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.