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Fannie Is Eyeing the Future Conservatively

Fannie Mae is looking ahead with conservative optimism. While its growth forecast for this year remains at a modest 2 percent, Fannie predicts that the coming two years will also see steady economic and housing growth in its April 2017 Economic and Housing Outlook.

One big question mark for the future, including the near future, is the effects of policy changes. But as there have been no major policy shifts under the trump administration so far, Fannie Mae is taking the conservative approach and not altering its forecast.

“We continue to await details on the new administration’s plans,” said Fannie Mae Chief Economist Doug Duncan. “We’re intrigued by the disparity between elevated consumer and business optimism and signs of decelerating first quarter economic growth. However, we expect growth to rebound this quarter as special factors that weighed on growth partially unwind.”

Duncan said that with the firming of the Fed’s preferred measure of inflation, reduced labor market slack, and the more hawkish tone of the Federal Open Market Committee at its March meeting, “we foresee that the Fed will hike rates two more times this year, in June and September, and announce a change to its reinvestment policy in December.”

Overall, Fannie reported, the likelihood of meaningful economic change is low, given the similar unlikelihood of significant policy change. In the meantime, the GSE is watching those aspects of governance and economy that could affect future forecasts‒‒the potential for a government shutdown that Fannie said could hiccup consumer confidence weighed against market indicators that are proving beneficial to consumers.

Long-term Treasury yields have trended sideways this year as a result of looming government shutdown, Fannie reported. Rates dipped to the lower-end of a narrow range  and weak economic news, along with increased geopolitical risks, have moved long-term interest rates lower. Fannie expects the 10-year Treasury bond yield to finish 2017 at 2.5 percent and increase to 2.6 percent by the end of next year.

Fannie’s outlook on employment remains guarded, especially in light of the most recent Bureau of Labor Statistics report on underwhelming job growth in February. The GSE projects unemployment rates to stay flat through next year, around 4.5 percent. The outlook is also cautious about the overall economy. Fannie expects the GDP to drop slightly, from $2.4 trillion to $2.2 trillion by the end of 2018.

Housing activity through February fared better than other hard economic indicators, partly due to the warm winter weather, and the ESR group expects that a seasonal uptick in listings going into the spring selling season will help alleviate extremely tight inventory, Fannie reported. Recent declines in mortgage rates may also motivate some homebuyers to enter the market before rates pick up as the Federal Reserve continues to normalize monetary policy. 

Fannie expects growth in housing starts to increase from almost 10 percent to almost 11 percent between now and 2018. The GSE anticipates new starts to increase steadily over each quarter this year, from the current 843,000 to a year-ending 880,000.

About Author: Scott Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

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