After multiple rate hikes brought volatility into the housing market, 2019 should see things stabilize as the pace of rate increases slows, according to researchers at Fannie Mae.
In its 2019 Economic and Housing Outlook, Fannie’s Strategic Research Group said it continues to predict a slowdown in economic growth in the year ahead, projecting a 2.2% decline in growth that it attributes mostly to decreased consumer spending.
But researchers also said that the Federal Reserve’s “dovish” stance on rate hikes in 2019 will help stabilize home sales. They predict only one rate hike in the year ahead.
Considering these projections, the group defined its theme for 2019: “The economy’s slowing, the Fed slows, housing plateaus.”
Researchers said they expect mortgage rates to change little in the year ahead, continuing to hover in the 4.5% range, which they said will allow homebuyers to adjust to the new rate environment after last year’s volatility.
Combined with a projected slower pace of home price appreciation, stable rates should “support affordability and buyer confidence,” the researchers said.
“We expect single-family starts to grow modestly in 2019 as home buying firms. Although labor shortages will likely continue to frustrate builders, lower interest rates should help contain their borrowing costs,” the report stated.
It also noted that while multifamily construction is expected to slow in 2019, strong labor market conditions and Millennials will support to the sector.
In terms of refinance activity, the group said that while it increased its projections for refinance originations to $10 billion in 2019 and $6 billion in 2020, it predicts refinance volume will decline over the next two years.
Fannie Mae Chief Economist Doug Duncan said the path to economic growth in the year ahead faces more downside risks than upsides. Tight global conditions and the fading impact of fiscal policy has led to a prediction of moderate economic growth in the next couple of years, Duncan added.
“The Fed’s continued efforts to unwind expansionary monetary policies implemented during the recession have the potential to add to the headwinds facing the economy,” Duncan said. “However, we believe that contained price pressures should afford the Fed sufficient latitude to slow or pause rate hikes this year. This will allow the economy to continue growing, albeit at a slower pace, and housing to regain its footing.”