Fannie Mae’s Economic Outlook Remains Firm, but Warn of the Risk of Trade War

Written By: Joel Palmer, Op-Ed Writer

First-quarter economic growth was slower than anticipated, yet the outlook for the rest of the year remains strong.

Economic fundamentals remain strong, yet “downside risks are rising.”

The near-term outlook for home sales is mixed.

Fannie Mae’s latest Economic and Housing Outlook includes a slightly downward revised economic forecast for the year amidst optimism that strong economic signals will outweigh emerging risks.

“While first quarter consumer caution drew down our 2018 growth forecast a tick, we still forecast growth to come in at a solid pace. However, downside risks are emerging – the most notable being the increasingly heated rhetoric on trade,” said Fannie Mae Chief Economist Doug Duncan. “If rhetoric becomes reality, a trade war could reverse much of the upside from recently passed fiscal stimulus, or it could trigger an even worse outcome: recession.”

Fannie had previously predicted slower economic growth of 2.1 percent in the first quarter of this year. That deceleration turned out greater than anticipated, with an estimate of 1.7 percent.

Even with this slower growth and the threat of a trade war, Fannie is forecasting economic strong growth for the second quarter and the remaining of the year. The GSE’s revised projections for GDP growth was only lowered to 2.7 percent from its original forecast of 2.8 percent.

“Fundamentals support our strong outlook. Income growth remainshealthy, consumers and businesses are optimistic, and fiscal stimulusfrom the tax cut and new federal budget should help boost demandthrough the rest of the year,” according to the outlook.

In the housing sector, the report noted that:

•    New home sales fell in February for the third consecutive month and total housing starts fell during the month also.
•    Total home sale for the first two months of the year were flat compared to 2017.
•    While pending home sales rebounded in February,purchase mortgage applications fell sizably in February and only partially recovered in March.
•    Fannie continues to expect total home sales to rise nearly 3 percent in 2018 amid increasing household income, a gradual rise in mortgage rates, and continued lean inventory.
•    Inventory of existing homes continues to be limited, and the inventory of completed new homes should continue to restrain sales. 
•    Fannie’s mortgage volume forecasts for the year remain unchanged, with total originations falling 8 percent from 2017 due to a decline in refinances, which will account for only 29 percent of originations this year.
•    The rate on a 30-year fixed mortgage will hover around the 4.5 percent mark for the year.

But as Fannie Mae noted, all bets are off if trade restrictions and counter-moves by China are deployed. Even continued threats could lead to significant loss in consumer and business confidence. “The tradewar could reverse much of the positive impacts of the fiscal stimulus orcould trigger an even worse outcome—recession,” read the outlook.

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.