Following up the exuberant growth of 2015’s housing market would be a tough act if anyone expected it could be followed. Most forecasts for 2016 come to the same conclusions  as those of the National Association of Realtors ‒‒optimistic about steady growth, but tempered with an understanding that growth will be more modest this year.
As Fannie Mae  sees it, the year ahead will be less like a person in love and more like one in a satisfying longterm relationship. Growth in the U.S. housing market will continue for its seventh straight year, but there will be bills to pay.
In the housing market’s case, those bills will come in the form of affordability, which Fannie says will shrink, especially in the lower-end of the market, where strong home price gains still outpace household income growth.
Fannie Mae’s Economic & Strategic Research (ESR) Group expects consumer spending to underpin economic growth this year, as it did in 2015, and for residential investment and government spending to help drive growth, despite some drag from net exports.
Overall, the ESR Group expects the economy to grow 2.2 percent and the pace of improvement in total home sales should be about 4 percent in 2016.
“We ended 2015 with a positive jobs report, an annual record high for auto sales, and the housing market poised to be the strongest since 2007,” said Doug Duncan, Fannie Mae’s chief economist. However, he said, “despite our expectation of only a small rise in mortgage rates, home price and income dynamics should inhibit home purchase affordability.”
Overall, the housing market and its place in the economy will not be without its obstacles. Duncan cited China’s deteriorating economic activity, a stronger dollar, geopolitical turmoil, and uncertainty about monetary policy as lingering risks to the rosy outlook for the year ahead.
Ed Delgado, CEO of the Five Star Institute  in Dallas, cautioned against oversimplifying the economic picture, particularly in light of mounting debts and tighter job markets among younger adults.
“The housing sector of the economy, in particular, needs to be re-evaluated,” Delgado said. “Although the housing market made strides this past year, the homeownership rate now stands at the lowest level in 48 years, millennials are saddled with $1.3 trillion in student loan debt, and job prospects for recent grads are bleak. As such, President Obama’s efforts on the housing front cannot be counted as a victory. There now exist barriers of entry for homeownership among first-time homebuyers, millennials, and minorities.”
In light of the Fed ’s first rate hike since 2006‒‒which Fannie expects to see hit 4.2 percent by year’s end‒‒Duncan said that single-family starts should accelerate to 17 percent this year. But only, he said, “if easing housing supply shortages and a continued strong pace of household formation pan out.”