MBA Expects Another Drop in New Home Sales

The Mortgage Bankers Association (MBA) is predicting another decline in new home sales. The Association's Builder Application Survey (BAS) for May found a 5.9 percent decrease in applications for new home purchase mortgages compared to a year earlier. Compared to April 2021, applications were down 9 percent. This change does not include any adjustment for typical seasonal patterns. Based on the application data, MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 741,000 units in May. This estimate is 3.8 percent lower than April's annual pace of 770,000 units.  On an unadjusted basis, MBA estimates that there were 68,000 new home sales in May 2021, a decrease of 5.6 percent from 72,000 new home sales in April. 

Inflation Holds Key to Fannie Mae's New Forecast

Fannie Mae's economists have revised a lot of their forecast from last month as new data has come in. The outlook for the 2021 GDP has been revised modestly to 7.1 percent from 7.0 percent on a Q4-over-Q4 basis. The revision was due to data indicating stronger second quarter growth in personal consumption which they expect was driven heavily by inventory restocking and will decelerate significantly in the second half of the year. They also moved the 2022 growth forecast down one-tenth to 2.7 percent and revised upward their inflation forecast.

As did the Federal Reserve on Wednesday, Fannie Mae says much of the recent uptick in inflation was transitory, but price pressures are likely to last into 2022. Lagging effects stemming from recent rapid house price growth will generate upwrd pressure. They forecast the Consumer Price Index (CPI) will remain elevated at around 5 percent annually through the end of 2021 before decelerating next year, and that the core Personal Consumption Expenditure Deflator (core PCE), will end 2021 at 4.6 percent and remain elevated at 2.9 percent at the end of 2022.

May Housing Starts Post Modest Recovery from April's Slump

Housing starts recovered in May after falling more than 9 percent in April but permitting had another lackluster month. The U.S. Census Bureau and Department of Housing and Urban Development report that residential units were started at a seasonally adjusted annual rate of 1.572 million, a 3.6 percent improvement on the revised (from 1.569 million) rate of 1.517 million in April. Starts are running 50.3 percent ahead of the rate in May 2020. May's results were slightly lower than expected. Analysts polled by Econoday had a consensus estimate of 1.630 million. The forecasts ranged from 1.500 to 1.735 million. Construction was begun on single-family houses at an annual rate of 1.098 million, a 4.2 percent gain from April's revised rate of 1.054 million and up 49.8 percent year-over-year. The April starts were originally reported at a rate of 1.087 million. Multifamily starts rose 4.0 percent to 465,000 units and are 52.5 percent higher on an annual basis.