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Economic & Housing Weekly Note

Stimulus and Vaccinations Boost Q1 GDP and March Savings

April 30, 2021

Key Takeaways:

  • The Federal Open Market Committee (FOMC) kept the target rate for the federal funds rate unchanged at 0.0 to 0.25 percent at its April 27-28 meeting, while also keeping the pace of asset purchases unchanged, as the FOMC continues to hold to its “wait and see” policy until economic data reaches expectations.
  • Gross domestic product (GDP), adjusted for inflation, increased at a 6.4 percent annualized rate in Q1 2021, according to the preliminary estimate from the Bureau of Economic Analysis. Given the increase, the level of real GDP is now just 0.9 percent below the peak seen in Q4 2019. GDP growth was supported by strength in most of its main components, particularly in personal consumption expenditures (PCE) and residential fixed investment, which rose 10.7 percent and 10.8 percent annualized, respectively. Business fixed investment also posted a strong gain of 9.9 percent annualized, while government spending jumped 6.3 percent annualized after falling for two consecutive quarters. Net exports and inventories, however, dragged on growth.
  • Personal income, adjusted for inflation, leapt 20.4 percent in March, and real disposable income jumped 23.0 percent, according to the Bureau of Economic Analysis. Respectively, these were the largest monthly increases ever posted since the series began in 1959. After declining in February, the saving rate nearly doubled to 27.6 percent. The PCE and core PCE deflator (core excludes food and energy prices) rose 2.3 percent and 1.8 percent from a year prior, an acceleration of eight-tenths and four-tenths from the prior month, respectively.
  • The Conference Board Consumer Confidence Index surged 12.7 points to 121.7 in April, the highest level since February 2020. Most of the gain was driven by an increase in the confidence in the present situation index, which rose 29.5 points to 139.6, the largest increase on record. The consumer expectations index also increased, rising 1.5 points to 109.8.
  • 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, rose 1.9 percent to 111.3 in March. Regionally, sales rose in every region except the Midwest.
  • S&P CoreLogic Case-Shiller National Home Price Index (not seasonally adjusted) rose 12.0 percent in February from a year prior, the fastest annual pace of growth in 15 years. The FHFA Purchase-Only House Price Index, reported on a seasonally adjusted basis, increased 12.2 percent in February from a year ago, the fastest annual pace of growth on record.
Forecast Impact:

The March drop in existing home sales was expected and modestly less than we had forecast. Although tight supply contributed to the muted existing sales number (a trend that we project will continue over the next year), the magnitude of March’s decline was likely due to February’s unusually cold weather. Existing home sales are recorded at the time of closing, while new home sales are recorded at the time of contract. We therefore expect existing home sales to rebound slightly in April, following new home sales’ expected March bounce back. New home sales rose above a million annualized units in March, only the second time they have exceeded that mark since 2006. At the moment, builders seem able to pass rising input costs onto homebuyers as the supply of homes remains tight. As long as homebuilders can keep up with buyer demand, we expect new home sales to remain strong in the near term due to the limited existing supply and low mortgage rates. Freddie Mac’s 30-year fixed mortgage rate continued its downward trend this week, falling 7 basis points to 2.97 percent and declining to below 3.0 percent for the first time since late February. Unsurprisingly, given the recent pullback in mortgage rates, refinance applications snapped back from 10 weeks of declining or flat numbers; however, we still expect annual refinance originations to pull back significantly from 2020 levels.

Ricky Goyette
Economic and Strategic Research Group
April 30, 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.