Despite increasing its forecast for the 30-year fixed mortgage rate for 2018, Fannie Mae said total home sales will only see minimal impact from any increase, especially with anticipated stronger disposable household income growth.
Fannie Mae increased its forecast for the 30-year fixed mortgage rate by 30 basis points to an average of 4.4% during the fourth quarter, according to it 2018 Economic and Housing Outlook. The forecast reflects the unexpected spike in long-term interest rates at the start of the year. Additionally, Fannie Mae said ongoing inventory shortages should continue to constrain sales despite otherwise ripe home-buying conditions.
Fannie Mae continues to expect real GDP growth of 2.7% for the year despite rising long-term interest rates and soaring market volatility. Although the forecast faces downside risks from the multiyear highs in long-term Treasury yields and the sudden repricing in equities, strong economic fundamentals continue to support the current outlook. With an increase in disposable income due to the tax cut, spending growth should drive headline growth in spite of potential moderation in the coming quarters.
“While our 2018 growth forecast remains unchanged, upside and downside risks are emerging that are contingent on those policy influences,” Fannie Mae Chief Economist Doug Duncan said. “Legislatively, stimulus from tax reform and the recently passed budget could add to growth. However, if additional growth is accompanied by signs – or even fears – of inflationary pressure, it could complicate the Fed’s attempt at a ‘soft landing’ and may require more aggressive monetary action.”
Fannie Mae further said that it anticipates the first rate hike of 2018 at the March meeting of the Federal Reserve, with Fed Chair Jerome Powell’s leadership continuing gradual monetary policy normalization.
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