Uncertainty Tempers Economic and Housing Forecast

The U.S. economy is projected to grow 2 percent in 2017, according to the January 2017 Economic and Housing Outlook from Fannie Mae, though that could change as the new administration’s policies become more clear.

The Outlook, released by the Fannie Mae Economic & Strategic Research Group, noted that improved consumer spending in Q3 of 2016 drove the growth rate up slightly from previous forecasts. A friendlier labor market and increasing household wealth may also boost the rate as the year goes on.

However, according to Fannie Mae, the lack of clarity on the new administration’s economic policies make the currently predicted growth rate subject to change.

“Despite a strong year-end performance by the stock market and a post-election jump in confidence among consumers and businesses,” Fannie Mae’s release stated, “limited information on the new administration’s potential economic policies led to a conservative 2017 growth projects of 2 percent.”

In addition to an improvement in the overall economy, Fannie Mae expects fixed business investments to increase, too—especially in the equipment sector. Government spending and inventory investment should also improve growth, the release stated.

Mortgage rates have already begun to see change, jumping to an average of 4.3 percent in Q4 of 2016. They could continue to rise as 2017 goes on.

“There is risk that rates could rise faster and higher than forecasted, but the impact on housing could be offset by strengthened income growth,” the release stated.

Despite the rising rates, Fannie Mae still expects the housing market to continue its upward climb since the recession.

“We expect housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle,” said Fannie Mae Chief Economist Doug Duncan. “Demographic factors, however, are positive. Our research shows that older millennials have begun to buy homes and close the homeownership attainment gap with their predecessors.”

Ultimately, the growth of the economy depends largely on the policies yet to be put in place by President Trump and his administration. Only time will tell what those are and how their impact will be felt.

“Policy changes under the new administration—in its nature, sequencing, and magnitude—will determine the direction of economic growth in 2017,” said Fannie Mae Chief Economist Doug Duncan. “Incoming data suggest improving consumer spending, diminished labor market slack, and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year. Thus our theme for the year: ‘Will policy changes extend the expansion?’ If stimulus policy is enacted, it would likely add to growth but ‘could also be offset by potential tightened trade policy given the already historically strong dollar.”

Click here to read the full Outlook report.