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28 FANNIE MAE: HOUSING DRIVING ECONOMIC GROWTH Housing supported the larger economy in Q 3 2019, but despite this growth, global political uncertainty poses a risk to the forecast tipping to the downside. e Fannie Mae Economic and Strategic Research (ESR) Group expects one more rate cut from the Federal Reserve in early 2020 before pausing for the remainder of the year, leading to an upgraded 2020 forecast for real GDP growth of 1.9%. Housing added to growth in Q 3 into the Q 4 and the first half of 2020. e Fannie Mae ESR Group notes that housing should also continue to function as a positive contributor to growth in the near term, as indicated by both new and existing single-family home sales advancing in Q 3, as well as pending home sales, permits, and starts. However, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity. "Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth," said Doug Duncan, SVP and Chief Economist at Fannie Mae. "A stronger-than-expected Q 3 contributed to the downward revision to our Q 4 forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter. Still, consumer spending is likely to continue driving the expansion forward, and with the passage of the budget act and a reprieve in trade tensions we've revised upward our forecast for full-year 2020 growth. We also continue to expect the Fed to cut interest rates only one more time in the foreseeable future, in early 2020, as a hedge against the sizeable downside risks and to counteract muted inflation." Duncan added, "Positive contributions from single-family housing construction, home improvements, and brokers fees pushed residential fixed investment growth to a robust 5.1% annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace. With mortgage rates normalizing, we expect a decline in refinance activity in 2020, with the refinance share of originations dropping from a projected 37% in 2019 to 31%. Of course, the housing market as a whole remains constrained by the persistent supply and affordability issues, which is particularly unfortunate given the current strength of consumer demand for reasonably priced homes."

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