Fannie Mae Expects Housing to Boost the Economy
WASHINGTON – A 2020 slowdown is less likely, according to Fannie Mae’s latest report, and “easing trade tensions, stimulative fiscal policies, and continued consumer spending contributed to an upgraded 2020 forecast for real GDP growth of 1.9%.”
Fannie Mae says that housing added to third-quarter growth for the first time in more than a year and a half, and the ESR Group expects it to continue into the fourth quarter and first half of 2020.
“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” says Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “A stronger-than-expected third quarter contributed to the downward revision to our fourth quarter forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter.”
Duncan says consumer spending will likely continue driving the expansion forward, and “with the passage of the budget act and a reprieve in trade tensions we’ve revised upward our forecast for full-year 2020 growth. We also continue to expect the Fed to cut interest rates only one more time in the foreseeable future, in early 2020, as a hedge against the sizeable downside risks and to counteract muted inflation.”
Fannie Mae expects consumer spending is expected to remain the primary driver of economic growth for the forecast horizon. Housing should also function as a positive contributor to growth in the near term, as indicated by both new and existing single-family home sales advancing in the third quarter, as well as pending home sales, permits and starts.
However, it says persistent supply and affordability constraints in the housing market continue to hold back household formation, inhibiting housing market activity.
While data remains largely positive, Fannie Mae notes risks to its forecast weighted to the downside. Those risks include a potential breakdown in trade talks between the United States and China, as well as ongoing political uncertainty abroad. It currently expects one more rate cut from the Federal Reserve in early 2020 and then a pause for the remainder of the year.
“As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020,” says Duncan. “Positive contributions from single-family housing construction, home improvements, and brokers fees pushed residential fixed investment growth to a robust 5.1% annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace.”
As mortgage rates stabilize, Duncan expects “a decline in refinance activity in 2020, with the refinance share of originations dropping from a projected 37% in 2019 to 31%.”
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