Housing Expected to Stabilize in 2019 as Economic Growth Slows

Matthew Classick

202-752-3662

WASHINGTON, DC – Full-year 2019 real GDP growth is predicted to slow to 2.3 percent, down from 2018’s projected 3.1 percent, due largely to the waning impact of the Budget Reconciliation Act, a widening trade deficit, and moderating business investment growth, according to Fannie Mae’s Economic and Strategic Research Group. Consumer spending should continue to be the largest positive contributor to headline growth amid consumer confidence that remains near an expansion best. However, business fixed investment growth, a critical driver of the current expansion, slowed significantly in the third quarter and may be further constrained in the near term by higher tariffs, trade uncertainty, and rising interest rates and input costs. The most notable downside risks to the forecast include the ongoing trade tensions between the U.S. and China and stock market volatility, both of which have the potential to materially impact consumer and business spending. Barring accelerating inflation, the ESR Group expects both mortgage rates and home sales to stabilize in the new year as the economy slows. Purchase mortgage originations should climb, but a more substantial decline in refinances is expected to result in a small drop in total origination volumes.

“We expect full-year 2018 economic growth to come in at 3.1 percent – an expansion high – before slowing markedly to 2.3 percent in 2019 and 1.6 percent in 2020,” said Fannie Mae Chief Economist Doug Duncan. “Fading fiscal policy, worsening net exports, and moderating business investment all contribute to our projection that GDP growth will begin to slow in 2019.”

Duncan continued: “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. If mortgage rates trend sideways next year, as we anticipate, 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. However, affordability is likely to remain an industry concern, particularly among first-time homebuyers.”

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full December 2018 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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