Fannie Mae Economist: Pessimism Grows for Housing Sector

October 25, 2018

As the country nears 10 years of economic expansion since the financial crisis, indicators suggest the market may be at the high point of the current cycle. Housing inventory constraints continue to haunt affordability and sales, with demand outstripping supply causing home prices to continue rising at a fast clip. Meanwhile, the economy will be influenced by uncertainty over trade policy and the Federal Reserve signaling it will continue to raise interest rates.

Doug Duncan, Fannie Mae’s chief economist, provided an economic and housing outlook during ALTA ONE to help ALTA ONE attendees prepare their operations and handle market changes. Duncan said Fannie Mae expects economic growth of 3 percent in 2018 and 2.3 percent growth next year.

Residential fixed investment is expected to have fallen for a third consecutive quarter, with home sales and mortgage demand continuing to soften amid rising interest rates, according to Duncan. While the amount of for-sale inventory of existing homes is finally showing some improvement, it remains tight in many areas of the country, especially in the lower-priced tiers.

“Our expectations for housing have become more pessimistic,” Duncan said. “Rising interest rates and declining housing sentiment from both consumers and lenders led us to lower our home sales forecast over the duration of 2018 and through 2019. Meanwhile, affordability, especially for first-time homebuyers, remains atop the list of challenges facing the housing market.”

Duncan issued a warning for the housing sector due to the fact that the fund rate has been essentially zero over the past decade.

“That long period of very low interest rates was one of policy intervention the entire time,” he said. “This is substantially different than any other cycle.”

The question is how the housing market will respond. Duncan said the focus should be on helping people buy houses because “refinancing is gravy, but the business is really helping people acquire homes and that will continue but be cyclical.”

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