Aggressive fiscal stimulus and pandemic-related improvements helped propel the U.S. economy firmly higher in the first three months of 2021. Real U.S. GDP – an inflation-adjusted measure of economic output – jumped at an annualized pace of 6.4% in the first quarter, up from 4.3% in Q4 2020. Following the strong quarterly improvement, Real GDP now sits just 0.9% below levels from the 2019’s fourth quarter, the last official reading prior to the pandemic (some measures suggest it remains ~3% below where the economy would be had the pandemic never occurred). With many services still unavailable, or potentially seen as still risky in the eyes of many consumers, the quarterly improvement was again led by increased spending on goods. Spending on durable goods, in particular – including cars and appliances – jumped at an annualized pace of 41.4%. Housing also contributed to the strong report, with residential fixed investment – spending on the construction and remodeling of homes – up at an annualized rate of 10.8% to a level well above where it was pre-pandemic. The Q1 figures were strong, but the re-opening of many services and increased consumer confidence will likely propel the economy much higher in the coming quarters.
More data have emerged that indicate consumer confidence in the economy and the housing market is continuing to grow. The Conference Board’s Consumer Confidence Index jumped 12.7 points in April from March to reach 121, the highest level since February 2020, just before the pandemic arrived in earnest on U.S. soil. The index has risen by 31.3 points since February – the most in any two-month span since 1974 – the latest indication that consumers, buoyed by an improved job market and the receipt of stimulus checks, are more optimistic about the state of the economy and their place in it. And they appear to have good reason to be hopeful. Job postings are up 23.4% compared to the beginning of February 2020, according to a seasonally adjusted measure from job listings site Indeed. And again, housing stands to benefit — 8.9% of the survey’s respondents said they expect to buy a home in the next six months, the most ever in the survey’s history.
As mortgage rates fell to record lows in 2020, refinance activity unsurprisingly took off. But mortgage lenders also took a more cautious approach to lending – in many cases, limiting loans to only the most credit-worthy borrowers or homeowners with sufficient equity in their homes – leaving many borrowers unable to take advantage of these historically favorable conditions. According to the Federal Housing Finance Agency, more than 2 million lower-income households that could have saved money from refinancing to a lower rate did not – or were unable to – take advantage of the opportunity to refinance. In the newly announced initiative, homeowners with loans backed by Fannie Mae or Freddie Mac that have not missed a monthly payment in the last six months will qualify for more favorable refi terms. Eligible borrowers will be presented with a loan that offers at least a $50 reduction on their existing monthly payment and a 50-basis point (0.5 percentage point) decrease from their current rate. The fee for any necessary appraisals will be decreased by as much as $500. It’s important to note that this program does not apply to homeowners with government (FHA, VA, USDA, etc.) loans, who typically have lower credit scores and less equity in their homes than other borrowers. Other restrictions also apply: In order to qualify, borrowers cannot have a total debt to income ratio of 65% or higher, must have a credit score of at least 620 and must make at most 80% of the median income in their local area. But despite these restrictions, the FHFA believes the new program could offer many previously neglected households a new opportunity to save an estimated $1,200-$3,000/year on their mortgage payments.
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