The economy is set to grow, but it may not be enough to boost housing, according to the Fannie Mae Economic Strategy and Research Group. The Group’s forecast predicts a 3.1 percent full-year economic growth for November, one-tenth higher than the previous month, but growth has slowed slightly by quarter, down to 3.5 percent from 4.2 percent between Q2 and Q3 2018. Going forward, Fannie Mae expects growth to slow even further through the end of the year.
“As we proceed through the fourth quarter, we expect growth to slow further but to remain solid at 2.6 percent,” said Fannie Mae Chief Economist Doug Duncan. “Trade remains a downside risk to growth as a strong dollar is likely to contribute to a further widening of the trade gap. While consumer spending growth is expected to moderate from the robust second and third quarters, both business fixed investment and residential fixed investment should pick up. We also expect the economy to continue to receive strong support from government spending, at least in the near term. Looking further ahead, the Bipartisan Budget Act of 2018 should continue to boost growth through the first half of 2019 before it begins to fade, ultimately acting as a drag on the economy in the second half of 2020.”
Housing is expected to lag behind, even with an improved job market and economy. Fannie Mae notes that the lack of inventory and affordability concerns will remain issues in the housing sector.
“The current labor market hot streak hasn’t been enough to boost the housing sector. Both new and trade-up home buyers remain discouraged by rising mortgage rates, elevated home prices, and a shortage of available inventory, particularly in the lower tier of the market,” said Duncan. “Market conditions also present a challenge for builders, as higher interest rates are driving up construction costs and tight labor conditions are accelerating the average hourly earnings growth of residential construction workers. Given weak housing data over the past month, we lowered our 2018 originations forecast by $11 billion to $1.624 trillion and our 2019 forecast by $21 billion to $1.603 trillion. However, we expect that existing and new home sales will stabilize in 2019 as home price appreciation moderates and mortgage rates begin to stabilize.”
Find the full report from the Fannie Mae Economic and Strategy and Research Group here.