Fannie Mae predicts 2% economic growth for the second half of 2016, which is unchanged from its previous forecast. The full-year gross domestic growth forecast was revised slightly higher to 1.8% due to better than expected second quarter growth.
The latest projections were included in Fannie Mae’s Economic & Strategic Research Group’s July 2016 Economic and Housing Outlook. Low-interest rates are expected to drive moderate housing expansion for the year, according to a Fannie Mae news release about the report.
The report predicted consumer spending would continue to drive growth for the rest of 2016, but indicated businesses face potential challenges such as shrinking profits, weak productivity and rising labor costs due to uncertainty stemming from Brexit and the U.S. presidential election. While job creation picked up at the end of the second quarter, hiring has slowed considerably from the start of the year, according to the report.
“Financial volatility resulting from Brexit has created some uncertainty among investors as yields on government bonds have dropped sharply,” Fannie Mae Chief Economist Doug Duncan said in the news release. “In addition, our view on interest rates continues to be ‘low for long’ as we believe a Fed decision to raise interest rates will likely be on hold until June of 2017.”
The impact of Brexit on the U.S. will likely be limited, and should be a “near-term positive for the housing and mortgage market as falling mortgage rates have prompted new refinance demand,” Duncan said in the release. The ESR Group now projects a 2.2% rise in mortgage origination volume in 2016 from 2015 to $1.75 trillion, compared with a 2.8% drop in the prior forecast.
“We still expect moderate housing expansion for 2016,” Duncan said in the release. “While new home sales have pulled back from their expansion-best, existing home sales rose to the highest level in more than nine years amid the largest year-over-year drop in for-sale inventory since October of 2015. Without relief from new construction, housing inventory will likely remain tight, boosting home prices and constraining affordability.”
To read more about the full July 2016 Economic Outlook,visit http://www.fanniemae.com/portal/research-and-analysis/emma.html.