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Kelly Laird Smith Realtor in Rossmoor, Los Alamitos & Leisure World Seal Beach California

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Economic Growth at a Standstill; What Does This Mean for

Housing?

Posted By Brian Honea On March 18, 2016 @ 8:07 am In Headlines,Market Studies,News | 2

Comments

Fannie Mae [1]‘s Economic & Strategic Research

Group’s March 2016 Economic and Housing Outlook

[2], 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

factors.

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

historically low.

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

$609 billion.

“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 [3]

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.”

Article printed from DSNews: https://www.dsnews.com

URL to article: https://www.dsnews.com/news/03-18-2016/economic-growth-at-astandstill-

what-does-this-mean-for-housing

URLs in this post:

[1] Fannie Mae: https://www.fanniemae.com/portal/index.html

[2] March 2016 Economic and Housing Outlook:

https://www.fanniemae.com/resources/file/research/emma/pdf/Economic_Summary

_031716.pdf

[3] Home Purchase Sentiment Index: https://www.fanniemae.com/portal/research-andanalysis/

housing-survey.html

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