Downside Risks Lead ESR Group to Push Back Expected Fed Rate Hike
Full-year real GDP growth is estimated to come in at 2.2 percent in 2019, unchanged from the prior forecast but down markedly from 2018’s 3.1 percent, according to the Fannie Mae Economic and Strategic Research (ESR) Group’s March outlook. The expected deceleration in growth is largely attributable to the fading fiscal impact from the Tax Cuts and Jobs Act, as well as continued sluggishness in business investment and consumer spending. Economic growth in the first quarter of 2019 is forecasted to slow to 1.3 percent in part due to consumer caution following significant volatility in households’ financial assets in the fourth quarter. The ESR Group also noted that risks to its forecast exist primarily on the downside, including slower global growth and ongoing U.S.-China trade uncertainty, but that sustained improvement in productivity and the central bank policy response to fourth quarter volatility will play an important role in shaping the full growth picture.
The ESR Group also continues to expect home sales to stabilize in 2019, with housing demand supported by a solid labor market and strong household formation. Affordability, too, has improved by slowing house price appreciation and more attractive mortgage rates. Purchase mortgage originations are expected to expand in 2019 while refinancings contract.
“We expect headline growth in the first quarter of 2019 to fall to 1.3 percent annualized – the slowest quarterly growth in over three years,” said Fannie Mae Chief Economist Doug Duncan. “Growth is clearly on the decline, in line with our projection for 2.2 percent in 2019. As we weigh the downside risks to the economy – including moderating international growth and trade uncertainty – we now project that the Fed will wait until the fourth quarter to raise rates, if at all. However, some ground may have been broken on a path to improved growth, as productivity rose by 1.8 percent annually last quarter – a clear step above the well-trodden 1.0 to 1.4 percent band of the last few years.”
“We continue to expect another year of steady home sales in 2019,” Duncan continued. “While inventory has improved, it remains low by historical standards – particularly among existing homes – and threatens to derail the spring homebuying season, though a recent jump in single-family starts suggests that new supply is on the way. Considering the general inventory shortage and strong demand for housing, affordability remains a key challenge facing the industry, particularly in the conforming space.”
Visit the Economic & Strategic Research site at www.fanniemae.com to read the full March 2019 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.
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