Full-year 2019 real gross domestic products growth is predicted to slow to 2.3 percent, down from 2018's projected 3.1 percent, due to the waning impact of the Budget Reconciliation Act, a widening trade deficit, and moderating business investment growth, according to the Economic and Strategic Research Group at Fannie Mae.

[caption id="attachment_7581" align="alignleft" width="150"] Fannie's Duncan is calling for a slowing of GDP growth next year.[/caption]

"We expect full-year 2018 economic growth to come in at 3.1 percent, an expansion high, before slowing markedly to 2.3 percent in 2019 and 1.6 percent in 2020," said Fannie Mae Chief Economist Doug Duncan. "Fading fiscal policy, worsening net exports, and moderating business investment all contribute to our projection that GDP growth will begin to slow in 2019."

Consumer spending should continue to be the largest positive contributor to headline growth amid consumer confidence that remains near an expansion best. However, business fixed investment growth, a critical driver of the current expansion, slowed significantly in the third quarter and may be further constrained in the near term by higher tariffs, trade uncertainty, and rising interest rates and input costs.

The most notable downside risks to the forecast include the ongoing trade tensions between the U.S. and China as well as stock market volatility, both of which have the potential to materially impact consumer and business spending. Barring accelerating inflation, Fannie expects both mortgage rates and home sales to stabilize in the new year as the economy slows. Purchase mortgage originations should climb, but a more substantial decline in refinances is expected to result in a small drop in total origination volumes.

“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” said Duncan. “We also expect residential fixed investment to resume a positive growth trajectory amid continued rising housing starts and stabilizing home sales. However, affordability is likely to remain an industry concern, particularly among first-time homebuyers."

The labor market continues to be one of the economy's high points, and with inflation hovering around the Fed's 2.0-percent target, Duncan anticipates the Fed will hike rates once more in December and two more times in 2019, despite rising market expectations of fewer hikes amid stock market volatility.

Interest rates dropped significantly after several weeks of moderating, according to the Primary Mortgage Market Report from Freddie Mac.

[caption id="attachment_8439" align="alignleft" width="272"] Khater: Rates have remained flat or fallen for five straight weeks.[/caption]

“The 30-year fixed fell to 4.63 percent this week, the lowest it has been since mid-September,” said Sam Khater, Freddie Mac’s chief economist. “Mortgage rates have either fallen or remained flat for five consecutive weeks and purchase applicants are responding with an uptick in demand given these lower rates. While the housing market softened in response to higher rates through most of this year, the combination of a low unemployment and recent downdraft in rates should support home sales heading into the early winter months.”

In addition, the survey generated loan data as flows:

• 30-year fixed-rate mortgage averaged 4.63 percent with an average 0.5 point for the week ending Dec. 13, 2018, down from last week when it averaged 4.75 percent. A year-ago, the 30-year fixed-rate mortgage averaged 3.93 percent.
• 15-year FRM this week averaged 4.07 percent with an average 0.5 point, down from last week when it averaged 4.21 percent. A year-ago, the 15-year fixed-rate mortgage averaged 3.36 percent.
• 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.04 percent with an average 0.3 point, down from last week when it averaged 4.07. A year-ago, the 5-year adjustable-rate mortgage averaged 3.36 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

The Mortgage Bankers Association Builder Application Survey data shows mortgage applications for new home purchases decreased 11 percent in November compared with the same time period a year ago. Compared to October 2018, applications declined by 14 percent. This change does not include any adjustment for typical seasonal patterns.

[caption id="attachment_8412" align="alignleft" width="144"] MBA's Kan: Economic uncertainty might have been a factor in home sales performance.[/caption]

“By our estimates, new home sales fell almost 7 percent in November, and were about 5 percent lower than a year ago,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Despite a still-strong job market and recent declines in mortgage rates, affordability challenges continue to hold back sales activity, as wage growth still lags behind home-price growth. Additionally, recent stock market volatility and some economic uncertainty might have contributed to the pullback in home sales in November.”

MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 627,000 units in November, based on data from the Builder Application Survey. The new home sales estimate is derived using mortgage application information from the Builder Application Survey, as well as assumptions regarding market coverage and other factors.

The seasonally adjusted estimate for November is a decrease of 6.8 percent from the October pace of 673,000 units. On an unadjusted basis, MBA estimates that there were 45,000 new home sales in November 2018, a decrease of 15.1 percent from 53,000 new home sales in October.

By product type, conventional loans composed 69.7 percent of loan applications, Federal Housing Administration loans composed 17.3 percent, RHS/USDA loans composed 0.7 percent and Veteran Affairs loans composed 12.3 percent. The average loan size of new homes decreased from $331,732 in October to $326,037 in November.

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country. Using this data, as well as data from other sources, MBA is able to provide an early estimate of new home sales volumes at the national, state, and metro level. This data also provides information regarding the types of loans used by new home buyers. Official new home sales estimates are conducted by the Census Bureau on a monthly basis. In that data, new home sales are recorded at a contract signing, which is typically coincident with the mortgage application.