Economists' Outlook

Housing stats and analysis from NAR's research experts.

Instant Reaction: 2021 Q3 GDP Growth Shifts to Normal Gear After Strong Surge in Past Quarters

After a pandemic bounce-back in the first and second quarters, the economic expansion (gross domestic product) moderated to 2% in the third quarter1, a normal yet sustainable pace of expansion. The 6% to 7% growths in the first and second quarter are abnormal and were never expected to have been sustained as these reflect a temporary surge in spending and temporary fiscal support. The economy is now entering into sustainable growth path that is expected to carry on in 2022, with the Federal Reserve carefully tweaking monetary policy to ensure that the economy continues to grow at this sustained basis to ensure job growth and to lower inflation. NAR expects economic growth to be sustained in 2022 at a pace of 2.5%.

GDP Growth Returns to Normal Growth Path

Consumer spending slows except for housing and utilities and financial services

GDP growth moderated on the back of slower private consumer spending. Personal consumption spending, which accounts for about 70% of GDP, grew at a slower pace of 1.6% after growing at over 10% in the first and second quarters. The third quarter slowdown reflects the impact of the pandemic (rising Delta variant cases over the summer) and the winding down of the federal unemployment insurance support programs in the first week of September.

Consumer spending declined across all types of spending, except for housing and utilities and financial services, although the pull-back was larger than expected, given the double-digit growth of retail sales in past months. Housing and utilities rose at a seasonally adjusted annual pace of 1.1% (0.3% in the prior quarter) while financial services and insurance rose 5% (-3.1% in the prior quarter). Monthly mortgage payments are up by about $150/month from one year ago, an increase of 14%2, while average asking rents for multifamily units are up 11% year-over-year as demand continues to outpace supply.3

Meanwhile, consumers pulled back on consumer durables (-26%) such as motor vehicles (-53.9%), household furnishings and equipment (-10.3%), recreational goods and vehicles (-7.3%). Spending for these one-time purchases surged as households got the first stimulus payment check around the last quarter of 2020 and the second stimulus check around the first quarter of 2021.

As the Covid-19 pandemic was controlled in the first quarter, travel-related spending on transportation services, recreational services, and food services and accommodation surged, with annualized growth rates in the range of 40% to 60%. But spending pulled back in the third quarter as new pandemic cases started rising from a 7-day average of less than 20 per day to 20/day by September.

Residential and non-residential investment construction spending while intellectual property products increase

Investment spending for residential structures fell for the second quarter in a row by 7.7% while non-residential spending fell 7.3%.

The pandemic has led to severe supply chain bottlenecks that have impacted housing construction, with softwood lumber up 161% y/y in May. However, the housing supply situation has generally improved compared to one year ago, with housing starts at 1.55 million in September, up from 1.45 million one year ago. The cost of lumber has started to fall, with lumber prices now 31% lower compared to September last year.

On the commercial front, nearly 150 million square feet of office space given up, mainly in the metro areas of New York, San Francisco, Washington, DC, so there’s little incentive for developers to construct more buildings. In fact, little construction should be expected until the high vacancy rates decline and workers start heading back to work.

Investment spending for intellectual products rose 12.2%. These include spending for computers and peripheral equipment and medical equipment. The higher spending could include equipment associated with improving workplace safety as workers head back to work in 2022 even if for fewer days on a hybrid model. As of September 2021, about 20 million of those 16 years old or over who are employed work from home, and about 44% of computer/mathematical workers work from home.

Housing and Utilities Increase But Residential and Non-Residential Construction Spending Decline

Economic Outlook for 2022

In 2022, NAR’s official GDP forecast released today shows GDP is expected to grow to a normal pace of 2.6% in 2022. With the economy still growing on a sustainable basis and with inflation trending at over 2% (CPI inflation of 5.2% and PCE inflation of 4.3%), the Federal Reserve Board has already indicated that it will start to tighten on money supply creation. With this, mortgage rates are expected to increase from 3% to 3.5% in 2022 which will lead to a slight pull back in existing-home sales to 5.9 million from 6 million in 2021. As the cost of lumber continues to decline and with supply logjams easing at ports in 2022, housing starts are expected to increase to 1.67 million, an increase of 120,000 units. This is still a modest gain, as about 500,000 homes additional homes are needed on the market due to the underbuilding of at least 5.5 million units in the last 20 years. With demand easing and supply rising, home prices are expected to rise a modest pace, with the median existing-home sales price expected to rise 2.8% and new home sales expected to rise 4.4%.

In 2022, a more balanced market with modest price growth is better for the long-term health of the housing market and for increasing access to homeownership.

GDP growth rates are reported as seasonally adjusted annual rates which will be the growth for four quarters if the current pace of expansion were to continue.

Based on NAR median existing home sales price, 10% downpayment, 30-year fixed mortgage.

Based on CoStar data.