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March 16, 2021

Will Slow Economic Growth Hurt Housing?

Although the economy is recovering slower than many wish, it seems to have little impact on the mortgage business for now.

Data from 2020 is still coming in and analysts are pouring through it to see what it means for business in 2021. Recently, CNN covered the shrinking US economy in a report showing that no year since 1946 has been as bad as 2020. By year’s end, the GDP was rising, showing slow economic growth. 

Overall the US Gross Domestic Product (GDP) fell by 3.5% in 2020, and that’s after a 4th quarter growth rate of 4% (seasonalized and annualized). It was the first fall since 2009, when the financial crisis knocked it down 2.5%. 

It sounds pretty bad, but the closer you look the less scary it becomes. As CNN reported: 

  • The US GDP fell from 21.4 trillion in 2019 to 20.9 trillion in 2020 
  • GDP shrank 31.4% between April and June 
  • GDP then broke a record by coming by at 33.4% in the 3rd quarter.

Definitely some turbulence, but it doesn’t look like there will be any long-term effects. None of this had much of an effect on the housing industry in 2020.  

This is somewhat odd because while only new home sales are factored into the GDP, limiting the housing industry’s impact on the indicator somewhat, a rising GDP means more people are gainfully employed and that fuels the housing industry. So, there is generally a correlation between rising GDP, better jobs outlook and increased home sales. 

But as I’ve pointed out in the past, the housing market is being propped up by low interest rates and would be doing even better if we had more homes to sell. 

Despite the doom and gloom headline on the CNN story, most indicators are pointing toward continued growth in the economy. The Federal Reserve Bank of New York’s Nowcast, which tracks economic indicators says its index ticked up by 1.6% for the first quarter of 2021. Researchers at the Fed said, “Positive surprises from advanced retail sales, building permits, IP, and capacity utilization data drove the increase.” 

So, what does all this say about our industry? Although the economy is recovering slower than many wish, it seems to have little impact on the mortgage business for now. As for what may happen next, I wrote about that here

By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence

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