U.S. Economic Resilience on Display as Coronavirus and Manufacturing Concerns Reverberate Through Markets

WASHINGTON, Feb. 18, 2020

On housing, the ESR Group expects low mortgage rates and strong demand to help grow residential fixed investment at a 3.9 percent annualized pace in 2020, following last year's contraction of 0.1 percent. That demand, buoyed by labor market strength, is expected to more than meet the moderate uptick in inventory predicted for the latter part of the year. As measured by Fannie Mae's Home Purchase Sentiment Index^®, consumer sentiment toward housing is approaching an all-time high, reflecting in part Americans' growing belief that it's a good time to buy a home. The lower interest rate environment also appears to have fueled a new surge in mortgage refinance applications in January, with similarly strong refi activity expected for February.

"The U.S. economy's resilience, rooted in labor market strength and improved household balance sheets, was on display in January amid greater market uncertainty, including Boeing's production schedule and the effect of the coronavirus on the global economy," said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. "However, corporate earnings continue to impress and a jobs report that came in well above consensus helped mitigate some of the growing cynicism. With business fixed investment poised to rebound in the second half of the year, we upgraded our forecast for full-year 2020 headline growth by one-tenth to 2.2 percent. We also continue to maintain our call that the Fed will leave the federal funds rate unchanged in 2020, despite forward markets' beginning to price in the increased probability of a rate cut."

"Looking ahead, we continue to anticipate that the economy's resilience will help keep housing on a firm growth track," Duncan continued. "In fact, our updated housing market forecast shows greater strength in essentially every part of the housing market extending through the first half of 2021. The limiting factor for home sales, as well as the primary driver of home price appreciation, remains the supply shortage. Barring an uptick in the inventory of existing homes put on the market, in the near term we're forecasting relatively flat home sales until higher construction activity can be sustained, which we foresee will be the case later this year."

Visit the Economic & Strategic Research site at fanniemae.com to read the full February 2020 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.

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