The ESR Group now projects fourth quarter 2019 headline growth of 1.8 percent and full-year 2020 growth of 2.1 percent, each a two-tenths improvement compared to the prior forecast. Just as labor market strength has carried through to consumer spending, the ESR Group also expects strong consumer spending to translate into positive business fixed investment in the fourth quarter and moving into 2020. While most components of GDP experienced minor adjustments this month, residential fixed investment, which includes housing starts and other aspects of the housing sector, increased more substantially. Owing to this expectation of economic strength, as well as comments from the FOMC indicating an unlikeliness to ease rates further, the ESR Group removed its prediction of one rate cut in early 2020 and now expects no moves from the Fed at all next year.

Housing construction is once again poised to become an engine of overall economic growth. The ESR Group expects homebuilders to expand production in reaction to continued labor market strength and consumer spending, as well as supportive interest rates and waning risks of a significant near-term economic slowdown. Tight supply conditions in tandem with favorable mortgage demand are likely to apply upward pressure to home prices while also bolstering credit performance in the mortgage market, meaning affordability is likely to remain a challenge for some potential borrowers.

“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,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “In our view, residential fixed investment is likely to benefit from ongoing strength in the labor markets and consumer spending, in addition to the low interest rate environment. 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. With these positive economic developments in mind, we now believe that the Fed will hold interest rates steady through 2020.”

“Our expectation that residential fixed investment will function as an ongoing engine for growth is driven primarily by the improvement in our forecast for the single-family market,” continued Duncan. “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. 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.”

Visit the Economic & Strategic Research site at to read the full December 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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