The recent economic slowdowns, which include April job growth of only 160,000 and 0.5 percent Q1 GDP growth, seem to have darkened everyone’s view of the economy for the remainder of the year. Despite this, both Fannie Mae and Freddie Mac have stood their ground on their positive outlook for housing for the remainder of 2016.
The Fannie Mae Economic & Strategic Research (ESR) Group this week further downgraded its forecast for the full year of 2016 down to a 1.7 percent growth rate—from last month’s forecast of 1.9 percent and the 2.2 percent at the beginning of 2016.
While the ESR group believes that the economy will bounce back somewhat during the remainder of the year, with consumer spending as an engine for growth, they don’t think it will be enough to make up for the weak first quarter.
“Consumers and businesses showed caution at the end of the first quarter,” said Fannie Mae Chief Economist Doug Duncan. “Job creation slowed in April and participation in the labor force gave back some of the recent gains. Nevertheless, the uptick in both hours worked and average hourly earnings should boost labor income and help support consumer spending in the current quarter.”
Likewise, in the May 2016 Monthly Outlook released Wednesday, Freddie Mac downwardly revised its forecast for economic growth for the remainder of the year from 2.0 percent down to 1.8 percent. Freddie Mac did say, however, they expect a “strong rebound” in subsequent quarters.
Despite the more pessimistic views about the economy for the rest of 2016, both Fannie Mae and Freddie Mac kept positive on the outlook for housing. Freddie Mac stuck to its prediction that 2016 will be the best year for home sales in a decade as near-historically low mortgage rates—averaging 3.7 percent for a 30-year fixed rate at the end of the first quarter and floating between 3.57 and 3.66 percent in April and May—work to offset rapid home price appreciation and tight inventory.
“Even with tight inventories and rising house prices, we still forecast 2016 to be the best year for home sales in a decade,” Freddie Mac Chief Economist Sean Becketti said. “The first quarter of 2016 had the second-fastest first-quarter pace of home sales in the past decade, narrowly edging 2015. Home sales typically rise in the spring and summer months so we’re anticipating an acceleration in home sales, which will allow us to surpass 2007's pace by late summer.”
According to Fannie Mae, pending home sales and low mortgage rates are likely to result in a rise in home sales in the near-term.
“Home sales are expected to pick up heading into the spring season amid the backdrop of declining mortgage rates, rising pending home sales and purchase mortgage applications, and continued easing of lending standards on residential mortgage loans,” Duncan said. “Meanwhile, the homeownership rate showed signs of stabilizing during the first quarter of this year, as the relatively high homeownership rates among baby boomers have helped offset low homeownership rates among millennials, many of whom remain on the sidelines due to ongoing affordability issues.”