Economic Indicators Point to Slower Growth
The U.S. economy continues to chug along, but analysts with the Federal Reserve, the Mortgage Bankers Association and other point to slowing activity in the coming months.
The Federal Reserve Beige Book, released this week (https://www.federalreserve.gov/monetarypolicy/beigebook201904.htm), noted economic activity expanded at a “slight-to-moderate pace” in March and early April, several of its 12 districts reporting some strengthening. The outlook, the Fed said, appears little changed, with slight-to-modest growth expected in the months ahead.
“Most Districts reported stronger home sales, although some Districts noted low demand for higher-priced homes,” the report said.
The Fed noted employment continued to increase nationwide, with nine districts reporting modest or moderate growth and the other three reporting slight growth. A majority of districts cited shortages of skilled laborers, most commonly in manufacturing and construction. Contacts also reported some difficulties finding qualified workers for technical and professional positions.
The Fed said on balance, prices have risen modestly since the previous report, with tariffs, freight costs and rising wages were often cited as key factors driving this trend.
In its most recent Economic and Mortgage Finance Commentary (https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary/economic-commentary-archives), MBA noted the pace of global economic growth continues to slow, and this slowdown is beginning to impact the U.S. economy as well, with additional risks on the horizon due to ongoing concerns of a trade war with China, Brexit and an increasing risk of a recession in the U.S.
“However, the job market remains strong, even though job growth slowed in February, wages are rising and mortgage rates have dropped to the lowest levels in a year,” said MBA Chief Economist Mike Fratantoni and MBA Associate Vice President of Economic and Industry Forecasting Joel Kan, the report’s authors.
MBA remains “guardedly optimistic” about the housing market this year. “Along with lower mortgage rates, prospective buyers in some markets have seen an increase in homes for sale, which provides more options and has stemmed some of the rapid home price growth that we have seen for so long,” the report said. “As rates have decreased to date in 2019, driven by some of the fears highlighted earlier, we have seen some refinance opportunities arise for borrowers who did not previously have the opportunity or incentive to refinance, or may now have a chance to withdraw equity through a cash‐out refi. This has pushed our forecast for total originations in 2019 to show an increase over the year as opposed to a decline as in our previous forecast.”
Looking ahead, MBA said it expects lower rates and rising entry level supply should lead to more home sales and purchase originations, particularly for first‐time home buyers, who represent more than 30 percent of home sales.
MBA said it expects moderate growth in home purchase mortgage originations in the coming years, with dollar volume increasing by nearly 5 percent to $1.24 trillion in 2019 from $1.19 trillion in 2018. Total originations are now expected to increase to $1.66 trillion in 2019 from $1.64 trillion in 2018 as refinance volume has returned with the downward move in mortgage rates. MBA now expects less of a drop in refinance volume in 2019 compared to 2018 than previously estimated and lowered its forecast for rates, with the 30 year fixed mortgage rate topping out at 4.8 percent through 2021.
Fannie Mae, Washington, D.C., said its forecast for 2019 economic growth remains at 2.2 percent, down from 3.0 percent in 2018. The GSE’s Economic and Strategic Research Group’s April outlook said the fading impact of last year’s fiscal stimulus as well as slowing business investment and consumer spending were again identified as the primary drivers behind the expected sluggishness in GDP growth, but residential fixed investment is projected to rebound.
The Fannie Mae forecast projects home sales in 2019 to hold steady at 2018 levels, supported by improved wage growth, slowing home price appreciation and lower mortgage rates. Purchase mortgage origination volume is projected to rise moderately amid flat home sales and slower home price appreciation. Like MBA’s forecast, Fannie Mae said given the recent decline in interest rates, refinance mortgage origination volume is now expected to come in higher than previously forecast, though still down modestly year over year.
“Incoming data continue to support our call for slower economic growth in 2019,” said Fannie Mae Chief Economist Doug Duncan. “Domestic demand growth has slowed as businesses and consumers exert greater caution amid trade uncertainty and capital markets volatility. The predominant downside risks–the US-China trade dispute and slowing global growth–are expected to ease later this year, which should help bolster growth in the second half. Despite its self-described ‘patience,’ we still expect the Fed to raise its key policy rate at the end of the year due to stronger second-half growth.”
Duncan added the recent dip in mortgage rates to their lowest level in more than a year, combined with wage gains and home price deceleration, suggests home sales should stabilize in 2019. “The greatest impediment to both sales and affordability continues to be on the supply side, as new inventory, particularly among existing homes, is being met quickly by strong demand, as evidenced by the already thin months’ supply hitting a new one-year low,” he said.
