Confidence is High Heading Into 2017, But . . .

Fannie Mae thinks 2017 is going to be another year of pedestrian growth for the economy and housing despite confidence hitting its highest level in years heading into 2017.

Fannie Mae’s December Economic and Housing Outlook showed that long-term interest rates are still on the climb, and that more aggressive fed funds rate projections stemming from this month’s Federal Open Market Committee meeting are likely to push mortgage interest rates to their highest point in more than two years. This, Fannie Mae said, will create “headwinds for housing.”

Meanwhile, home price appreciation remains strong, and bullish investors have helped push equity prices higher, buoying household net worth and providing support to consumers, the report stated. Rising oil prices have also helped reduce drags on the energy sector.

However, despite these positive developments, Fannie Mae cited “policy uncertainty” as its reason for projecting a cool 1.8 percent growth in 2017. Should the prediction hold up, it would make 2017 the third straight year of such modest growth.

“The tenor of our forecast effectively remains unchanged: signs of cautious consumers this quarter, rising interest rates, the renewed increase in the U.S. dollar to a 14-year high, and heightened uncertainty in the political sphere suggest conservatism in our outlook,” said Fannie Mae chief economist Doug Duncan. “While we are encouraged that confidence is rising across investors, consumers, businesses, economists, and homebuilders, much of it appears to be in anticipation that the forthcoming administration and the new Congress will enact fiscal policies and deregulation that will help spur growth.”

The National Association of Home Builders found in its Housing Market Index for December that builder confidence was at its highest level in more than 11 years as builders anticipate regulatory relief that the new administration has promised.

Duncan added that any pro-growth policies adopted by the new administration next year would take time to benefit the economy, barring any offsetting initiatives such as more restrictive trade policies.

“The recent surge in interest rates amid continued strong home price appreciation are likely to present affordability challenges to home buyers, especially for young adults who are looking to enter the housing market for the first time,” he said. “However, stronger economic growth, if it materializes, should help support incomes, affordability, and the ongoing housing recovery.”