| Fannie Mae has revised its housing and economic forecasts higher almost every month since mid-summer. Its report this week was even more upbeat. The company’s economists boosted their 2021 GDP prediction 1.2 percentage points to 4.5% saying, “We continue to believe that the conditions for a continued, strong recovery are present once the limiting factors of COVID-19 on consumer behavior are lifted.”
Housing was a big part of their calculation. Prices will rise, mortgage originations will be huge, and sales will continue strong, at least in this short term. Their outlook, however, was nuanced.
The historic relationships between new home sales and housing starts and between housing starts and construction employment, they noted, have both been disrupted. The former will further shrink inventories and the latter means home builders are facing capacity constraints. Together they mean the current pace of home sales is not sustainable.
Fannie also notes that consumers usually up their savings rate during a recession as they try to repair household balance sheets. The last three recessions featured the collapse of asset bubbles and saving rather than spending prolonged the recovery each time. Americans are socking away cash this time as well, exceeding pre-pandemic saving levels by $1.6 trillion. However, the savings, combined with record high homeowner equity (no asset collapse this time) has increased household wealth 4.4% year-over-year. Fannie Mae says this provides a large amount of spending power that wasn’t present after the Great Recession. This could fuel a faster recovery.
New Home Construction Permits Rise
New home permits surprised everyone with an annual rate of 1.639 million, 6.2% higher than October and 8.5% above the year-over-year November 2019 rate. This was nearly 100,000 more permits than predicted by two different groups of analysts and put permitting at its highest level since 2007.
Starts were only up 1.2% from October, but the 1.547 million annual units are still 12.8% higher than last November. Single-family starts were a little anemic, an 0.4% gain, but they are already up a whopping 27% compared to last year.
Interest Rates Hit New Low, (Again)!
“The 30-year fixed rate has never been this low since Freddie Mac began tracking mortgage rates in 1971. It surpassed the previous low of 2.71%, set earlier in the month. For some context on how remarkably low rates are, since November 2018, when it was 4.94%, the 30-year fixed rate has fallen more than 2.25 percentage points. At the start of 2000, the 30-year average was 8.15%.” Washington Post
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Please Note: Our next newsletter will be published during the week ended January 8. Have a lovely holiday and we wish everyone a much happier and healthier New Year. |
