MortgageReal Estate

Fannie Mae: Economic growth to rebound in remainder of year

New home sales are the bright spot in housing

Economic growth is set for a rebound in the second half of 2016 and will make up for the lackluster growth at the beginning of the year, according to Fannie Mae’s September 2016 Economic and Housing Outlook.

Fannie Mae’s outlook predicts that economic growth will hit 2.6% in the second half of the year, up from 1% in the first half. Overall, the full-year forecast for 2016 remains at 1.8%, unchanged from last month.  

Consumer and government spending are expected to be the main drivers of growth for the remainder of 2016, but inventory investment and net exports are likely to drag on growth. Nonresidential and residential investment are expected to be neutral for the year.

“Consumers continue to carry the economy and the earnings slowdown in the August jobs report may be an aberration in the recently improving personal income growth trend,” said Fannie Mae Chief Economist Doug Duncan.

Household income posted its first significant increase in eight years, new data from the U.S. Census Bureau showed.

“However, the declining trend in business productivity has negative implications for businesses’ profit outlook, as low productivity tends to boost labor costs, which could act as a headwind for hiring and investment,” Duncan said. “Corporate profits are down 4.9% from one year ago, extending their streak of annual declines.”

“We expect nonresidential fixed investment to post a modest increase in the third quarter following three consecutive quarterly declines, while residential investment is likely to decline for the second consecutive quarter,” he said.

But there is a beacon of hope for the economy and the housing market.

“A bright spot for housing market activity is the strengthening of new home sales, which is significantly outperforming activity in recent years,” Duncan said. “The share of new home sales that are under construction or not started has climbed to nearly 70%, improving the outlook for single-family homebuilding.”

Builder confidence in September hit a new high for 2016, reaching its highest point since October last year, according to the most recent Housing Market Index released by theNational Association of Home Builders and Wells Fargo.

“Existing home sales underperformed 2015 for the first time in July, however, year-to-date sales are still 2.6% higher than during the same period last year,” Duncan said. “Additionally, the share of for-rent multifamily building starts has trended up with recent trends in homebuilding activity favoring the rental market.”

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