Despite a strong year-end performance by the stock market and a post-election jump in confidence among consumers and businesses, Fannie Mae is projecting modest 2% growth for 2017.
Improved consumer spending in the third quarter drove a slight upward revision from Fannie Mae’s December forecast of 1.8%, and a strengthening labor market and rising household wealth should help consumers, according to the Fannie Mae Economic & Strategic Research Group’s January 2017 Economic and Housing Outlook. The report noted that the policies of the incoming Trump administration on taxes, spending and trade could have an impact on growth.
“Policy changes under the new administration — in its nature, sequencing, and magnitude — will determine the direction of economic growth in 2017,” Fannie Mae Chief Economist Doug Duncan said in a news release about the report. “Incoming data suggest improving consumer spending, diminished labor market slack and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year…If stimulus policy is enacted, it would likely add to growth but could also be offset by potential tightened trade policy given the already historically strong dollar.”
Business fixed investment is expected to pick up as the drag from declining oil prices faded and should add to growth in 2017, according to the release. Government spending and inventory investment also are expected to add to economic growth this year, while the dollar likely will continue to weigh heavily on net exports, the report found.
Mortgage rates are projected to rise gradually in the coming year, ultimately reaching a fourth quarter average of 4.3%, according to the release. A possibility exists rates could rise even faster and higher than predicted, but the impact on housing could be offset by improved income growth, the release stated.
“We expect housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle, particularly for first-time homeowners,” Duncan added in the release. “Demographic factors, however, are positive. Our research shows that older millennials have begun to buy homes and close the homeownership attainment gap with their predecessors.”
Click here to read the full January Economic and Housing Outlook.