Fannie Mae Provides Updated Economic Forecast

Posted by Michael Bates on June 19, 2017 No Comments

According to the Fannie Mae Economic & Strategic Research Group’s June 2017 Economic and Housing Outlook, the current economic expansion is forecast to continue, with full-year growth at 2% for 2017.

“This month marks the eighth anniversary of the U.S. economic expansion – the third-longest of the post-World War II era,” says Doug Duncan, chief economist at Fannie Mae. “While we expect modest growth to continue in 2018, the potential for fiscal stimulus remains a notable wild card.”

Data suggest second-quarter economic growth will rebound to 2.9% annualized, from 1.2% last quarter. Also, despite mixed consumer fundamentals, consumer spending growth is expected to pick up to 3.1% this quarter, which is up from 0.6% in the prior quarter, resuming its traditional role as the biggest contributor to economic growth.

Although moderate growth is expected to continue next year, uncertainty surrounding fiscal and monetary policy is clouding the forecast.

“The odds that Congress will enact major pieces of legislation this year and jump-start meaningful fiscal stimulus have diminished, and the economy also faces another fiscal policy uncertainty in coming months, as Congress will have to raise the debt ceiling to avoid a government shutdown,” Duncan explains.

Monetary policy is also up in the air. The fed funds rate was raised by 25 basis points this month, and another increase is expected in September. But Fannie Mae notes that recently sluggish hiring and inflation could alter the Fed’s plans.

Overall, “The narrative for the housing market hasn’t changed over the past year,” according to Duncan.

“A labor shortage continues to restrain home building, and tight inventory is constraining sales and boosting home prices,” he says. “Although we expect mortgage rates to remain supportive for home buyers, our near-term outlook for existing-home sales remains cautious. We expect total home sales to rise 3.2 percent this year and total single-family mortgage originations to drop about 21 percent to $1.62 trillion. A large drop in refinance originations will likely outweigh a modest rise in purchase originations. We expect the refinance share to move down to around 34 percent in 2017 from 48 percent in 2016.”

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