Housing strength persists despite Boeing, coronavirus woes

After an encouraging month of January, Fannie Mae has updated its forecasts for the U.S. housing market in 2020 and anticipates further strength.

The government-sponsored enterprise now estimates residential fixed investment to grow at an annualized pace of 3.9% in 2020, marking a rebound after an 0.1% contraction last year. Fannie Mae’s latest housing-market forecast also calls for total mortgage originations of $2.28 trillion in 2020, an upward revision from $2.06 trillion. Refinance originations for the full year are expected to be $895 billion — a big nudge north from the previous forecast of $690 billion — while the purchase forecast was more modestly upgraded to $1.39 trillion.

A statement from Fannie’s Economic and Strategic Research (ESR) Group noted that January’s stout employment report, which beat expectations in terms of new jobs and featured solid wage increases, reinforced the expectation that strong consumer activity will support housing-market growth.

“The U.S. economy’s resilience, rooted in labor-market strength and improved household balance sheets, was on display in January amid greater market uncertainty, including Boeing’s production schedule and the effect of the coronavirus on the global economy,” said Doug Duncan, Fannie Mae’s chief economist.

“Looking ahead, we continue to anticipate that the economy’s resilience will help keep housing on a firm growth track.”

The ESR Group maintained that jumps in existing-home sales and new construction from an unseasonably warm December appear unsustainable, with housing-activity pullback likely to occur in the coming months. Still, Fannie remains confident that overall strength of the market will endure, with Duncan saying that Fannie’s updated forecast “shows greater strength in essentially every part of the housing market extending through the first half of 2021.”

Fannie’s confidence was bolstered by an increase last month in its Home Purchase Sentiment Index. The index, which reflects consumer views and expectations of housing-market conditions, rose by 1.3 points during the month to a level near its all-time high. Fueling that increase were growth in the shares of respondents who believe it’s a good time to buy a home, as well as growth in the share of respondents who believe it’s a good time to sell. 

Such positive sentiment could lead an increasing number of homeowners to put their homes on the market, potentially signaling some relief for persistently lagging inventory growth. Duncan called the supply shortage “the limiting factor for home sales, as well as the primary driver of home-price appreciation.”

In the short term, Fannie noted the average 30-year fixed rate fell to 3.45% in the first week of February after dropping to 3.62% in the month prior. The recent decreases have helped propel another surge in refinances, with the Mortgage Bankers Association reporting a 33% jump in refi applications in January. Fannie expects February’s activity to be “similarly strong.”

With business fixed investment poised to see its own rebound in the second half of this year, Fannie also updated its growth expectations for the next two years. The business fixed investment forecasts for 2020 and 2021 each improved by one-tenth of a percentage point, bringing them to 2.2% and 2.1%, respectively. 

Duncan and the ESR Group noted that risks remain on the horizon, including potential escalation of the coronavirus threat, ongoing weakness in manufacturing and policy uncertainty in an election year. But Fannie sees prospective upside risks as well, including further expansion in consumer spending and the effects of monetary policy softening, both stateside and abroad.



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