Fannie Mae: Conditions bode well for single-family homebuilding

But builder headwinds and affordability concerns continue

By Francis Monfort

19 Jun 2018

The outlook for single-family was positive in June, but challenges remain, according to the Economic and Housing Outlook released by Fannie Mae.

“Lean housing inventory, a strong labor market, and positive demographics bode well for single-family homebuilding,” Fannie Mae Chief Economist Doug Duncan said. “But builders continue to face headwinds from rising costs, which, along with rising interest rates, are also contributing to affordability concerns.”

Fannie Mae maintained its economic growth projections both of 2018 and 2019 despite the slowdown in the first quarter. Full-year 2018 real GDP is expected to grow 2.7% this year on views that economic growth will pick up through the remainder of 2018. Meanwhile, the 2.3% growth projection for 2019 continues to rely heavily on the timing effects of fiscal stimulus, which are expected to fade beginning late next year.

“Our growth forecast continues to reflect our 2018 theme: the ongoing stimulus/response of fiscal policy and resulting tightness of monetary policy,” Duncan said. “On the heels of a disappointing first quarter, we expect economic growth to accelerate through the remainder of the year before decelerating in 2019. Upbeat consumer spending and nonresidential investment expectations, amid reduced labor market slack, should help pull full-year growth upward to a more respectable 2.7%. However, as the Federal Reserve contemplates additional rate hikes this year and next, and the United States moves beyond the heated rhetoric of protectionism and toward the actual application of tariffs, the downside risks become more pronounced.”

Fannie Mae expects changes to tariffs to affect various states disproportionately. For example, international exports from North Dakota and Texas make up 8% and 5% of their state products, respectively. Modest wage growth and the strong labor market should support acceleration in consumer spending growth, according to the outlook, as nonresidential investment should boost domestic demand.