Fannie Lowers Q1 Housing Projections but Sees Strong Spring Buying Season

Written By: Joel Palmer, Op-Ed Writer

Fannie Mae has revised downward its forecast for first-quarter economic growth as well as home sales and purchase mortgage originations.

Fannie’s February economic forecast includes a prediction of 1.7 percent annualized economic growth during the first quarter of 2019. That’s down 0.1 percent from its previous forecast. It’s also well below the 2.8 percent growth Fannie expects to be reported for the fourth quarter of 2018.

Fannie is maintaining its previous forecast of 2.2 percent economic growth for the full year in 2019. That’s a slowdown from the 3.1 percent growth that occurred in 2018.

“The labor market is strong, unemployment is at a very low level historically, and wages are rising modestly, enticing workers to come off the sidelines,” said Fannie Mae Chief Economist Doug Duncan. “We continue to expect only one rate hike this year as markets applauded the pause in monetary tightening by the Fed. Uncertainty regarding terms of trade remains a downside risk, as does slowing global economic growth.”

Fannie lowered its forecast for fourth quarter 2018 home sales. In December, sales of existing homes fell 6.4 percent to 4.99 million. That marked the first time since November 2015 that monthly sales were below 5 million. Data on new home sales for November was delayed by the government shutdown.

Fannie also lowered its forecast for home sales in the first quarter of 2019 due to pending home sales posting three straight months of declines.

That also means a lower forecast for purchase mortgages. Expected originations were revised lower in 2018 and 2019 to $1.147 trillion and $1.181 trillion, respectively.

The report did note that home-buying conditions remain favorable heading into the spring buying season. That’s largely due to falling mortgage rates, strong employment and average hourly earnings growth, and slowing house price appreciation. Fannie also noted that average purchase mortgage applications increased 12.8 percent in January.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased 1.2 points in January to 84.7, suggesting potential buyers are more optimistic. However, the HPSI remains 4.8 points below its level from a year ago.

December’s inventory of existing homes for sale rose from 3.2 months a year ago to 3.7 months. December was the fifth consecutive month that sales inventory increased. However, the report said that supply below six months is considered a shortage.

The number of new homes for sale rose 15.1 percent over the year ending in November. Supply in November rose from 4.9 months the year before to six months.

Fannie also raised its projections on refinance originations due to a lower interest rate forecast.

The National Association of Realtors reported that existing home sales dropped 1.2 percent between December 2018 and January 2019 and that they declined 8.5 percent on a year-to-year basis.

NAR Chief Economist Lawrence Yun said, however, that he expects that trend to reverse in the coming months.

“Existing-home sales in January were weak compared to historical norms; however, they are likely to have reached a cyclical low,” Yun said. “Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months.”

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.