Fannie Forecasts Stable Mortgage Rates and Home Sales

Written By: Joel Palmer, Op-Ed Writer

Fannie Mae expects the Federal Reserve to limit itself to one rate hike in 2019, which it says will help home sales stabilize this year.

In its recently released January Economic and Housing Outlook, Fannie said it expects mortgage rates to hover around the 4.5 percent mark, where they ended 2018. It also predicts slower house price appreciation of 4.2 percent in 2019, compared with 5.5 percent in 2018.

Stable rates should enable “potential homebuyers to adjust to the rate environment after the volatility,” according to the outlook, and the slower price appreciation “should support affordability and buyer confidence.”

Fannie expects single-family starts to grow modestly this year, despite labor shortages. The report notes that lower interest rates should help contain builders’ borrowing costs.

Multi-family construction, on the other hand, is expected to decrease this year, despite favorable labor market conditions and demographic trends.

Total residential investment is projected to rebound this year after contracting last year for the first time in seven years.

Fannie’s purchase mortgage origination forecast for this year remains unchanged from its December forecast. “However, we upgraded our 2020 purchase originations outlook slightly based on a more optimistic view of home price growth than in December.”

Due to a lower mortgage rate forecast, Fannie has increased projected refinance originations in 2019 and 2020 by $10 billion and $6 billion, respectively. However, the forecast continues to expect refinance volumes to decline over the next two years.

The forecast calls for overall economic growth to decelerate this year to 2.2 percent, down from last year’s estimated 3.1 percent. The prediction is based on the expectation that the impact of the fiscal stimulus will fade.

The report stated that consumer spending, the biggest driver of growth in 2018, will moderate in 2019 due to stock market volatility and the government shutdown. This year’s consumer spending will grow 2.3 percent, according to the forecast, compared with 2.8 percent in 2018.

“Economic growth in 2018 will likely turn out to be the strongest of the current expansion, and inflation remained anchored even as the unemployment rate dipped to multi-decade lows. However, home sales experienced a setback, partly attributable to the most aggressive pace of monetary tightening of the expansion,” said Fannie Mae Chief Economist Doug Duncan.

The Federal Reserve raised the federal funds rate four times in 2018, the most since the recession. Fannie said this year’s forecast will be highly influenced by the Fed’s actions this year. In the forecast, Fannie anticipates only one interest rate increase in 2019.

“This year, the expansion is likely to become the longest on record, but the path to continued growth faces a number of downside risks with fewer upside risks,” said Duncan.

“With fading impacts of fiscal policy and tight financial conditions around the globe, we’re seeing moderating economic growth in the next couple of years. The Fed’s continued efforts to unwind expansionary monetary policies implemented during the recession have the potential to add to the headwinds facing the economy. However, we believe that contained price pressures should afford the Fed sufficient latitude to slow or pause rate hikes this year. This will allow the economy to continue growing, albeit at a slower pace, and housing to regain its footing.”


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.


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