Although economic growth is expected to slow in the new year, new data suggests the housing market will stabilize come 2019, according to Fannie Mae.
According to the company’s Economic and Strategic Group, full year GDP growth is predicted to slow to 2.3% in 2019, which is down from 2018’s projected 3.1%. Fannie Mae attributes this decline to the Budget Reconciliation Act, business investment growth and a widening trade deficit.
“We expect full-year 2018 economic growth to come in at 3.1% – an expansion high – before slowing markedly to 2.3% in 2019 and 1.6% in 2020," Fannie Mae Chief Economist Doug Duncan said. "Fading fiscal policy, worsening net exports, and moderating business investment all contribute to our projection that GDP growth will begin to slow in 2019.”
That being said, the report indicates that consumer spending will continue being the largest positive contributor for growth. Nevertheless, the GSE believes higher tariffs, trade uncertainty and rising interest rates and input costs will further constrain business fixed investment growth.
Fannie cites trade tensions between the U.S. and China as one of the most significant downside risks to the forecast, especially since stock market volatility could impact both consumer and business spending.
However, with the exception of accelerating inflation, both mortgage rates and home sales could stabilize in 2019, according to the ESR Group. In fact, Fannie predicts purchase mortgage originations will climb, but origination volumes will slow as refinances decline.
“The labor market continues to be one of the economy's high points, and with inflation hovering around the Fed's 2.0-percent target, we maintain our call that the Fed will hike rates once more in December and two more times in 2019, despite rising market expectations of fewer hikes amid stock market volatility,” Duncan continued.
Duncan said if mortgage rates trend sideways next year and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market.
“We also expect residential fixed investment to resume a positive growth trajectory amid continued rising housing starts and stabilizing home sales," Duncan said. "However, affordability is likely to remain an industry concern, particularly among first-time homebuyers."