the 3.2 percent annualized growth in the GDP in the third quarter, Fannie Mae's
economists expect the full-years growth to moderate to less than 2 percent this
quarter, finishing at 1.8 percent growth for the year. In the company's December Economic
Development summary its Economic and Strategic Research Group (ESR) said their
forecast does not include the effects of any new federal policies "due to
considerable uncertainty about the President-elect's policy agenda and the
extent of support he will receive from the new Congress.
report acknowledges the significant increase in long term interest rates over
the preceding month with the 10-year T-bill touching 2.6 percent, the highest
rate since July 2015, and "presenting headwinds for housing." The dollar is
nearing a 14-year high which could weigh on manufacturing and other exports and
U.S. profits overseas. Consumer
confidence is high as is consumer spending.
The second estimate of third quarter GDP provided a sizable revision in
real consumer spending from 2.1 percent in the first estimate to 2.8 percent. October
data however, indicates that spending growth has moderated this quarter.
with the apparent slowdown in the fourth quarter, the economists expect
consumer spending to continue to drive growth.
Job growth remains "decent" and wage data is mixed and perhaps not
conclusive. Household net worth is up,
increasing by $1.6 trillion to $90.2 trillion in the third quarter, boosted by
gains in both housing and stock. This
should help support consumer spending.
Federal Reserve Open Market Committee (FOMC) raised the fed funds rate at its
December meeting and signaled it expected to do so three more times in 2017
rather than the two it implied in September. However, Fannie Mae points out that there was
an indication at one point that there would be four increases this year rather
than the one that actually materialized. "We believe that the Fed will likely
be in wait-and-see mode given this substantial policy uncertainty and
anticipate two hikes each in 2017 and 2018. However, the Fed will be vigilant
in monitoring wage pressure, as further tightening in the labor market should
lead to a pickup in compensation growth," the ESR Group says. Fed Chair Janet Yellen observed that changes
in the fiscal outlook, to the extent that they influence economic growth, labor
markets, and inflation forecasts, could alter the course of interest rates. She
noted that fiscal stimulus that does not spur faster productivity and labor
force growth could result in more upward pressure on inflation and higher
so far this quarter indicates a double-digit gain in residential
investment. This is consistent with
earlier predictions that it would add to economic growth, reversing its drag in
the second and third quarters. Both
single and multifamily housing starts jumped in October but sales were
mixed. Existing home sales rose to an
expansion high while new home sales were down.
pending homes sales in October suggest that existing home sales will remain strong
over the next few months. Another
leading indicator of home sales, purchase mortgage applications, has been mixed
of late. They declined in October through mid-November but then surged during
the third week as the post-election spike in mortgage rates probably spurred
some potential buyers to act in advance of even higher rates.
prices are still climbing. The CoreLogic
Home Price Index, which is used by the Fed to value household real estate assets,
put the October year-over-year increase at 6.7 percent. Housing wealth, strongly influenced by home
values, rose $554 billion from the second to the third quarter. However, at the
same time single-family debt increased 3.7 percent annualized or $93.5 billion,
the fastest pace since the end of 2007.
Owners home equity as a percentage of the value of household real estate
increased to 57.3 percent, just below the previous peak of 59.8 percent in the
fourth quarter of 2006.
homeowners benefit from the increases it challenges buyers, especially first
timers and this is exacerbated by recent interest rate hikes. The Freddie Mac survey showed rates in early
December at 4.13 percent, the highest since October 2014 and some 60 basis
points higher than before the election.
This could provide some headwinds to home sales but if long-term
interest rate gains are accompanied by stronger economic growth, rising incomes
could help support housing affordability and home sales. Research shows little correlation between
rates and home prices
Mae is forecasting that rates will rise to 4.2 percent by this time next year,
up from the average 3.8 percent in the fourth quarter of 2016. This is 50 basis points higher than the last
projection. Their forecast for home sales is little changed from their last one
for a 3 percent gain based on their expectations that rates will rise slowly
while household incomes and formations continue to grow.
for refinance originations have been revised higher for this year after a
stronger than anticipated October, but downgraded for next year due to rising
rates. ESR economists expect total mortgage
originations to be up 10.0 percent in 2016 compared to 2015, hitting $1.90
trillion. Next year refinancing will
decline to about one third of originations and total originations will be down
17 percent to $1.57 trillion.