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Economic Growth at a Standstill; What Does This Mean for
Posted By Brian Honea On March 18, 2016 @ 8:07 am In Headlines,Market Studies,News | 2
Fannie Mae ‘s Economic & Strategic Research
Group’s March 2016 Economic and Housing Outlook
, growth in the economy will likely remain flat at
2.0 percent this year.
The report noted that growth in financial markets
such as stocks, U.S. dollar, and oil prices, has not
been enough to offset the flatness in economic
growth, nor raise the gross domestic product figure.
This, in turn, could mean negative implications in the
housing market for the rest of the year.
“Weakness in net exports and oil-related nonresidential investment as well as the ongoing
inventory correction process after unsustainable accumulations during the first half of 2015
should combine to drag on growth,” the report noted.
On the upside, Fannie Mae noted that positives in the economy such as strengthening domestic
consumer and business spending and a healthy labor market, should outweigh those negative
The report noted that stocks have recovered from February lows to near their highest level this
year, credit spreads have narrowed, and oil prices have climbed. Meanwhile, the economy gained
some footing after a fourth quarter slowdown during which real gross domestic product grew just
1.0 percent annualized. The employment situation remains solid, with job growth rising 242,000
in February. “The current pace of job gains is more than sufficient to keep up with growth in the
working age population,” Fannie Mae said.
“We see lingering effects of the strong dollar, low oil prices, and soft overseas demand creating a
drag on economic growth,” said Fannie Mae Chief Economist Doug Duncan. “However, the
economy appears to have regained some footing after a slowdown in the fourth quarter of 2015,
as stocks bounced back and oil prices have risen amid a strengthening labor market. Current
labor market and inflation conditions continue to support our expectation of a fed funds rate hike
of 25 basis points each in June and December.”
“A less optimistic outlook for future wage gains,
especially among small business employees,
coupled with continued strong home price
appreciation boosted by lean inventory, is adding
to the housing affordability challenge.”
Doug Duncan, Fannie Mae Chief Economist
Housing market activity got off to a rough start in 2016, according to Fannie Mae. Real residential
investment contributed 0.3 percentage points to growth in 2015 and is expected to be similar
this year. In addition, existing-home sales saw small gains in January after a huge surge in the
previous month and new home sales declined, while single-family starts also fell. Home builders’
confidence was shaky in February at the lowest reading since May 2015.
Inventory, which has been an unresolved issue in the housing market, remains low at 4.0 months
for existing homes. New home inventory have trended upward for the last few years but remain
Fannie Mae also found that home price appreciation still outpaces income growth, placing a
damper on affordability in the housing market, particularly for first-time buyers. The report
showed that repeat buyers could see capital gains from rising prices if they were to sell their
home to purchase another.
Fannie Mae forecasts that housing starts and total home sales should increase 10.9 percent and
3.3 percent, respectively, while purchase mortgage originations will rise about 4.0 percent in
2016 to $951 billion. However, with a lower mortgage rate forecast of 10 basis points in 2016, his
year, Fannie Mae said refinance originations are expected to increase approximately $50 billion to
“A less optimistic outlook for future wage gains, especially among small business employees,
coupled with continued strong home price appreciation boosted by lean inventory, is adding to
the housing affordability challenge,” Duncan said. “Our latest Home Purchase Sentiment Index 
shows that high home prices are a top reason for consumers’ perception that it’s a bad time to
buy a home. However, low mortgage rates should help support moderate housing expansion as
we move through the year.”
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URL to article: http://www.dsnews.com/news/03-18-2016/economic-growth-at-astandstill-
URLs in this post:
 Fannie Mae: http://www.fanniemae.com/portal/index.html
 March 2016 Economic and Housing Outlook:
 Home Purchase Sentiment Index: http://www.fanniemae.com/portal/research-andanalysis/
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