., economic growth remains uncertain, with
answers largely hinging on the roll-out of the new vaccines. The labor market
remains weak with close to 20 million collecting unemployment insurance.
December’s job losses, the first since last April, didn’t change the
unemployment rate from 6.7 percent because labor participation also declined.
Record low mortgage rates continued to carry the housing market during the turmoil
of the pandemic. At the end of the first week of 2021, the 30-year rate hit
2.65 percent, a new low. Freddie Mac expects the low interest rate environment
to continue through both this year and next, averaging 2.9 percent through this
end of this year and 3.2 percent in 2022.
Along with the low rates, the demand for housing has also been supported by the ability
of workers to do so remotely. Sales in 2020 reached levels last seen in 2006.
Annualized sales hit 7.6 million in the fourth quarter with strong showings
from both new and existing home sales. Freddie Mac forecasts total home sales
to be 6.8 million in the first quarter of 2021 and to average 6.5 million for the
The level of home sales has put pressure on housing inventory which has now
hit an all-time low of 1.23 million available homes, only a 2.3-month supply at
the current sales pace. This has, in turn, driven home prices up; the quarter
over quarter increase in the fourth quarter was 4 percent. Freddie Mac
forecasts house price growth to moderate over 2021 and 2022 to 1.3 percent and
0.7 percent, respectively.
All these factors – low rates, increasing home sales and sales prices – have
boosted mortgage originations. They are forecast to hit a historic high of $4
trillion in 2020. Refinancing will account for $2.6 trillion and purchase
mortgages $1.4 trillion. In the fourth quarter alone, there were $778 billion
in refinancing originations and $436 billion in purchase mortgages. Freddie Mac
forecasts total originations to decrease to $3.3 trillion in 2021and decline
further to $2.4 trillion in 2022.