Fannie Mae says housing will boost economic growth in 2020



Fannie Mae has upgraded its economic outlook for 2020, saying it expects the economy to get a big boost from growth in the housing market.

Fannie Mae’s Economic and Strategic Research Group said in a report this week that housing helped the economy to grow in the third quarter of 2019 for the first time in over 18 months, and says the momentum will continue into the fourth quarter and on to next year.

The primary driver of economic growth next year will be consumer spending, but housing will also function as a positive contributor in the short term, Fannie said. It noted that sales of both existing and new homes increased in the third quarter. Housing permits, pending home sales, and housing starts also increased during the same period.

Still, Fannie admits that the housing sector still faces challenges, particularly around supply and affordability, which continue to be a big obstacle for many prospective buyers.

The economy is also at risk from the ongoing trade tensions between the U.S. and China, and political uncertainty elsewhere in the world, Fannie said. But its economists predict the Federal Reserve will make at least one more interest rate cut in early 2020, before pausing for the rest of the year.

“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” Doug Duncan, Fannie Mae’s senior vice president and chief economist, said in a statement. “As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020. Positive contributions from single-family housing construction, home improvements, and broker fees pushed residential fixed investment growth to a robust 5.1 percent annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace.”

With mortgage rates normalizing, Duncan said Fannie experts to see refinance activity decline in 2020. The refinance share of mortgage originations will likely drop from a projected 37% in 2019 to 31%.

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