Economic Outlook for 2020 Upgraded Despite Prominent Downside Risks

Housing Expected to Remain Supportive Through the First Half of Next Year

Matthew Classick

202-752-3662

WASHINGTON, DC – Expected easing trade tensions, stimulative fiscal policies, and continued consumer spending contributed to an upgraded 2020 forecast for real GDP growth of 1.9 percent, according to the latest commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. Housing added to growth in the third quarter for the first time in more than a year and a half, and the ESR Group expects that momentum to continue into the fourth quarter and the first half of 2020.

Consumer spending is expected to remain the primary driver of economic growth for the forecast horizon, with business fixed investment poised to benefit in the new year as additional corporate expenditures work to meet sustained consumer demand. Housing should also continue to function as a positive contributor to growth in the near term, as indicated by both new and existing single-family home sales advancing in the third quarter, as well as pending home sales, permits, and starts. However, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity.

While macroeconomic data remains largely positive, risks to the forecast remain weighted to the downside and include a potential breakdown in trade talks between the United States and China, as well as ongoing political uncertainty abroad. Given the range of downside risks and muted inflation, the ESR Group continues to expect one more rate cut from the Federal Reserve in early 2020 before pausing for the remainder of the year.

“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “A stronger-than-expected third quarter contributed to the downward revision to our fourth quarter forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter. Still, consumer spending is likely to continue driving the expansion forward, and with the passage of the budget act and a reprieve in trade tensions we’ve revised upward our forecast for full-year 2020 growth. We also continue to expect the Fed to cut interest rates only one more time in the foreseeable future, in early 2020, as a hedge against the sizeable downside risks and to counteract muted inflation.”

“As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020,” continued Duncan. “Positive contributions from single-family housing construction, home improvements, and brokers fees pushed residential fixed investment growth to a robust 5.1 percent annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace. With mortgage rates normalizing, we expect a decline in refinance activity in 2020, with the refinance share of originations dropping from a projected 37 percent in 2019 to 31 percent. Of course, the housing market as a whole remains constrained by the persistent supply and affordability issues, which is particularly unfortunate given the current strength of consumer demand for reasonably priced homes.”

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full November 2019 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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