Amid talk of trade wars, escalating home prices, and rising interest rates, Fannie Mae is remaining optimistic about overall economic growth. In Fannie's April 2018 Economic and Housing Outlook report, the GSE projects higher numbers across the board in housing prices, starts, and originations in all four quarters of 2019, compared to those in 2018.
Projections for the second, third, and fourth quarters of 2018 are higher than their corresponding quarters in 2017 for housing starts, sales, and prices. All cobbled together, there were 1.2 million housing starts and sales in 2017 and Fannie predicts there will be almost 1.29 million by the end of this year. The 2019 numbers in April's report look to finish around 1.3 million.
Fannie expects interest rates on fixed mortgages to rise to 4.5 percent by year's end and then hold there throughout 2019. It projects a little more of a steady climb on adjustable-rate mortgages into Q2 of 2019. Fannie reported that ARMs should climb quarterly from the current 3.6 percent until they hit 4 percent next year, then stay put.
Mortgage originations are the only category that looks to keep dropping, according to Fannie Mae. In 2017, the GSE reported, originations totaled $1.84 trillion; 2018 is expected to close with about $1.7 trillion, and 2019 with slightly less.
Fannie expects full-year 2018 economic growth to come in at 2.7 percent, “even as downside risks stemming from trade policy have risen,” the report stated. That's one-tenth lower than its previous forecast of 2.8 percent, and it follows a greater-than-expected slowdown in first-quarter growth.
“Lackluster consumer spending in January and February, following an unsustainable fourth-quarter pace, drove the slight downgrade, though tax refunds and reduced withholdings are expected to boost consumer spending in March and the months ahead,” the report stated. “Elsewhere, economic fundamentals remain strong, with healthy income growth, optimistic consumer and business sentiments, and fiscal stimulus stemming from tax reform and the federal spending bill likely to lift demand.”
Doug Duncan, Chief Economist at Fannie Mae, said, “Increasingly heated rhetoric on trade” was the reason why the GSE was being more guarded about what the future will bring.
“If rhetoric becomes reality, a trade war could reverse much of the upside from the recently passed fiscal stimulus, or it could trigger an even worse outcome: recession,” Duncan said.
However, he added, “Threats and counter-threats aside, economic growth should pick up this quarter amid a rebound in consumer spending and business investment growth, in addition to a healthy labor market. Soft residential investment last quarter should prove temporary, as home sales resume their slow upward grind, with inventory shortages playing friend to prices but a foe to affordability and sales.”