Sentiment may have improved to multiyear highs in the past few weeks, but 2017 will bring only modest growth, according to the Fannie Mae economic and strategic research group’s December 2016 Economic and Housing Outlook.
“The tenor of our forecast effectively remains unchanged: signs of cautious consumers this quarter, rising interest rates, the renewed increase in the U.S. dollar to a 14-year high, and heightened uncertainty in the political sphere suggest conservatism in our outlook,” Fannie Mae Chief Economist Doug Duncan said.
“While we are encouraged that confidence is rising across investors, consumers, businesses, economists, and homebuilders, much of it appears to be in anticipation that the forthcoming administration and the new Congress will enact fiscal policies and deregulation that will help spur growth,” Duncan said.
Interest rates will continue to increase into the new year after the Federal Open Market Committee meeting which showed the markets could raise rates several times next year.
Home price appreciation will remain strong and bullish investors helped push equity rates higher, according to the report.
“The recent surge in interest rates amid continued strong home price appreciation are likely to present affordability challenges to homebuyers, especially for young adults who are looking to enter the housing market for the first time,” Duncan said. “However, stronger economic growth, if it materializes, should help support incomes, affordability, and the ongoing housing recovery.”
However, underlying uncertainty on policy for 2017 pushed Fannie Mae to project a 1.8% growth for next year, the third straight year of only modest growth.
“While we believe that some pro-growth policies could be adopted next year, it would take time for them to benefit the economy, barring any offsetting initiatives such as more restrictive trade policies,” Duncan said.