Despite a light rebalancing of third and fourth quarter estimates, full-year 2020 economic output is still expected to contract 2.6 percent, according to the latest commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. Its estimate of third quarter 2020 real GDP growth was revised upward 1.2 percentage points to 31.6 percent annualized, while fourth quarter 2020 growth was revised downward 1.3 percentage points to 4.9 percent annualized. The intertemporal shuffling of growth expectations reflects in part a deceleration of consumer spending and the likely pull-forward of business fixed investment and the restocking of inventories. As with prior months, risks to the forecast remain weighted to the downside, chief among them the potential acceleration of COVID-19 case rates and the subsequent re-imposition of widespread social and economic restrictions.
The housing sector continues to be highly supportive of economic growth and is expected to remain so over the forecast horizon. With forward-looking indicators, including pending sales and new construction, demonstrating strength, the ESR Group now forecasts third quarter residential fixed investment growth at 58.0 percent annualized, a level that, if realized, would surpass pre-COVID figures. As such, annual home sales, mortgage origination volume, and home price growth – as measured by the FHFA index – are all expected to significantly outpace 2019 levels.
“The economy continues to recover, albeit at a slowing pace,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Our view is that the combined decline of GDP in 2020 will likely be regained in 2021 for net zero growth over the two-year period. This suggests that if the labor force grows as expected, then the unemployment rate must also end 2021 higher than pre-crisis levels, as shown in our forecast. Meanwhile, housing continues its multi-year theme of historic supply constraints. Strong demand-side drivers, including low mortgage rates and a surge of millennials looking to purchase homes, are contributing to significant home price appreciation, particularly as many older homeowners continue to age in place and other would-be home-sellers adopt a more conservative posture due to COVID-19 concerns, further limiting supply.”