WASHINGTON, DC - Fannie Mae's Economic & Strategic Research (ESR) Group's theme for the economy and housing market in 2016 centers on the challenge of housing affordability coupled with expected modest economic growth, as the expansion progresses through its seventh year.
In their January 2016 Economic & Housing Outlook, the ESR Group expects that further labor market tightening will lead to increased household income and job security amid more relaxed lending standards and easier access to mortgage credit. However, strong home price gains, especially in the lower-end of the market, continue to outpace household income growth, eroding affordability.
Consumer spending is expected to underpin economic growth again this year, while residential investment and government spending should help drive growth despite some drag from net exports. Overall, the ESR Group expects the economy to grow 2.2 percent for all of 2016, with China's deteriorating economic activity, a stronger dollar, geopolitical turmoil, and uncertainty about monetary policy remaining downside risks to the outlook.
"We ended 2015 with a positive jobs report, an annual record high for auto sales, and the housing market poised to be the strongest since 2007," said Fannie Mae Chief Economist Doug Duncan. "The first fed funds rate hike since 2006 has had a minimal impact on mortgage interest rates so far, and we believe mortgage rates will edge up only gradually, ending the year around 4.2 percent. Despite our expectation of only a small rise in mortgage rates, home price and income dynamics should inhibit home purchase affordability. In addition, continued rent increases will hinder renters' ability to save for down payments. Therefore we believe the pace of improvement in total home sales should moderate to 4.0 percent in 2016. However, we expect the increase in single-family starts to accelerate to 17 percent this year, if easing housing supply shortages and a continued strong pace of household formation pan out."
Source: Fannie Mae / #Housing #Economy