WASHINGTON, DC—The US economy remains on track for 2.7% real GDP growth this year despite rising long-term interest rates and the stock market's recent turbulence, Fannie Mae said Thursday. The GSE's latest Economic and Housing Outlook also predicts a 3.3% year-over-year increase in sales of new and existing homes, including for-sale apartments, although the annual increase is expected to moderate to 1.9% in 2019.
Fannie emphasizes the importance of the Federal Reserve's actions in determining the economy's actual performance in the coming months. “While our 2018 growth forecast remains unchanged, upside and downside risks are emerging that are contingent on those policy influences,” says Doug Duncan, chief economist with Fannie.
On the legislative front, “stimulus from tax reform and the recently passed budget could add to growth,” Duncan says. “However, if additional growth is accompanied by signs, or even fears, of inflationary pressure, it could complicate the Fed's attempt at a 'soft landing' and may require more aggressive monetary action.” As it is, Fannie expects the year's first increase in the federal funds rate to take place at the March meeting of the Federal Open Markets Committee, a move the GSE says is already priced in by the market.
The GSE's February outlook report notes that long-term Treasury yields hit multi-year highs this month, while equities have experienced sudden repricing as the Dow Jones Industrial Average has fallen hundreds of points in a single day and gradually recovered. That entails downside risks to the forecast, according to Fannie, especially if the recent stock market declines are sustained and prove contagious to other markets.
“On housing, we upped this year's 30-year fixed mortgage rate forecast by 30 basis points to an average of 4.4% during the fourth quarter as a result of the unexpected spike in long-term interest rates at the start of the year,” says Duncan. “However, we don't expect rates to play much of a role in total home sales, especially with anticipated stronger disposable household income growth. The ongoing inventory shortages should continue to constrain sales despite otherwise ripe home buying conditions.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
