Despite registering considerable growth in the latter half of the year, the U.S. economy shrank in 2020 for the first time since the Great Recession — and by more than it has in decades. National real gross domestic product (GDP) was down 3.5% in 2020 from 2019, the worst single calendar year for the economy since 1946 when the nation scaled back following the end of World War II. The report illustrated how much farther the economy has to go to fully climb its way out of the hole created by the pandemic. Even after improving in Q3 and Q4, real GDP is still 2.5% below its previous peak. But in an otherwise sobering report, one bright spot was the strength of the residential construction industry and its positive impact on the economy through most of 2020. Residential investment – including single- and multi-family home construction, home improvement, brokers’ commissions and other factors — increased at an annualized rate of 33.5% in Q4 from Q3 and by 5.9% overall in 2020 from 2019. That’s the strongest annual appreciation since 2016 and a sharp improvement from the past two years, when residential investment fell 1.7% and 0.6% from the preceding years, respectively.
The encouraging trend in residential construction has been reflected, and expected, in new home sales figures over the past several months. Despite missing expectations somewhat – posting a solid number, but off slightly from highs hit earlier in the year — December’s new home sales figures put the cap on the best year for new home sales since 2006. The estimated 811,000 new homes sold in 2020 was an 18.8% increase from 2019 and should serve as proof that new home demand can and will continue well into 2021. Robust new home sales figures are also an important indicator of broader housing market activity to come. The supply of new homes for sale has been picking up lately but remains low compared to historic norms — which is likely to incentivize builders to increase their activity, particularly when demand for housing remains solid. Expect the future permit and starts pipeline to be quite full this year. With a banner year in the books, December’s new home sales report set the stage for a solid start to 2021.
For the second consecutive week, the number of mortgages in active forbearance increased from the week before, according to Black Knight. The report, including data through January 26, found that just 41,000 borrowers stopped receiving assistance with their loan – one of the three smallest “exit totals” since this past summer. While the end of the month should bring a fresh wave of expiring plans, the past two weeks’ reports and the broader trend in mortgage forbearance participation suggest people’s ability to keep up with monthly payments has suffered lately. The budding weakness is most pronounced in government loans (FHA and VA mortgages) and those issued by private lenders, with forbearance up by 9,000 and 15,000 loans, respectively, on the week. Fiscal policy can assist in limiting the risk of foreclosures posed by some receiving assistance (government loans and those held by Fannie Mae and Freddie Mac), and protection for FHA loans was extended earlier this week by six-months from the initial term. But offering widespread protections to privately held loans is more difficult because it comes down to banks and other private mortgage servicers voluntarily offering assistance. It’s clear that the recent surge in COVID cases and corresponding slowdowns in the economy are having an increased impact on some people’s ability to make their housing ends meet.
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