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Economic & Housing Weekly Note

Personal Savings Jump on Stimulus Checks, Lack of Homes for Sale Likely Weighs on Pending Sales

February 26, 2021

Key Takeaways:

  • Gross domestic product, adjusted for inflation, increased 4.1 percent annualized in Q4 2020, according to the second estimate, a one-tenth increase from the preliminary figure, according to the Bureau of Economic Analysis. The increase was caused by upward revisions to business fixed investment, government spending, and residential fixed investment, which overcame a slight downward revision to personal consumption expenditures.
  • Durable goods orders rose 3.4 percent in January, the largest monthly increase since July, according to the Census Bureau. Much of this increase was driven by a 389.9 percent surge in orders for nondefense aircraft and parts. Core capital goods orders (which exclude defense and aircraft) increased 0.5 percent, while core shipments increased 2.1 percent, with both rising to the highest levels on record. From a year ago, core orders rose 9.1 percent and core shipments rose 8.2 percent.
  • Personal income, adjusted for inflation, jumped 9.7 percent in January, according to the Bureau of Economic Analysis, though the measure fell 0.5 percent when excluding transfer payment receipts. Real personal consumption expenditures increased 2.0 percent, the largest monthly increase since June. The saving rate surged 7.1 percentage points to 20.5 percent, the highest level since May. Annual growth in both the PCE deflator and the core PCE price index (excluding food and energy prices) accelerated in January to 1.5 percent for both measures from 1.3 and 1.4 percent, respectively.
  • The Conference Board Consumer Confidence Index rose 2.4 points in February to 91.3, though it remains well below pre-pandemic levels. The index of consumer confidence in the present situation increased for the first time in three months to 92.0, while the consumer expectations index fell slightly to 90.8.
  • New single-family home sales rose 4.3 percent in January to a seasonally adjusted annualized rate (SAAR) of 923,000, according to the Census Bureau. Sales in December were revised upwards to a SAAR of 885,000, now an increase of 5.5 percent from November. The months’ supply of available new homes for sale fell one-tenth to 4.0. Additionally, the share of homes sold-but-not-yet-started rose over 4 percentage points to 30.8 percent, suggesting that sales continue to outpace the rate of new construction.
  • The National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, dropped 2.8 percent in January to 122.8, the largest decline since September. From a year ago, pending sales rose 13.0 percent.
  • The FHFA Purchase-Only House Price Index, reported on a seasonally adjusted basis, grew 11.4 percent from a year ago in December, an acceleration of three-tenths from November, and the fastest annual pace of growth in series history.
Forecast Impact:

We believe the increase in core capital goods shipments is a positive sign for GDP in the near term, though the decline in overall inventories suggests to us that some of the strength from core shipments could be offset as firms fill orders by drawing down their inventories. The large increase in new orders of nondefense aircraft will likely lead to further drawdowns in inventories over the coming months as Boeing seeks to deliver from its stockpiled fleet. The strong showing in January personal income was entirely due to the $900 billion stimulus bill passed in December, as the full effect of the extended unemployment benefits and stimulus checks boosted incomes significantly in January. A large share of that money has gone into personal savings, bolstering the financial spending power held by many consumers. This adds to the potential for further consumer spending growth in coming months if COVID vaccine administration becomes more widespread and a greater share of restricted activities reopen. For housing, the decline in pending sales suggests a decline in existing home sales in the coming months. However, the increase in new home sales continues to illustrate strength in demand for new homes. Given this strength, we will likely increase our near-term expectations for new home sales, though due to unseasonably cold weather over the month of February and the related power outages, the next data release could show a transitory pullback. The continual dearth of available inventories will also continue to weigh on potential home sales. Given the lack of inventories, home price appreciation is surging, which is constraining affordability. Low mortgage rates to date have offset the increase in home prices, though mortgage rates are no longer falling and further pressures could build if the recent rise in the 10-Year Treasury note is sustained, let alone continues.

Ricky Goyette
Economic and Strategic Research Group
February 26, 2021

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.