Fannie Mae’s Chief Economist Doug Duncan expects economic growth to come in at 3.1 percent—recording an expansion high before it slows down to 2.3 percent the coming year and 1.6 percent in 2020. He noted that a fading fiscal policy, worsening net exports, and moderating business investment are all factors that will contribute to a slowdown in the economy in 2019, as Fannie Mae projected.
Speaking of affordability, Duncan said, “If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market. We also expect residential fixed investment to resume a positive growth trajectory amid continued rising housing starts and stabilizing home sales. However, affordability is likely to remain an industry concern, particularly among first-time homebuyers.”
Barring the upward momentum of inflation, Fannie Mae’s Economic and Strategic Research Group forecasts mortgage rates and home sales to stabilize as the economy slows down in 2019. An increase in purchase mortgage originations is projected to rise. Total origination volumes may slightly drop as refinances decline substantially, the research found.
The labor market is projected to be one of the highlights of the economic growth and with inflation around Fed’s 2 percent target, Fannie Mae predicts that Fed will hike rates once more in December and two more times in 2019, despite rising market expectations of fewer hikes amid stock market volatility.
Consumer spending is likely to be the largest positive contributor that will drive growth and consumer confidence. Business fixed income, on the other hand, is expected to slow considerably by the third quarter and may also remain constrained due to higher tariffs, trade uncertainty, and rising interest rates and input costs.
The existing trade tensions between the U.S. and China and stock market volatility is among the most notable risks to the forecast, Fannie Mae stated.