Many American households are feeling richer, sitting on the nest egg they’ve built during the pandemic. Those savings may be released into the economy in new spending this spring and summer, which will bode well for the already surging housing market.
Personal savings increased to a 21% annual rate in the first quarter of this year, reaching the second-highest level on record, according to the Bureau of Economic Analysis. Many Americans saved cash from the federal government’s COVID-19 stimulus programs, and those who have remained employed have been able to save money after sheltering in for months, decreasing spending on gas, clothes, entertainment, and travel.
“Consumers have lots of cash available thanks to stimulus and extremely high savings and will be looking to spend, especially on services,” Gus Faucher, chief economist of PNC Financial Services, told MarketWatch. “Rising vaccination rates and a greater willingness to go out in public will also support consumer spending.”
The reopening of the economy and federal stimulus funds led to a 6.4% annual GDP gain in the first quarter, the government reported this week. “The economic recovery now is quicker and stronger compared to the recovery [following the Great Recession] thanks to a quick and powerful dose of monetary expansion and strong fiscal spending that propped up consumer and residential investment spending,” Gay Cororaton, research economist at the National Association of REALTORS®, writes for the association’s Economists’ Outlook blog. A strong housing market also likely will continue in 2021 with sustained economic growth, declining unemployment, and mortgage rates hovering at historic lows, Cororaton notes.
Consumer spending accounts for 70% of the economy. The National Association of REALTORS® predicts GDP growth to reach 4.5% in 2021, mortgage rates to average 3.2%, and existing-home sales to increase 10% to 6.2 million units.