Fannie Mae: U.S. Economy Poised for ‘Substantial Rebound’
Fannie Mae, Washington, D.C., said in the wake of the U.S. economy’s historic second-quarter contraction—nearly 40 percent—the strong rate of economic recovery seen in May and June sets up the third quarter for a “substantial rebound.”
The Fannie Mae Economic and Strategic Research Group said third-quarter gross domestic product growth is now forecast to come in at 27.2 percent annualized. This would substantially offset the 39.2 percent annualized contraction in the second quarter—the largest such decline since World War II.
Additionally, Fannie Mae said the coronavirus case rate, supportive fiscal and monetary policy and an elevated level of household savings supportive of future consumer spending are all expected to drive further recovery through the remainder of the year.
The report noted while substantial downside risks remain, including possible worsening of the coronavirus crisis leading to more stringent shutdown and social distancing measures, for full-year 2020 the ESR Group now expects real GDP to contract only 3.1 percent compared to the previously forecast 4.2 percent. This improvement reflects in part the expectation that future localized or regional flare-ups of the coronavirus (of a similar magnitude observed thus far) are unlikely to lead to a further contraction in economic output but rather a temporary pause in the rate of growth.
“The economy’s climb back from the sudden and severe setback of the second quarter is fully underway, but we believe the future pace will be driven largely by the path of the novel coronavirus and how the public responds to coronavirus-related information,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Consumers have savings to draw on, but some are holding that savings in reserve until the economy and labor markets improve. Others are spending on a discretionary basis as they await evidence that the virus has receded sustainably. Our base scenario assumes that Congress will agree upon additional fiscal stimulus in support of consumers and businesses, and that the economy will only shrink 3.1 percent in 2020 relative to 2019, measured on a fourth-quarter-over-fourth-quarter basis.”
Citing the ongoing strength of the housing sector amid sustained increases in purchase demand, the ESR Group revised upward its expectations for home sales, as well as its estimate of total mortgage market originations, in 2020 and 2021. The ESR Group now expects total origination volume to hit $3.4 trillion in 2020,the highest annual origination volume since 2003, when total volume was $3.7 trillion.
“We believe housing will continue to be a sector with relative strength amid the larger downturn, as long-running supply constraints exacerbate demographic and interest rate demand-side factors that are supporting home price growth,” Duncan said. “The recently observed increase in purchase demand is largely due to pent-up demand as buyers are acting now after delaying purchases in the spring. We are, however, seeing some early signs of shifting buyer preference to locate to lower density areas, potentially driving some additional purchase activity. Here, our baseline forecast sees purchase volumes of $1.3 trillion in 2020.”