Fannie Mae: Housing will be a Significant Contributor to Economic Growth in 2020

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Fannie Mae is forecasting that the U.S. economy will grow by 2.1% in 2020 – with housing helping to propel much of that growth.

What’s more, the company has upgraded its forecast for growth in 2019 to 2.4%.

In addition to housing, consumer spending and business fixed investment are also expected to contribute meaningfully to another year of positive growth in what continues to be the longest economic expansion in U.S. history.

“While we believe the strength and resilience of the American consumer is the lynchpin of near-trend GDP growth, this year we expect consumer demand to re-establish housing construction as a significant contributor to economic growth – hence our theme for the year: A resilient economy overcomes risks to drive housing,” says Doug Duncan, senior vice president and chief economist for Fannie Mae in a statement. “Strong labor markets, rising wages, and improved household balance sheets offer consumer spending upside potential, including the ability to withstand minor economic disruptions.”

“Simmering geopolitical tensions, trade concerns, potential equity overvaluation, and weakening manufacturing data suggest the risks to our forecast are skewed slightly to the downside, while accelerating global growth and consumer spending power offer upside and greater balance than in previous forecasts,” Duncan adds. “We also continue to expect the Fed to maintain its hands-off approach to monetary policy in the new year, with no changes to the target federal funds rate despite persistently low inflation.”

Fannie Mae’s Economic and Strategic Research (ESR) Group says continued strength in labor markets and household balance sheets will keep consumer spending healthy and resilient.

In fact, consumer spending may increase through 2021, the Group says.

Business fixed investment will accelerate to 2.9% in 2020, down slightly from 3.1% last year, the Group predicts.

Housing will continue to be a source of economic strength: Single-family construction is expected to see solid growth in 2020, with housing starts accelerating due to strong permits data and growing optimism among homebuilders.

Low mortgage rates and a strong labor market should help boost demand.

Fannie Mae’s Home Purchase Sentiment Index, which measures consumer confidence in the housing market, has been re-approaching its survey high in recent months.

“Strong consumer demand and low mortgage rates – as well as moderate improvements to supply – have housing well-positioned for a come-back year in 2020,” Duncan says.

However, the problem of lack of inventory is likely to persist.

“While we expect housing to regain its place as an economic growth driver after a period of relative sluggishness, we recognize that the problems of affordability and inventory are likely to persist for the forecast horizon,” Duncan says.

“Homebuilders have begun to accelerate the pace of single-family construction, including in the much-needed affordable space, but supply constraints still exist,” he says. “In many areas, that demand-supply imbalance continues to contribute to entry-level home prices outpacing wage gains, exacerbating the affordability challenge.”

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