DS News

26 ASK THE ECONOMIST HEAR DIRECTLY FROM TODAY'S LEADING MARKET EXPERTS. Mark Palim manages the team responsible for Fannie Mae's macroeconomic and housing forecast and its survey unit. A frequent speaker at industry events and conferences, Palim's insights have appeared in various media outlets. Before joining Fannie Mae, Palim worked as an economic consultant for PricewaterhouseCoopers and for LECG. He began his career as a fixed-income manager. Palim recently spoke with DS News about the economic factors impacting the U.S. housing and mortgage markets and what we can expect this year. WHAT ARE SOME MISCONCEPTIONS FIRST-TIME BUYERS MAY HAVE ABOUT THE HOMEBUYING PROCESS? ere is a clear lack of understanding among consumers of the basic requirements for obtaining a mortgage, such as the minimum downpayment and credit score. It is a failure on our part as an industry to better educate people. Buying a home is an infrequent transaction, that is opaque and a high-value part of consumer's balance sheet. So, you have those competing tensions. However, our survey results show that repeat buyers face the same knowledge challenges in getting ready to own and knowing what it takes to qualify as first-time homebuyers. HOW HAVE STUDENT LOANS AND OTHER DEBTS IMPACTED HOME PURCHASING POWER FOR MILLENNIALS AND OTHER FIRST-TIME BUYERS? What we've seen in the data over the years is that there's a substantial number of people who attain homeownership and have student debts. So, what appears to be going on is that student debt delays your ability to transition to homeownership. Some households start out with student loans but are able to earn sufficient income to carry that debt. ey then also use debt to buy cars and are more likely to have a lower down payment when it comes time to buy. But, they do attain home ownership. e key issue here is: are you actually improving your marketable skills through the student debt that you take on? WHAT CAN WE EXPECT THROUGHOUT THE REST OF THE YEAR, FROM A MACROECONOMIC PERSPECTIVE? Last year, we were at 3% growth, and in our May outlook we're forecasting 2.3% for this year. We expect slowdown in 2020 to 1.8%. e key things to be watching for on the macro side is what's happening with business confidence and investment, and then on the consumer side, consumer confidence and consumer spending. at's something we are always watching for, but in this case, it is even more critical as you have mixed policies affecting the economy. On the one hand, you have the Fed, which has paused its rate hikes, and we're waiting to see what the lagged effects are for the interest rate increases that have already occurred. e most notable example of the impact of higher rates is on car sales, which have been flat and are now going sideways. at's an interest- rate-sensitive component of consumer spending. You've seen some deterioration in credit performance on car loans, so we'll be watching closely to see what happens. We're also watching the housing sector closely, where the rise in mortgage rates had a big impact last year on affordability. You've now had a substantial decline in mortgage rates, and we're hopeful that will help continue to spur a recovery in the housing market this spring and into the summer. On the other hand, you have all the concerns around trade negotiations and what impact trade policy is having on growth around the world. Are central banks around the world able to respond? By and large, they are not able to respond much, because they already have negative interest rates. e Last year, we were at 3% growth, and in our May outlook we're forecasting 2.3% for this year. We expect slowdown in 2020 to 1.8%. e key things to be watching for on the macro side is what's happening with business confidence and investment, and then on the consumer side, consumer confidence and consumer spending. Mark Palim Deputy Chief Economist and VP, Fannie Mae

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