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More homebuyers and sellers are confident about the trajectory of the economy heading into the new year, based on the promise of growth from the Trump Administration’s much-speculated-about policies. A recent outlook released by Fannie Mae, however, dials that confidence down, arguing rising mortgage rates, among other factors, will suppress housing activity.

According to Fannie Mae’s December 2016 Economic and Housing Outlook, higher interest rates in the long-term will result in higher mortgage rates, while household equity continues to expand. Fannie Mae projects the economy overall to advance 1.8 percent in 2017, which would be the third consecutive year of modest growth.

“The tenor of our forecast effectively remains unchanged: signs of cautious consumers this quarter, rising interest rates, the renewed increase in the U.S. dollar to a 14-year high, and heightened uncertainty in the political sphere suggest conservatism in our outlook,” says Fannie Mae Chief Economist Doug Duncan. “While we are encouraged that confidence is rising across investors, consumers, businesses, economists, and home builders, much of it appears to be in anticipation that the forthcoming Administration and the new Congress will enact fiscal policies and deregulation that will help spur growth. While we believe that some pro-growth policies could be adopted next year, it would take time for them to benefit the economy, barring any offsetting initiatives such as more restrictive trade policies.

“The recent surge in interest rates amid continued strong home price appreciation are likely to present affordability challenges to homebuyers, especially for young adults who are looking to enter the housing market for the first time,” adds Duncan. “However, stronger economic growth, if it materializes, should help support incomes, affordability, and the ongoing housing recovery.”

Source: Fannie Mae

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