U.S. Economy Still on Track to Slow in 2019

Housing Market Supported by Lower Rates, Improved Wage Growth

Matthew Classick

202-752-3662

WASHINGTON, DC – Headline economic growth for 2019 continues to be forecast at 2.2 percent, down from 3.0 percent in 2018, according to the Fannie Mae Economic and Strategic Research (ESR) Group’s April outlook. The fading impact of last year’s fiscal stimulus as well as slowing business investment and consumer spending were again identified as the primary drivers behind the expected sluggishness in GDP growth, but residential fixed investment is projected to rebound. The second half of the year is expected to feature stronger economic growth as the real effects from the partial government shutdown and the fourth quarter stock market volatility wane amid dovish Federal Reserve policy. The ESR Group maintained its prediction for one interest rate hike in 2019 but pushed back its expected timing to December due to the Fed’s plans to stop trimming its balance sheet by September.

The ESR Group continues to project home sales in 2019 to hold steady at 2018 levels, supported by improved wage growth, slowing home price appreciation, and lower mortgage rates. Purchase mortgage origination volume is projected to rise moderately amid flat home sales and slower home price appreciation. Given the recent decline in interest rates, refinance mortgage origination volume is now expected to come in higher than previously forecast, though still down modestly year over year.

“Incoming data continue to support our call for slower economic growth in 2019,” said Fannie Mae Chief Economist Doug Duncan. “Domestic demand growth has slowed as businesses and consumers exert greater caution amid trade uncertainty and capital markets volatility. The predominant downside risks – the US-China trade dispute and slowing global growth – are expected to ease later this year, which should help bolster growth in the second half. Despite its self-described ‘patience,’ we still expect the Fed to raise its key policy rate at the end of the year due to stronger second-half growth.”

“On housing, the recent dip in mortgage rates to their lowest level in over a year – combined with wage gains and home price deceleration – supports our contention that home sales will stabilize in 2019,” Duncan continued. “The greatest impediment to both sales and affordability continues to be on the supply side, as new inventory, particularly among existing homes, is being met quickly by strong demand – as evidenced by the already thin months’ supply hitting a new one-year low.”

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