Economy

Economy ‘Ready to Take Off’ in 2021

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Fannie Mae’s  Economic and Strategic Research (ESR) Group expects the U.S. economy to grow 5.3% in 2021, an upgraded forecast from the 4.5% reported last December. The GSE also issued an improved projection for 2022 at 3.6% growth from 3.2%.

Fannie’s dense “Economic & Housing Outlook” report indicates that economic output likely flatlined or even pulled back during the last two months of 2020. But Fannie Mae’s experts expect a reversal of recent softness starting in late spring when growth typically accelerates. Thus, Fannie reported a downgrade to negative 2.7% for forecasted GDP growth as it pushes more recovery further into 2021.

“Expanding vaccination efforts, the emergence of warmer weather, and the passing of greater than previously expected fiscal stimulus point to an economy ready to take off once COVID-19-related effects begin to subside,” note the report’s authors (Doug Duncan, SVP and Chief Economist; Mark Palim, VP and Deputy Chief Economist; Eric Brescia, Economist; Nick Embrey, Economist; Rebecca Meeker, Financial Economist, and Richard Goyette, Business Analyst).

A successful rollout of the COVID-19 vaccine will accelerate recovery, the researchers said.

“COVID-19 remains the dominant force altering the path of the economy through the behaviors of people, businesses, and policymakers,” Duncan said in a press release. “Therefore, the best policy for economic recovery is the broad distribution of an effective vaccine, which is underway. The sooner this can be successfully accomplished the sooner growth can accelerate, and our thought is that by mid-year vaccine distribution efforts will be well-established, allowing for a strong second half.”

While the ESR group expects home sales to rise 3.8% in 2021, the monthly pace is likely to slow through much of the year.

House price appreciation is expected to slow along a similar timeline.

Purchase mortgage originations are expected to rise in 2021 to $1.8 trillion from 2020’s projected $1.6 trillion, while refinance origination activity is forecast at $2.2 trillion in 2021, down from the projected all-time high of $2.8 trillion in 2020. With mortgage rates near historic lows, the authors estimate that 67% of outstanding mortgages have at least a half-percentage point incentive to refinance.

The report indicates the housing market will “shift down a gear” after driving the initial phase of economic recovery in latter 2020.

“While we forecast that housing demand will continue to be strong, based on an improving labor market and favorable demographic factors, we believe the pace of activity will likely slow over time toward its underlying trend,” the researchers said. “We do not expect mortgage rates to decline further, and inventories of homes for sale remain extremely tight. “

The full report is available at FannieMae.com.

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