Monthly Archives: September 2016

What it means for housing

The economy showed many encouraging signs after the election of now-President Donald Trump such as an increase in the stock market and a jump in consumer confidence, however Fannie Mae still holds a conservative growth projection for 2017.

Fannie Mae projected economic growth of 2%, according to the company’s Economic and Strategic Research Group’s January 2017 Economic and Housing Outlook.

“Policy changes under the new Administration – in its nature, sequencing, and magnitude – will determine the direction of economic growth in 2017,” Fannie Mae Chief Economist Doug Duncan said. “Incoming data suggest improving consumer spending, diminished labor market slack, and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year.”

Now that the inauguration of Trump is complete, and the First Family moves into the White House, changes to policy should quickly become clear.

“Thus our theme for the year: Will Policy Changes Extend the Expansion?” Duncan said. “If stimulus policy is enacted, it would likely add to growth but could also be offset by potential tightened trade policy given the already historically strong dollar.”

The report explains that improved consumer spending in the third quarter drove an upwards revision from its prior forecast. It explained that a friendly labor market and rising household wealth should continue to support consumers.

Fannie Mae also pointed out that government spending and inventory investment will add to growth in 2017. Mortgage rates should rise gradually throughout the year, reaching 4.3% by the fourth quarter. However, there is still a risk that rates will rise faster and higher than the forecast, the report states. In that case, the report insists that the impact on housing could be offset by strengthened income growth.

“We expect housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle, particularly for first-time homeowners,” Duncan said. “Demographic factors, however, are positive.”

“Our research shows that older Millennials have begun to buy homes and close the homeownership attainment gap with their predecessors,” he concluded.

Slowdown in home affordability

The gross domestic product report for the fourth quarter may forecast a slowdown in this part of the housing market going into 2017.

The advanced estimate for GDP showed an increase of 1.9% in the fourth quarter, a slowdown from the third quarter’s increase of 3.5%.

One expert explained that the slowdown in income growth portrayed in the report could worsen the growing home affordability problem in the housing market, and even lock some potential homeowners out of the market.

“Going forward, it’s unlikely that housing will be much of a drag on growth, but Q4 data showed a slowdown in wage and salary growth that could certainly impact housing affordability, particularly as interest rates keep rising,” Zillow Chief Economist Svenja Gudell said. “While there were certainly bright spots in the report, economic growth was slower than expected to close out 2016.”

However, Gudell did explain there were bright spots in the report for housing.

She explained that the increase was direction related to new home sales, a trend that did not continue through the end of the year.

“Residential investment went from a drag on the economy in prior quarters to a big boost in Q4, largely because of strong new home sales in October and November,” Gudell said. “But as we saw earlier this week, new home sales did not continue this momentum in December, and it will be important to see how this data changes as more accurate data is incorporated and further estimates of growth are published.”

And Gudell isn’t the only expert that’s optimistic about the increased spending in residential construction.

“On the positive side, consumers did their part with a near 3% growth in spending and residential construction and modeling spending rose by a solid 10%,” said Lawrence Yun, National Association of Realtors chief economist. “Business spending, after being stuck near zero for a while, kicked higher by 4%.”

In fact, despite the slowdown, Yun remains optimistic about the future of the economy.

“Looking ahead, as long as the real estate sector continues to expand, the economy should avoid a recession,” he said. “Should the animal spirit revive in the business community, a stronger 3% GDP growth should be attainable.”