Investors Eyeing Housing in U.S. Economic Growth

As U.S. Treasury yields remained steady, investors are still showing caution despite strong indicators in the housing market. The report also showed the stock of homes under construction last month was the highest since 2007, which could help to loosen a supply squeeze that has stalked the housing market.

Steve Johnson, senior portfolio manager at SVB Asset Management, said on Reuters that investors were awaiting certainty about major issues such as U.S.-China trade negotiations and the final shape of Britain's exit from the European Union.

"What the market really wants to see is more of that macro clarity," Johnson said.

Housing supported the larger economy in Q3 2019, but despite this growth, global political uncertainty, including that coming from Britain and China, poses a risk to the forecast tipping to the downside.

The Fannie Mae Economic and Strategic Research (ESR) Group expects one more rate cut from the Federal Reserve in early 2020 before pausing for the remainder of the year, leading to an upgraded 2020 forecast for real GDP growth of 1.9%. Housing added to growth in Q3 into the Q4 and the first half of 2020.

The Fannie Mae ESR Group notes that 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 Q3, 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.

“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” said Fannie Mae SVP and Chief Economist Doug Duncan. “A stronger-than-expected Q3 contributed to the downward revision to our Q4 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. 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.”