Fannie Mae: Housing remains a drag on economic growth

Economic growth continues to be pressured by the housing sector amid weakness in homebuilding activity, home sales, and brokers’ commissions, according to August Economic and Housing Outlook released by Fannie Mae.

Fannie Mae Chief Economist Doug Duncan said persistent inventory shortages, instead of a drop in demand, is the likely driver behind the overall weakness. Housing activity weakened across the board, with residential investment detracting from growth for the fourth time in five quarters.

No thanks to housing, Fannie Mae again upgraded its full-year 2018 economic growth forecast to 3% from 2.8%. The upgraded outlook reflects projections that inventory restocking in the third and fourth quarters will offset slowing consumer spending growth and a decline in net exports.

“Breakneck headline growth in the second quarter disguised a detail largely responsible for the latest upward revision to our full-year growth forecast: a need to restock declining business inventories, which we expect will support greater growth amid weakness elsewhere,” Duncan said. “While meaningful wage growth remains elusive, the labor market is strong and inflation appears to be gaining additional steam, making a Fed rate hike in September highly likely. Assuming consumer and business confidence can steer clear of escalating trade tensions, we expect the Fed to raise rates two more times in 2018, including next month.”

Fannie Mae continues to expect the economy to grow 2.3% in 2019, citing fading fiscal policy impacts and tightening monetary policy as the drivers behind its view.

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