Economy Poised for Considerably Stronger 2021 as COVID-19 Vaccine Distribution Efforts Commence

WASHINGTON, DC – Economic growth expectations for 2020 and 2021 were upgraded for the second consecutive month due to positive developments associated with the COVID-19 vaccine, the likelihood of new fiscal stimulus, and upbeat consumer spending data, according to the latest commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. On a full-year basis, real GDP in 2020 is now expected to contract only 2.2 percent -- up from the November forecast’s expectation of negative 2.5 percent – before resuming a positive trajectory in 2021 with growth of 4.5 percent, a 1.2 percentage point improvement from the previous forecast. The ESR Group did note a heightened level of near-term uncertainty and potential weakness stemming from new lockdown and social distancing measures amid rapidly rising COVID-19 case counts, hospitalizations, and fatality rates. However, the expectation of ongoing accommodative monetary and fiscal policy, household spending strength, and, most critically, the commencement of widespread vaccine distribution efforts has the consumer well-positioned to accelerate spending come spring, ultimately driving a considerably faster pace of growth in the second half of 2021.

The housing sector continues to perform admirably, but in the absence of additional inventory the ESR Group expects a modest pullback from its current pace. Even though sales are expected to taper in the coming months – in part due to both a lack of existing homes for sale and construction capacity constraints – the home sales forecast for 2021 was improved to 6.66 million from 6.41 million. Consistent with a faster pace of existing sales and strong refinance activity, the ESR Group’s mortgage originations forecast was also upgraded for both 2020 and 2021 to $4.29 trillion and $3.47 trillion, respectively.

“Even though near-term economic growth may be slowing, as made evident by the latest employment data, we believe the high probabilities of a successful COVID-19 vaccine distribution and additional federal stimulus will carry the economy through a relatively soft first half of 2021 before accelerating in the second half,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “We also expect housing to remain strong, despite slowing from its previously torrid pace, as homebuilders catch up on current commitments and more existing homeowners list their homes to take advantage of strong price growth. We expect the mortgage market to finish 2020 at a historic level of production before slowing slightly but remaining strong in 2021.”

Visit the Economic & Strategic Research site at fanniemae.com to read the full December 2020 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.