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Fannie Mae: The economy will grow nearly 7% in 2021

The ESR group (Economic and Strategic Research) of the federal credit service provider Fannie Mae expects the US economy to grow by 6.7 percent for 2021, according to a report published by the company on Thursday.

Such growth would be a huge improvement over the 2.5 percent decline in 2020, as well as an increase from Fannie Mae’s previous forecast in January of 5.3 percent.

The company’s full year 2021 real GDP growth appreciation follows winter consumer spending growth, declining COVID-19 case rates and hospital stays, vaccination optimism, and the increased likelihood of a fiscal stimulus package.

Doug Duncan | Photo credit: Fannie Mae

One factor behind the spike in expected growth, the ESR group explained, is due to a growth spurt that the group previously assumed would take place in 2022. As a result, the full year growth forecast for 2022 declined from 3.6 to 2.8 percent this month.

“If 2020 was the year of the virus, then 2021 will most likely be the year of the vaccine,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist, in a statement.

“Whether the vaccines are also effective against the new virus strains and how widely and promptly they can be distributed remains a central question. Our prognosis is based on such effectiveness and will be administered on a large scale until summer. In addition, the recent rise in policy rates suggests that financial markets are currently expecting the same. “

Now, two months after 2021, the ESR Group has revised its 2021 home sales forecast upwards, previously estimating that the hot market would cool faster in the new year. Last month, the group forecast that annual single-family homes would grow 12.5 percent in 2021, and this month that estimate was raised to 18.6 percent.

The ESR group also increased its projected mortgage origins for the year from its previous estimate of $ 3.9 trillion to $ 4.1 trillion.

“Consumer interest in historically low mortgage rates helped fuel persistently high refinancing volumes and the aggressive level of home buying,” said Duncan. “We believe this will continue into 2021. We anticipate that the proposed fiscal stimulus of around $ 1.7 trillion will be passed in mid-March and that growth will accelerate sharply from the second quarter.”

However, the ESR group also warned that there could be an increased risk of higher inflation and higher interest rates and potentially weaker growth in the coming year if the COVID-19 restrictions are extended last spring.

“With the Fed committed to low interest rates, a recovering economy, and what is already the highest debt-financed incentive since World War II for the foreseeable future, the proposed additional incentive increases the risk of inflation and interest rates spiking. as well as a potential boom-and-bust scenario, ”he added.

“Very strong growth in the second half of 2021 could cause inflation, and thus interest rates, to rise significantly in 2022, triggering a response from the Fed to a tightening and a significant slowdown in the course of 2022. This is not our baseline scenario, but we see it as a significant risk for the future. “

Email Lillian Dickerson

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