The economy will continue growing, mortgage lending standards will ease and household income will rise in 2016, but housing affordability will continue be a challenge thanks to the continued increase in house prices, Fannie Mae said in a new report.

According to Fannie Mae’s Economic & Strategic Research Group, the themes for the economy and housing market in 2016 focus on the “challenge of housing affordability coupled with expected modest economic growth, as the expansion progresses through its seventh year.”

In its report, Fannie Mae’s Economic & Strategic Research Group states that it expects that further labor market tightening will lead to increased household income and job security amid more relaxed lending standards and easier access to mortgage credit throughout 2016.

But strong home price gains, especially in the lower-end of the market, will continue to outpace household income growth, which, in turn, will negatively affect affordability, Fannie Mae said.

Additionally, Fannie Mae said consumer spending is expected to support economic growth again in 2016, while residential investment and government spending should help drive growth despite some drag from net exports.

Overall, the ESR Group said that it expects the economy to grow 2.2% for all of 2016, with China’s deteriorating economic activity, a stronger dollar, geopolitical turmoil, and uncertainty about monetary policy remaining as risks to the outlook.

“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 Fannie Mae Chief Economist Doug Duncan.

“The first Fed funds rate hike since 2006 has had a minimal impact on mortgage interest rates so far, and we believe mortgage rates will edge up only gradually, ending the year around 4.2%,” Duncan continued.

“Despite our expectation of only a small rise in mortgage rates, home price and income dynamics should inhibit home purchase affordability,” Duncan said.

“In addition, continued rent increases will hinder renters’ ability to save for down payments,” he continued. “Therefore we believe the pace of improvement in total home sales should moderate to 4% in 2016. However, we expect the increase in single-family starts to accelerate to 17% this year, if easing housing supply shortages and a continued strong pace of household formation pan out.”