While the levels were somewhat larger than anticipated, economists at Fannie Mae say they knew the sharp pullback in most housing-related metrics was inevitable due to harsh weather and widespread power outages in February 2021. According to April 2021 commentary [1] from the Fannie Mae Economic and Strategic Research (ESR) Group, [2] a strong rebound to housing and the greater economy is likely to follow.
Full-year 2021 real GDP growth expectations improved to 6.8%, the team reported, including 9.1% annualized growth in Q2, due predominately, they say, to the continued easing of virus-related gathering restrictions and stimulus-driven consumer spending.
New home sales fell 18.2% over the month while pending sales declined by 10.6%. Existing home sales, which lag contract signings by about 30 to 45 days, on average, will therefore likely be considerably weaker in March and perhaps April, the ESR reported.
Those stats come following a slight downward revision to the forecast due to continued supply constraints and a modestly higher outlook for mortgage rates, noted the ESR.
"The ramp-up we'd previously forecast for the economy is underway, as evidenced by, among other measures, increasing airline passenger reservations and restaurant bookings," said Doug Duncan, SVP and Chief Economist. "Vaccinations are continuing to roll out, and consumers appear to be increasingly looking toward post-pandemic life. While inflationary pressure is growing, our latest forecast update suggests that in the near term interest rates will remain steady at borrower-friendly levels. In fact, despite the recent increases, mortgage rates remain near historical lows, which we expect will help maintain strong housing demand in 2021.
Duncan added: "An above-average pace of renters converting to first-time homebuyers is continuing, with many migrating into the suburbs from denser urban areas [3]. However, strong consumer demand for housing continues to hit up against a lack of supply, limiting sales and bolstering home prices, which we expect will further compound affordability concerns in the months ahead as homebuilders also wrestle with input supply restraints."
Some risks lie ahead, the Fannie Mae team reports.
"The pandemic-driven recession of 2020 was unprecedented, and so too is this next stage of economic recovery," the researchers noted. "While growth is clearly accelerating, consumers’ eagerness to return to previously restricted activities is somewhat uncertain, as is their willingness to tap into the nearly $2 trillion in built-up savings from the past year. There are other meaningful risks to the macro forecast, as well, including ongoing supply chain disruptions, most notably semiconductors (and related auto manufacturing), and shipping bottlenecks."
They expect these factors to be resolved this year, however, if not, they will likely hold back the pace of growth.
Their outlook, the researchers say, is tinted with macroeconomic unpredictability.
"If a combination of surging consumer demand coupled with ongoing supply constraints leads to higher inflation, the Fed may be compelled to tighten monetary policy more quickly than we currently expect," they said. "Future developments in fiscal policy, notably a potential infrastructure and tax bill, have not been incorporated into our current baseline forecast. Lastly, COVID variants that resist current vaccines, or further complications regarding the vaccination roll out, cannot be ruled out."
And the housing sector is even more dubious. Aside from supply and demand issues, uncertainty surrounds the timing and implications of the end of the forbearance policies and how those might impact the number and nature of home sales.
"However, we believe continued improvement in the labor market and higher levels of home equity will likely help limit distressed sales," the ESR team concludes.
Their full report is available at FannieMae.com. [4]