Fannie revises forecasts due to strength of economy

Thanks to the strength of the economy, Fannie Mae has upwardly revised its forecasts for the fourth quarter of 2019 and the full-year of 2020.

Fannie Mae’s Economic and Strategic Research Group now predicts headline gross domestic product (GDP) growth of 1.8% during the fourth quarter of 2019, an 0.2% improvement from the prior forecast. For 2020, Fannie also made a 0.2% upward adjustment to its previous forecast, bringing the full-year projection to GDP growth of 2.1%.

Fannie adjusted the forecast due to ongoing strength in both the job market and consumer spending, “both of which are expected to lead to further improvement in business fixed investment.” Additionally, according to Doug Duncan, Fannie Mae senior vice president and chief economist, “risks to growth have lessened of late, as a ’Phase One’ U.S.-China trade deal appears to be in place and global growth seems likely to reverse course and accelerate in 2020.”

Several housing-related elements of the forecast were also boosted in Fannie’s latest projection. Reacting to the aforementioned labor market and consumer strength — coupled with favorable interest rates and fading recession expectations — Fannie expects residential investment to grow and homebuilders to ramp up production, mitigating the inventory shortage to some extent.

While the adjustment is a positive one, Duncan cautioned that the persistent supply shortage and rising prices will continue to present a challenge for some potential borrowers.

“We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales activity,” Duncan said. “Despite the expected increase in the pace of construction, the supply of homes for sale remains tight and strong demand for housing is continuing to drive home prices higher, particularly in the more entry-level price tiers. This stronger price appreciation is also having the unfortunate effect of partially offsetting savings to potential homebuyers from lower mortgage rates.”

Still, Duncan anticipates housing to become an economic growth engine for 2020 and in the years ahead.

“Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” he said.


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