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Fannie Mae’s economic growth forecast for 2018 inched up slightly, but a strong labor market won’t mean the same positive results for housing.
The 2018 economic growth forecast rose to 3.1% from October to November, but the housing sector will continue to face challenges due to home price appreciation and low inventory levels, which will remain obstacles going into next year.
The government-sponsored enterprise lowered its 2018 originations forecast by $11 billion to $1.624 trillion, and its 2019 forecast by $21 billion to $1.603 trillion due to weak housing data. It does, however, expect new- and existing-home sales to stabilize next year as price appreciation moderates and mortgage rates steady, according to Fannie Mae Chief Economist Doug Duncan.
Last month, Fannie predicted originations would total $1.635 trillion by the end of the year.
“The current labor market hot streak hasn’t been enough to boost the housing sector. Both new and trade-up homebuyers remain discouraged by rising mortgage rates, elevated home prices and a shortage of available inventory, particularly in the lower tier of the market,” Duncan said in a press release.
These same hurdles are also preventing homebuilders from adding new housing inventory to the market to alleviate some pressure for supply and help soften property values.
“Market conditions also present a challenge for builders, as higher interest rates are driving up construction costs and tight labor conditions are accelerating the average hourly earnings growth of residential construction workers,” he said.
Economic growth registered at 3.5% for the third quarter, which was solid, but still down from the previous quarter’s growth rate of 4.2%.