Today’s second GDP estimate for the 2020 Q4 shows the economy grew slightly higher at 4.1% than previously estimated (4% advance estimate). Worth noting is that residential construction grew at an even higher pace of 35.8% (33.5% advance estimate) and has outpaced GDP growth and that of all other spending components. This indicates the important role of the housing market in the economic recovery.  Investments in commercial real estate are also recovering, although at a modest pace, with a stronger recovery expected in 2022.

Bar chart: GDP Growth and Spending in Q4 2020

Several indicators point to the housing market remaining strong in 2021, with NAR expecting home sales to hit 6.5 million:

  • With mortgage rates still at under 3%, existing-home sales started off strongly in January, at 6.69 million on an annualized basis, up 24% from one year ago.
  • New residential sales rose to 923,000 on an annualized basis, up 19% from one year ago.
  • Building permits are also off to a strong start, at 1.9 million on an annualized basis, with 350,000 more units from one year ago, up 23% from one year ago.

However, the commercial real estate market will continue to limp through 2021 with about 100 million in office space losing occupancy. Stronger recovery is expected in 2022 with most of the population vaccinated by the end of the summer.