Fannie ESR Group Predicts Housing Activity To Remain Strong In 2021

Fannie Mae's Economic and Strategic Research Group providing commentary and predictions for the U.S. economy in 2021. The ESR group expects the U.S. economy to grown 5.3% in 2021, which is a substantial increase from the currently projected 2.7% contraction in 2020, according to a press release.

The group cited the expansion of COVID-19 vaccination efforts and the approaching warm weather will help the U.S. economy pick up from the hits taken towards the end of 2020. According to the commentary, housing activity is expected to remain strong in 2021, however sector growth will likely decelerate from the torrid pace set in the second half of 2020.

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, according to the report. Home price appreciation is also expected to slow along a similar timeline. The group expects purchase mortgage originations to rise in 2021 to $1.8 trillion from 2020's projected $1.6 trillion. Refinance origination activity is forecast at $2.2 trillion in 2021, down from the projected all-time high of $2.8 trillion in 2020.

"COVID-19 remains the dominant force altering the path of the economy through the behaviors of people, businesses and policymakers," said Doug Duncan, Fannie Mae senior vice president and chief economist. "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."

"One impact of our projected growth acceleration is likely to be modestly rising interest rates, whether as a result of increased growth expectations – as consumer savings are augmented by stimulus leading to stronger consumer spending – or by a modest increase in inflation driven by demand growth outpacing a recovery in supply," Duncan continued. "We believe the Fed's policy of tolerating a modest overshoot of its long-term inflation target is likely to be tested."

"Our latest forecast projects that the continued waning of pent-up demand from last year's delayed spring homebuying season, coupled with a modest rise in interest rates, will likely slow the pace of housing, measured both by the volume of mortgages refinanced and by the pace of home sales. However, in our view, a modest slowdown in the sales pace is unlikely to prevent year-end 2021 home sales from being higher than 2020," Duncan concluded.

Click here to read more from the full commentary from the ESR group.