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Today’s preliminary figures on the 2020 Q4 GDP show housing and real estate to be strong contributors to the economic recovery. Residential investment rose 33.5%, outpacing the overall GDP growth of 4%. Worth noting is that residential investment posted the strongest growth among all components of GDP, contributing a third of the economic growth in the fourth quarter.
Another piece of good news is that non-residential investment for structures―or commercial/business buildings―returned to a positive growth of 3% after slumping in the second and third quarters.
The economy is growing in the right direction, with spending rising in all broad categories other than those that are highly impacted by measures to control COVID-19: food services and accommodation (-8%), food and beverages consumed outside the home (-3%), gasoline/energy (-4%), and transportation (-5%). Spending for these items should increase as the vaccine distribution expands to more people.
For the year, GDP is still down by 3.5%, but looking ahead into 2021, the economy is only likely to continue to expand by at least 4%, supported by the continued low interest rate environment and the $1.9 trillion stimulus spending that will add 9% to the current level of GDP. Commercial investment spending will tend to rise as spending for COVID-19-impacted items such as food services, accommodation, and travel recover with the distribution of the vaccine. Interest rates are likely to hover at 3% with no interest rate hikes expected from the Fed in 2021 while unemployment is still at an elevated level1 and inflation is running below 2%. With low mortgage rates, expect existing-home sales of at least 6 million in 2021.
1 6.7% as of December; 10.7 million unemployed relative to the level in February (3.5%; 5.7 million unemployed).
