ESR Group: Real GDP Will Contract, But Housing Is a Bright Spot


Fannie Mae’s Economic and Strategic Research (ESR) Group has forecast 2020 real GDP to contract by 2.6 percent, which is revised from a previous forecast of a 3.1 percent contraction – and the housing industry is key to that improvement.

The ESR Group says housing continues to play an important supportive role in the country’s economic recovery from the COVID-19 pandemic. The pace of existing home sales jumped in July to a level not seen since 2006 and, importantly, was followed by strong pending sales, purchase mortgage applications and construction data.

As a result, the ESR Group has substantially upgraded its full-year 2020 forecasts for both new and existing home sales – and, with robust refinance demand, for total mortgage originations to $3.87 trillion, which would be the highest nominal dollar annual total in the series’ 32-year history.

“As expected, the pace of economic recovery is slowing, but housing remains highly supportive,” says Doug Duncan, Fannie Mae’s senior vice president and chief economist. “The Federal Reserve has made clear that it has no intention of raising interest rates in the near future, and, as mortgage spreads continue compressing, households are seizing the opportunity to refinance their existing mortgages.

“Historically, low interest rates are also an inducement to buy homes, but slow supply growth continues to result in high levels of home price appreciation, which is offsetting some of the affordability benefits of the lower rate environment,” he remarks.

July existing home sales rose 24.7 percent over the month and were 8.7 percent higher than a year prior. While further increases of this magnitude are unlikely, the solid increase in July pending sales and strength in purchase mortgage applications suggest a continued brisk pace in the near term. Pent-up demand from the spring, historically low mortgage rates, and what appears to be an increased interest in moving to suburban areas in at least some metro areas is fueling strong home purchase demand.

While the July pace of sales was in line with the ESR Group’s expectations, the continued strength in August has exceeded them. However, the current pace is unsustainable due to a lack of homes available for sale. New single-family listings have grown modestly on a year-over-year basis, but the growth is much slower than purchase demand.

The months’ supply of homes for sale as a ratio of sales fell to 3.1 at the end of July, down 26 percent from a year prior and to the lowest level for the month of July in the history of the series. The ESR Group revised upward its existing home sales forecast for the remainder of 2020 but expects sales in the fourth quarter to fall back somewhat compared to the current pace.

The lack of inventory of for-sale homes is putting upward pressure on home prices and threatens to negate the affordability benefits from low mortgage rates. The CoreLogic National House Price Index showed an acceleration in annual house price growth to 5.5 percent in July, up 1.2 percentage points from June. According to, the median listing price was up 10.8 percent from a year prior during the first week of September.

While this strong price appreciation could dampen sales going forward, it is likely helping drive upwards the net share of respondents saying it is a good time to sell a home, according to the August reading of Fannie Mae’s Home Purchase Sentiment Index (HPSI). More owners would have to act on that sentiment and list their homes for the sales pace to continue at its robust rate and alleviate some of the upward price pressure.

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