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Economic growth likely will not succumb to volatility, with GDP forecasted at a healthy 2.7 percent for the year, according to Fannie Mae’s Economic & Strategic Research (ESR) Group’s recently released Economic and Housing Outlook for February 2018. There is, however, potential for upheaval, which could have effects in housing.

“‘Fiscal Policy and the Fed: Stimulus/Response’—our 2018 theme —will be paramount in the months ahead as the economy navigates newfound turbulence and heightened inflationary concerns,” says Doug Duncan, chief economist at Fannie Mae. “While our 2018 growth forecast remains unchanged, upside and downside risks are emerging that are contingent on those policy influences. 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.”

All eyes are on the Federal Reserve. The Consumer Price Index, a Commerce Department inflation measure, came in higher than expected in January, and the stock market has been volatile; how the Fed will react is unclear. It will announce its decision on whether to hold or raise rates in March—action that can impact the movement of mortgage rates, which are on a surging track.

“We expect the first rate hike of the year at the March Fed meeting, a move fully priced in by the market, with continued gradual monetary policy normalization under the new leadership of Fed Chair Jerome Powell,” Duncan says.

The ESR Group anticipates the average 30-year, fixed mortgage rate will land at 4.4 percent by year-end. Last week, it averaged 4.38 percent.

The bigger factor for housing, however, is inventory. Additional earnings as a result of the Tax Cuts and Jobs Act could be favorable, but how much so remains uncertain.

“On housing, we upped this year’s 30-year fixed mortgage rate forecast by 30 basis points to an average of 4.4 percent during the fourth quarter as a result of the unexpected spike in long-term interest rates at the start of the year,” says Duncan. “However, we don’t expect rates to play much of a role in total home sales, especially with anticipated stronger disposable household income growth. The ongoing inventory shortages should continue to constrain sales despite otherwise ripe home-buying conditions.”

According to the National Association of REALTORS® (NAR), the existing-home market was at 3.5-months supply in the fourth quarter of 2017.

Source: Fannie Mae

DeVita_Suzanne_60x60Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com.

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