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The mortgage financier’s Economic and Strategic Research Group raised its forecast for residential fixed investment by 1.2 percentage points during the fourth quarter of 2019, predicting growth at a 4.5 percent annualized rate. The group also increased its full-year outlook for both 2020 and 2021 to 3.4 percent, up from prior projections of 0.3 percent and 1.1 percent, respectively.
Fannie expects single-family housing starts to climb by 10 percent next year to 975,000 units and new home sales to increase by 5 percent to 725,000.
The gains will be “aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a statement.
“Despite the expected increase in the pace of construction, the supply of homes for sale remains tight and strong demand for housing is continuing to drive home prices higher, particularly in the more entry-level price tiers," he said.
The U.S. labor market remained robust in November as nonfarm payrolls increased by 266,000 workers and the unemployment rate fell to 3.5 percent, matching a 50-year low. At the same time, average hourly earnings increased 3.1 percent year-over-year.
Fannie Mae says "residential fixed investment is likely to benefit from ongoing strength in the labor markets and consumer spending, in addition to the low interest-rate environment."
The U.S. economy has received some good news on the housing market in recent weeks. On Monday, the National Association of Home Builders said builder confidence rose by 5 points in December to 76, the highest reading since June 1999. A day later, housing starts and building permits data exceeded expectations.
Fannie expects the Federal Reserve to keep rates on hold throughout 2020, keeping the 10-year Treasury yield near 1.8 percent into late 2021. The firm expects the 30-year mortgage rate, currently near 3.7 percent, to "remain within a tight range" over the next few years.
Fannie also boosted its forecast for U.S. economic growth. The firm now sees the economy expanding at a 1.8 percent annualized rate in the fourth quarter of this year and 2.3 percent for all of 2019. It had previously expected respective growth of 1.6 percent and 2.2 percent. Next year, Fannie sees the economy growing at a 2.1 percent clip, up from its prior forecast of 1.9 percent growth.
While most of the risks associated with its forecast remain to the downside, Fannie says the odds of them materializing have decreased as the U.S. and China have reached a partial trade deal and the slowdown of global growth appears to be abating. On the flip side, a resurgence of the global economy would enable the housing market to perform even better than expected.