Housing is Expected to Boost the Economy
In a recently released report, Fannie Mae upgraded its forecast for 2020 U.S. economic growth to 1.9% from 1.7%, predicting that consumer spending and the housing market will boost gross domestic product if a “phase one” trade deal is reached between the United States and China. Both countries were sending out hints to the media that a deal is close to completion. Then, suddenly, President Trump signed a congressional bill in support of the Hong Kong democracy protesters. The Chinese government’s response was harsh, threatening unnamed consequences. Suddenly faith that a deal would be reached cratered.
Then something surprising happened. “The Chinese foreign ministry said the U.S. would shoulder the consequences of China’s countermeasures if it continued to act arbitrarily in regard to Hong Kong.” The operative words in the above statement is “if the U.S. continues” Here it seems the Chinese have blinked, as they are realizing that while a trade war (tariffs) hurt both country’s economies, the economic pain is far more for China. This is because China’s economy is based far more than America’s on exports – heavily to the U.S. Therefore, the Chinese economy suffers more during a tariff driven trade war. So, it seems, at least for now, that while there may be a pause in trade negotiations, a phase one deal is likely to be reached, bolstering the U.S. economy and housing with it.
Fannie Mae suggested in its report that housing will continue to function as a positive contributor to growth in the near term. “Even as uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular growth,” said Doug Duncan, chief economist at Fannie Mae. He added that, “Positive contributions from single family housing construction, home improvements, and broker’s fees pushed residential fixed investment growth to a robust 5.1% annualized pace this quarter …”
Evidence for the health of the housing market can be seen in the data, “New and existing single-family home sales advanced in the third quarter, as did permits, and starts,” according to Housingwire.
The other good news for the housing market is that according to the latest survey by Bankrate, “The benchmark 30-year fixed mortgage rate is 3.66%, with an APR of 3.77%.” These historically low rates should further serve to lift the housing market in the year ahead. Additionally, Fannie Mae predicts we could see one last rate cut by the Federal Reserve in early 2020. A rate cut by the Fed should also drive down mortgage rates even further.
With a trade deal likely, low mortgage rates, and a healthy economy, 2020 should be a healthy year for the housing market.