New forecasts from Fannie Mae’s Economic and Strategic Research (ESR) Group suggest that low mortgage rates and strong demand will help grow residential fixed investment at a 3.9% annualized pace in 2020, following last year’s contraction of 0.1%.
That demand, buoyed by labor market strength, is expected to more than meet the moderate uptick in housing inventory predicted for the latter part of the year, according to the ESR Group.
As measured by Fannie Mae’s Home Purchase Sentiment Index, consumer sentiment toward housing is approaching an all-time high, reflecting in part Americans’ growing belief that it’s a good time to buy a home. The lower interest rate environment also appears to have fueled a new surge in mortgage refinance applications in January, with similarly strong refi activity expected for February.
Expectations for full-year 2020 and 2021 real gross domestic product (GDP) growth improved by one-tenth to 2.2% and 2.1%, respectively, on a projected substantial upgrade to business fixed investment later this year. A strong January jobs report featured solid wage growth and better-than-consensus non-farm payroll growth, including in residential construction.
The ESR Group anticipates that the resilient American consumer will support growth in the macroeconomy – and the housing market – over the forecast horizon.
The group also maintains its expectation of no further rate cuts from the Federal Reserve in 2020, absent any new signs of economic weakening.
“Looking ahead, we continue to anticipate that the economy’s resilience will help keep housing on a firm growth track,” says Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “In fact, our updated housing market forecast shows greater strength in essentially every part of the housing market extending through the first half of 2021.
“The limiting factor for home sales, as well as the primary driver of home price appreciation, remains the supply shortage. Barring an uptick in the inventory of existing homes put on the market, in the near term we’re forecasting relatively flat home sales until higher construction activity can be sustained, which we foresee will be the case later this year.”
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