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Federal Register / Vol. 86, No. 162 / Wednesday, August 25, 2021 / Proposed Rules
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factors that may influence the market shares, such as interest rates, inflation, house prices, home sales, the unemployment rate, and other factors.
The models then project the future value of the affordable market share using forecast values of the model inputs. Separate models are developed for each of the single-family housing goals and subgoals.
FHFA has employed similar models in past rulemaking cycles to generate market forecasts. The models are developed using monthly series generated from HMDA and other data sources, and the resulting monthly forecasts are then averaged into an annual forecast for each of the three years in the goal period. The models rely on 16 years of HMDA data, from 2004 to 2019, the latest year for which public HMDA data was available at the time of model construction. FHFA will be updating the models with HMDA
data for 2020 while developing the final rule. Additional discussion of the market forecast models can be found in a research paper, available at http
www.fhfa.gov/PolicyProgramsResearch/
Research/.22
Current market outlook. There are many factors that impact the affordable housing market as a whole, and changes to any one of them could significantly impact the ability of the Enterprises to meet the goals. In developing the market models, FHFA used Moodys forecasts as the source for macroeconomic variables where available.23 In cases where Moodys forecasts were not available for example, the share of government-insured/guaranteed home purchases and the share of governmentinsured/guaranteed refinances, FHFA
generated and tested its own forecasts as in past rulemakings.24 Elements that impact the models and the determination of benchmark levels are discussed below.
Interest rates are very important determinants of the trajectory of the mortgage market. In an effort to continue its support of the U.S.
economy and promote maximum employment and price stability, the Federal Reserve reiterated at its April 2021 meeting its commitment to seeking 22 Details on FHFAs single-family market models will be available in the technical report The Size of the Affordable Mortgage Market: 20222024
Enterprise Single-Family Housing Goals available at https www.fhfa.gov/PolicyProgramsResearch/
Research/PaperDocuments/Market-Estimates_20222024.pdf.
23 The macroeconomic outlook described herein is based on Moodys forecasts as of July 2021.
24 This refers to the mortgages insured or guaranteed by government agencies such as the Federal Housing Administration, Department of Veterans Affairs, and Rural Housing Service.

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to achieve maximum employment and inflation at 2 percent in the long run by maintaining its target for the federal funds rate at between 0 percent and 0.25
percent until its goals are achieved.25
The target was first lowered to this level in March 2020 to mitigate the effects of the COVID19 pandemic.26 Moodys July 2021 forecast assumes that this target is maintained until the third quarter of 2022, and then projects that mortgage interest ratesin particular the 30-year fixed rate, which is closely tied to the federal funds rate and the 10year Treasury note yieldwill rise gradually from the current historic low of 3.1 percent in 2020 to 4.3 percent by 2024.27
Moodys July 2021 forecast projects that the unemployment rate will gradually fall from its 2020 peak to 4.0
percent in 2024. Moodys also forecasts a modest increase in per capita disposable nominal income growth from $53,081 in 2020 to $59,365 in 2024. Furthermore, Moodys estimates that the inflation rate will be in the 2.2
2.4 percent range from 2022 through 2024.
The combination of low interest rates, high deferred demand, and low supply fueled by the pandemic pushed house prices up by 18.0 percent in May 2021
relative to May 2020, based on FHFAs purchase-only House Price Index HPI.28 Moodys July 2021 forecast of the same HPI index expects house prices to increase at the annual rates of 4.0, 3.7, and 1.5 percent in 2022, 2023, and 2024, respectively.
Taken together, the expected increase in mortgage interest rates and house prices likely will impact the ability of lowand very low-income households to purchase homes. Housing affordability, as measured by Moodys forecast of the National Association of Realtors NAR Housing Affordability Index HAI, is projected to decline from an index value of 166.3 in 2020 to 135.4
in 2024. Lower values of the HAI imply that affordability has worsened.29 The 25 See https www.federalreserve.gov/
newsevents/pressreleases/monetary20210428a.htm.
26 See https www.federalreserve.gov/
newsevents/pressreleases/monetary20200315a.htm.
27 See Exhibit 1 in the technical report The Size of the Affordable Mortgage Market: 20222024
Enterprise Single-Family Housing Goals available at https www.fhfa.gov/PolicyProgramsResearch/
Research/PaperDocuments/Market-Estimates_20222024.pdf.
28 See https www.fhfa.gov/AboutUs/Reports/
Pages/US-House-Price-Index-July-2021.aspx.
29 NARs HAI is a national index. It measures, nationally, whether an average family could qualify for a mortgage on a typical home. A typical home is defined as the national median-priced, existing single-family home as reported by NAR. An average family is defined as one earning the median family income. The calculation assumes a down payment
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third leg of the housing affordability stool is the supply of affordable housing, but this had not kept pace with the growth of the demographic demand even before the advent of the COVID19
pandemic.
In many ways, 2020 was an unusual year as it saw record volumes of both home purchase and home refinance loans. Low interest rates coupled with rising house prices created an incentive for many homeowners to refinance, resulting in a surge in refinance activity in 2020. The refinance share of overall mortgage originations since 2001
increased from a low of 28 percent in 2018 to 61 percent in 2020. Moodys forecasts this share to sharply decline to 42 percent in 2021, and continue to decline to 39 percent in 2022, and then to 31 percent and 24 percent in 2023
and 2024, respectively.
The economic forecast from Moodys described above is largely consistent with that provided by other forecasters.
According to the Bureau of Economic Analysis BEA, real Gross Domestic Product GDP grew by 33.4 percent in the third quarter of 2020, following two quarters of losses. GDP growth was strong in the subsequent quarters, including the second quarter of 2021
when it grew by 6.5 percent according to the advance estimate released by the BEA.30 According to the most recent estimate published by the Congressional Budget Office CBO, GDP is projected to grow by 7.4 percent in 2021, after which GDP growth is projected to decline to 3.1 percent in 2022, and then remain under 2 percent through 2031.31
According to the Bureau of Labor Statistics BLS, the unemployment rate peaked at 14.8 percent in April 2020, and fell to 5.9 percent in June 2021.32
CBO projects this number to be 4.6
percent in the fourth quarter of 2021
and that employment will surpass its pre-pandemic level in mid-2022.
FHFA continues to monitor how these changes in the housing market and recent legislation may impact various segments of the market, including those targeted by the housing goals.
of 20 percent of the home price and a monthly payment that does not exceed 25 percent of the median family income. An index value of 100
means that a family earning the median family income has exactly enough income to qualify for a mortgage on a median-priced home. An index value above 100 signifies that a family earning the median family income has more than enough income to qualify for a mortgage on a median-priced home. A
decrease in the index value over time indicates that housing is becoming less affordable.
30 See https www.bea.gov/news/2021/grossdomestic-product-second-quarter-2021-advanceestimate-and-annual-update.
31 See https www.cbo.gov/publication/57339.
32 Accessed on 7/29/2021 at https www.bls.gov/
news.release/empsit.nr0.htm.

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