Economic growth will slow in 2019, but conditions will help home sales hold steady, with mortgage volume now being projected to rise over 2018, according to Fannie Mae. Housing inventory will, however, remain a homebuyer hurdle.
Fannie Mae now projects $1.62 trillion in total volume for 2019, compared with $1.6 trillion in 2018. This is a change in direction from its March forecast, which had a slight year-over-year decline to $1.59 trillion.
Home sales are likely to stay on pace with 2018 levels due to improved wage growth, slower property value appreciation and lower mortgage rates, the Fannie Mae Economic and Strategic Group’s forecast said. These conditions should help purchase volume increase modestly in 2019, and lower rates in particular will push up refinance volume greater than previously expected (though refis will still be down from last year). The current forecast calls for $1.18 trillion in purchase loans and $446 billion in refis this year.
“On housing, the recent dip in mortgage rates to their lowest level in over a year — combined with wage gains and home price deceleration — supports our contention that home sales will stabilize in 2019,” Doug Duncan, Fannie Mae’s chief economist, said in a press release.
“The greatest impediment to both sales and affordability continues to be on the supply side, as new inventory, particularly among existing homes, is being met quickly by strong demand — as evidenced by the already thin months’ supply hitting a new one-year low,” he said.
Fannie Mae still anticipates an interest rate hike this year, but moved its projected timeline for the increase to December, since the Federal Reserve aims to stop trimming its balance sheet by September.
In terms of economic growth for the year, it will likely be a more sluggish 2.2%, compared to the 3% rate of 2018. Last year’s fiscal stimulus and slowing business and consumer spending are among the main reasons for the deceleration, though residential fixed investment should rebound, according to Fannie.
Economic growth should be greater in the second half of the year compared to the first as the impact from the partial government shutdown and fourth-quarter stock market volatility trail off.
“Incoming data continue to support our call for slower economic growth in 2019. Domestic demand growth has slowed as businesses and consumers exert greater caution amid trade uncertainty and capital markets volatility,” Duncan said.
“The predominant downside risks — the U.S.-China trade dispute and slowing global growth — are expected to ease later this year, which should help bolster growth in the second half. Despite its self-described ‘patience,’ we still expect the Fed to raise its key policy rate at the end of the year due to stronger second-half growth.”