Key Highlights
- According to Fannie Mae Economic and Strategic Research Group (ESR), forecast upgraded from 5.3% to 6.7% in 2021
- Housing market expected to “moderately” cool over longer time frame
Fannie Mae Economic and Strategic Research Group Bullish about Economy
The Fannie Mae Economic and Strategic Group (ESR) indicated in its February 19 report that it expects the economy to grow +6.7% in 2021. This is a giant improvement from not only last year’s rate of +2.5% but up also from Fannie’s last month’s forecast of 5.3%.
This upgraded forecast is based upon the expectations that consumer spending will be high due pent-up demand, that COVID case rates and hospitalizations will slow and the likelihood of an impending fiscal stimulus package.
ESR Group Continues to Expect Housing Prices to Moderate in 2021
Though Fannie’s ESR Group still expects housing prices and sales to “cool” during 2021 from its unsustainable pace in the second half of 2020, the ESR Group did revise its 2021 sales forecast. The ESR Group expects housing prices and sales to moderate gradually through the entirety of 2021.
New Housing Starts Revised Upwards
The ESR Group anticipates annual single-family starts to hit +18.6% in 2021, higher than its previous forecast of +12.5%. It also projects mortgage originations to hit $4.1T in 2021, an improvement of $0.2T from its prior forecast.
2020 = Year of the Virus; 2021 = Year of Vaccine
Doug Duncan, the Senior Vice President and Chief Economist with Fannie Mae, said, “If 2020 was the year of the virus, then 2021 will more than likely be the year of the vaccine. Whether the vaccines are effective, including with the new virus strains, and how broadly and timely they can be distributed remain key questions; our forecast assumes such efficacy and that they’ll be widely administered by the summer. Further, the recent upward creep of Treasury rates suggests that financial markets currently expect the same (creep upward).”
Potential Boom and Bust Scenario
Duncan leveled a few words of caution along with this recent bullish forecast. “…with the Fed committed to low rates for the foreseeable future, a recovering economy, and already the highest level of debt-funded stimulus in place since World War II, the proposed additional stimulus heightens the risk of rising inflation and interest rates, as well as a potential boom-and-bust scenario. Very strong growth in the second half of 2021 could push inflation, and thereby rates, up significantly in 2022, thus invoking a Fed response of tightening and significant deceleration later in 2022. This is not our base case scenario, but we see it as a significant risk moving forward.”
Thanks to Fannie Mae Economic and Strategic Groupmid-February report.
