Consumer and investor sentiment have improved heading into next year, but economic growth is still expected to be modest in 2017, according to Fannie Mae.
The December 2016 Economic and Housing Outlook by Fannie Mae’s Economic and Strategic Research Group projects 1.8% growth for 2017, which would mark the third straight year of such modest growth.
On the positive side, bullish investors have helped push equity prices higher, buoying household net worth and providing support to consumers, according to a Fannie Mae news release about the report. Home price appreciation also remains strong, and rising oil prices helped reduce drags on the energy sector, the release stated.
However, long-term interest rates continue to trend higher following the U.S. presidential election. The Federal Reserve increased interest rates by .25% at its December Federal Open Market Committee meeting, and the Fed appears to be taking a more aggressive stance on future rate hikes next year. Mortgage rates increased to more than two-year highs in December, creating potential headwinds for housing, the Fannie Mae release stated.
“The tenor of our forecast effectively remains unchanged: signs of cautious consumers this quarter, rising interest rates, the renewed increase in the U.S. dollar to a 14-year high, and heightened uncertainty in the political sphere suggest conservatism in our outlook,” Fannie Mae Chief Economist Doug Duncan said in the release. “While we are encouraged that confidence is rising across investors, consumers, businesses, economists, and homebuilders, much of it appears to be in anticipation that the forthcoming administration and the new Congress will enact fiscal policies and deregulation that will help spur growth. While we believe that some pro-growth policies could be adopted next year, it would take time for them to benefit the economy, barring any offsetting initiatives such as more restrictive trade policies.
“The recent surge in interest rates amid continued strong home price appreciation are likely to present affordability challenges to home buyers, especially for young adults who are looking to enter the housing market for the first time,” Duncan added in the release. “However, stronger economic growth, if it materializes, should help support incomes, affordability, and the ongoing housing recovery.”
More information about the report is available at http://www.fanniemae.com/portal/media/financial-news/2016/economic-housing-outlook-122016-6495.html.