Fannie Mae expects home sales to stabilize in 2019 after falling in 2018, according to the Fannie Mae Economic and Strategic Research Group’s January 2019 Economic and Housing Outlook.
Mortgage rates are expected to change little in 2019 from their level late last year of around 4.5 percent, allowing potential homebuyers time to adjust to the rate environment after the volatility experienced in 2018.
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Doug Duncan[/caption]
"The Fed’s continued efforts to unwind expansionary monetary policies implemented during the recession have the potential to add to the headwinds facing the economy,” said Fannie Mae Chief Economist Doug Duncan. “However, we believe that contained price pressures should afford the Fed sufficient latitude to slow or pause rate hikes this year. This will allow the economy to continue growing, albeit at a slower pace, and housing to regain its footing.”
A slower pace of house price appreciation (4.2 percent in 2019 from 5.5 percent in 2018, according to the Federal Housing Finance Agency purchase-only home price index), and stable rates should make and buying a home more affordable and increase buyer confidence.
At the same time, Fannie’s forecast for continued job growth implies that the unemployment rate will remain near historic lows--a positive for wage growth and affordability. It expects single-family starts to grow modestly in 2019 as home buying firms. Although labor shortages will likely continue to frustrate builders, lower interest rates should help contain their borrowing costs. However, solid labor market conditions and favorable demographic trends, including household formations by Millennials, are expected to provide support to the multifamily sector in 2019.
Total residential investment, which includes new construction and home improvement spending as well as brokerage fees, is projected to rebound this year after contracting last year for the first time in seven years.
According to The Summary of Economic Projections released at the December 2018 Federal Open Market Committee, the Federal Reserve anticipates fewer rate hikes. The median federal funds rate projection in December implied two rate hikes in 2019, compared with the September projection of three. The federal funds futures contracts that trade on the Chicago Mercantile Exchange implied no Fed rate increases in 2019, according to Fannie’s analysis.
In addition, the minutes of the December FOMC meeting showed a dovish shift in the Fed’s thinking. The Fed still expects “further gradual increases” in the federal funds rate but acknowledged that it can “afford to be patient about further policy firming.” In addition, Fed Chairman Powell has noted the partial government shutdown will postpone data releases, making it difficult for the Fed to assess the economy.
