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Households ‘Reasonably Well-Positioned’ to Handle Economic Downturn

The near-future state of the U.S. economy is predicated on how policymakers and the public respond to the increasing number of COVID-19 cases, according to the latest commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.

The ESR Group is predicting consumer spending will be impacted by the resurgence of the virus, although it also anticipates that a stronger domestic labor market and increased household savings would fuel continued real GDP growth – barring significant behavioral shifts and lockdown measures related to a new wave of virus-related chaos. The real GDP growth is currently forecast at 3.3% percent for full-year 2021, slightly below last month’s projection, and 3% percent for full-year 2022.

The ESR Group revised nearer-term projections, including the fourth quarter of 2020 and the first quarter of 2021, in a modest downward projection based on evidence of virus-related changes in consumer behavior. Although strict new lockdown or social distancing mandates remain the largest downside risk, the ESR Group stated economic growth could “substantially surpass the baseline forecast if, alternatively, such measures can be avoided and the development of a vaccine progresses swiftly.”

Furthermore, the ESR Group is expecting housing to show continued strength through the rest of 2020 and into 2021. While the forecasts on new and existing home sales were revised upward for the fourth quarter of 2020 and the first quarter of 2021, the ESR Group observed that home sales pace may have peaked in September and a moderate slowdown is taking place – pending sales and purchase mortgage applications have recently pulled back from highs reached in the spring as pent-up homebuyer demand recedes. Complicating this picture would be a renewal of virus mitigation protocols among prospective buyers and impact, the ESR Group added.

“The continued geographic shift and now resurgence of COVID-19 has raised risks to the pace of growth, though in our view not to the level of a potential second recessionary downturn,” said Doug Duncan, Fannie Mae SVP and Chief Economist. “Households appear reasonably well-positioned to weather and cushion the slowdown, but if a strict broad-based lockdown were to be instituted and sustained, then the economy could turn down again. Meanwhile, the housing market continues to thrive in the low rate environment, particularly refinancing, but the sector is showing some early signs of slowing on the purchase side as the delayed seasonal effect works its way through the market.”

About Author: Phil Hall

Phil Hall is a former United Nations-based reporter for Fairchild Broadcast News, the author of nine books, the host of the award-winning SoundCloud podcast "The Online Movie Show," co-host of the award-winning WAPJ-FM talk show "Nutmeg Chatter" and a writer with credits in The New York Times, New York Daily News, Hartford Courant, Wired, The Hill's Congress Blog and Profit Confidential. His real estate finance writing has been published in the ABA Banking Journal, Secondary Marketing Executive, Servicing Management, MortgageOrb, Progress in Lending, National Mortgage Professional, Mortgage Professional America, Canadian Mortgage Professional, Mortgage Professional News, Mortgage Broker News and HousingWire.
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