Despite a strong year-end performance by the stock market and a post-election jump in confidence among consumers and businesses, limited information on the new Administration’s potential economic policies led to a conservative 2017 growth projection of 2.0%, according to the Fannie Mae Economic & Strategic Research (ESR) Group’s January 2017 Economic and Housing Outlook. Improved consumer spending in the third quarter drove a slight upward revision from the prior forecast; moreover, a friendly labour market and rising household wealth should continue to support consumers. Business fixed investment is expected to pick up – particularly in the equipment space – as the drag from declining oil prices faded and should add to 2017 growth. Additionally, government spending and inventory investment are expected to add to growth this year, while the dollar should continue to weigh heavily on net exports. Mortgage rates are predicted to rise gradually in the coming year, ultimately reaching a fourth quarter average of 4.3%. There is risk that rates could rise faster and higher than forecasted, but the impact on housing could be offset by strengthened income growth.
“Policy changes under the new Administration – in its nature, sequencing, and magnitude – will determine the direction of economic growth in 2017,” said Fannie Mae Chief Economist Doug Duncan. “Incoming data suggest improving consumer spending, diminished labour market slack, and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year. Thus, our theme for the year: Will Policy Changes Extend the Expansion? If stimulus policy is enacted, it would likely add to growth but could also be offset by potential tightened trade policy given the already historically strong dollar.”
“We expect housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle, particularly for first-time homeowners,” added Duncan. “Demographic factors, however, are positive. Our research shows that older Millennials have begun to buy homes and close the homeownership attainment gap with their predecessors.”
(Source: Fannie Mae)