Fannie Mae: Positive economic outlook for second half, housing remains ‘mixed bag’

by Ryan Smith22 Aug 2016
The second quarter may not have seen as much growth as hoped, but Fannie Mae expects economic growth to rebound in the second half of the year.

Fannie Mae’s full-year growth outlook is 1.8%, according to its Economic & Strategic Research Group’s August Economic and Housing Outlook. But Fannie warns that "continued momentum in consumer spending” will be vital as business investment struggles. Fannie projects that July’s strong jobs report indicates a “strengthening hiring trend” which will help allay concerns over the health of businesses.

“Second quarter growth was a disappointment, but consumer spending appears solid heading into Q3, and we expect inventory investment to balance out after a surprising drawdown in Q2,” said Doug Duncan, chief economist for Fannie Mae. “Credit expansion, combined with improving labor market conditions and strengthening household balance sheets, should continue to support consumers, who will likely be the primary driver of growth again in the second half of the year.”

Duncan also sounded off on interest rates, saying it was doubtful that the Federal Reserve would raise rates this year despite a strong economic forecast for the second half.

“The positive July jobs report may encourage some Federal Open Market Committee members to argue for a Fed rate hike at the September meeting. However, we remain convinced that the Fed will hold the target rate steady this year given global uncertainties and anemic output growth.
Although much of the financial volatility from Brexit has subsided, long-term Treasury yields continue to face downward pressure and we expect them to remain low for some time.”

And while the housing market showed some positive signs, Duncan said it remained “a mixed bag.”

“During the second quarter of 2016, both new and existing home sales rose to expansion highs, while single-family starts pulled back, remaining historically low for an expansion,” he said. “Tight housing inventory from a lack of new construction continues to create affordability challenges, particularly at the lower end of the market. Robust rental demand during the second quarter of the year has created the lowest rental vacancy rate in decades. In addition, the homeownership rate dropped to below 63 percent in the second quarter, but we are seeing some tentative signs of older Millennials moving toward homeownership. We expect homebuyers will benefit from improving job and wage growth, more favorable lending standards, and continued low mortgage rates through the rest of the year, with the 30-year fixed-rate mortgage rate projected to average 3.4 percent during the fourth quarter.”
 

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