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Lee Stroh October 26, 2020

Newsletter - October 2020

The housing market is showing a strong “V-shape” rebound, continuing to improve from its lowest point in April, according to Fannie Mae’s recent Economic & Housing Outlook report.

Analyzing the number of capital-goods shipments and construction activity, the report suggests that both business and housing investments “will grow at a faster pace in the third quarter than we previously forecast,” although risks to the forecast remain elevated.

Fannie Mae’s economics team expects Q3 real gross domestic product (GDP) to grow at an annualized pace of 30.4%, which is an increase over their August forecast of 27.2%.

"Recent data suggest continued growth in consumer spending over the month,” the report states. “Auto sales, an early indicator of PCE, posted another solid gain in August, rising 4.5%, and credit and debit card transactions data points to increasing spending as well."

For all of 2020, the GSE is now projecting a 2.6% contraction in GDP, which is an improvement over their August forecast of 3.1%.

Other experts have adjusted their Q3 GDP forecasts as well.

  • Goldman Sachs raised its Q3 growth estimate to 35%, citing the August jobs report, which showed unemployment falling to 8.4% from 10.2% in July.
  • Bank of America raised their third-quarter forecast to 27%, up from 15%.
  • In a Bloomberg survey, economists projected a 21% economic expansion in Q3.
  • Morgan Stanley predicts Q3 GDP growth to hit 32.6%.

For now, predictions for GDP and the housing market in the fourth quarter are less rosy. Fannie Mae downgraded its Q4 GDP growth estimate to 6.2% annualized from its earlier forecast of 8.7%, under the assumption that no additional stimulus legislation will pass before the November election.

Bank of America lowered its Q4 projection from 5% to 3%, citing failed stimulus negotiations as a “speed bump” in the U.S. economic recovery. Morgan Stanley forecasts Q4 growth to land at 9.3%

"If and when [COVID] vaccines become widely available and utilized will likely affect the path of future consumer behavior,” Fannie Mae noted. “Additionally, uncertainty surrounding fiscal and other policies remains high as the election approaches."

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