Fannie Mae: Economic expansion expected to continue

But predicts a 21% drop in single-family originations this year

The current economic expansion is in its ninth year, and is forecasted to continue growing, according to Fannie Mae’s Economic and Strategic Research Group’s June 2017 Economic and Housing Outlook.

Fannie Mae predicted full-year growth will come in at 2% for 2017. Although the first quarter saw economic growth of just 1.2%, Fannie Mae expects economic growth will increase to 2.9% in the second quarter.

“This month marks the eighth anniversary of the U.S. economic expansion, the third-longest of the post-World War II era,” Fannie Mae Chief Economist Doug Duncan said. “While we expect modest growth to continue in 2018, the potential for fiscal stimulus remains a notable wild card.”

“The odds that Congress will enact major pieces of legislation this year and jumpstart meaningful fiscal stimulus have diminished, and the economy also faces another fiscal policy uncertainty in coming months, as Congress will have to raise the debt ceiling to avoid a government shutdown,” Duncan said. “Monetary policy uncertainty also has heightened.”

And despite mixed consumer fundamentals, consumer spending growth is expected to increase to 3.1% this quarter, up from 0.6% in the previous quarter. It is predicted to resume its role as the biggest contributor to economic growth.

“As we expected, the Federal Open Market Committee raised the fed funds rate at the June meeting by 25 basis points,” Duncan said. “Our June forecast assumes that the Fed will increase the target rate once more this year in September and will begin to taper reinvestment of principal payments from its securities holdings in December.”

“However, the recent slowdowns in hiring and inflation could lead the Fed to hold off on the September rate hike in order to gather more data,” he said.

As for the housing market, Fannie Mae explained it hasn’t changed over the past year, and tight inventory continues to boost home prices.

In fact, one economist recently explained housing inventory is so low, it could soon turn into an emergency.

“Although we expect mortgage rates to remain supportive for homebuyers, our near-term outlook for existing home sales remains cautious,” Duncan said. “We expect total home sales to rise 3.2% this year and total single-family mortgage originations to drop about 21% to $1.62 trillion.”

“A large drop in refinance originations will likely outweigh a modest rise in purchase originations,” he said. “We expect the refinance share to move down to around 34% in 2017 from 48% in 2016.”

However, not everyone agrees the economy will take off in the second quarter. Mark Pender, senior editor at predicted the housing economy could be about to take a turn for the worse.

3d rendering of a row of luxury townhouses along a street

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