Fannie Mae: Housing to help fuel economic growth in 2020
Housing could fuel economic growth for the first part of
2020, a new economic outlook from Fannie
Fannie Mae upgraded its economic outlook to a gross domestic
product growth of 1.9% in 2020, according to its latest commentary from the
Economic and Strategic Research Group. This is due to expected easing trade
tensions, stimulative fiscal policies and continued consumer spending
This year, the third quarter added to GDP growth for the
first time in more than 1.5 years, Fannie Mae’s data shows. And this growth is
expected to continue into the second quarter of 2020.
Fannie Mae explained housing should also continue to 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, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity.
“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,” said Doug Duncan, Fannie Mae senior vice
president and chief economist. “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.”
“With mortgage rates normalizing, we expect a decline in
refinance activity in 2020, with the refinance share of originations dropping
from a projected 37% in 2019 to 31%,” Duncan said. “Of course, the housing
market as a whole remains constrained by the persistent supply and
affordability issues, which is particularly unfortunate given the current
strength of consumer demand for reasonably priced homes.”
Housing is contributing to growth, but consumer spending is
expected to remain the primary driver of economic growth for the forecast
horizon, and business fixed investment will benefit as additional corporate
expenditures work to meet consumer demand.
“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” Duncan said. “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. Still, consumer spending is likely to 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.”
But risks still remain on the horizon. For example, trade
talks between the U.S. and China continue to pose negative risks to economic
growth. And because of this uncertainty, Fannie Mae predicts we could see one
last rate cut from the Federal Reserve
in early 2029 before pausing for the rest of the year.
“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,” Duncan said.
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