Fannie Says Housing to Drive Economic Growth in 2020
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae says the housing sector made a positive impact on third quarter economic growth, a trend that should continue for the first part of next year.
The GSE’s monthly economic forecast for October said that residential fixed investment, along with consumer spending, are expected to counteract weakness in business investment.
Fannie maintained a top-line forecast of 2.2 percent GDP growth for 2019. Its GDP projection for 2020 rose one-tenth to 1.7 percent.
Fannie said its upward revision of 2020 GDP growth means a more positive outlook for housing. It expects total home sales in 2019 to increase by nearly 1 percent with another gain of about that magnitude in 2020.
The report stated that stronger-than-expected housing data led to revised upward projections for residential fixed investment in the third quarter of this year.
Fannie said its updated forecast of 4.2 percent annualized is 3.3 percentage points higher than last month’s projection and, if realized, would represent the first time residential fixed investment has been positive since 2017.
“While consumer spending, supported by a healthy labor market and gains in household wealth, remains the current expansion’s economic engine, the housing sector appears poised to offer meaningful near-term contributions to growth,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.
Fannie noted that would be a departure from the last years, during which housing has “been a drag on the economy.”
Fannie’s report also noted that:
August existing single-family home sales pushed upward by 1.3 percent to 5.49 million annualized units, the strongest pace since March 2018.
Existing sales may have peaked due to continuing problems with housing supply. The supply of single family homes for sale in August was the lowest for that month since data was collected starting in 1982.
New home sales rose 7.1 percent over the month to the second highest level since November 2017 and the third highest of the economic expansion.
It expects total home sales in 2019 will be 0.9 percent higher than in 2018, following an upward revision over previous projections.
The forecast report stated that lower interest rates may encourage homeowners to put their properties on the market, but that it hasn’t occurred so far.
But while existing home sales may limit the overall market, they may also encourage more construction, according to Fannie. The GSE noted that single-family housing starts rose for the third consecutive month in August to the second strongest pace since May 2018. The persistent increase in single-family housing permits suggests that new construction is on an uptrend.
The Mortgage Bankers Association reported that mortgage applications increased more than 34 percent from the same month in 2018.
"Purchase applications this year for new and existing homes for sale have consistently outpaced year ago levels,” said Joel Kan, associate vice president of economic and industry forecasting. “This trend should continue in the final months of the year - especially considering how much higher rates were at the end of 2018.”
The strong demand and limited supply will continue to be a challenge for housing affordability.
“Home prices appear likely to maintain a positive growth trajectory due in part to persistently low mortgage rates and evidence of declining inventory,” said Duncan. “On the flip side, the supply imbalance should be supportive of new home construction, which we believe will lead to an uptick in single-family housing starts through next year.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
