Fannie Mae has released its April 2016 Economic & Housing Outlook, which sees little change for 2016, despite a slow first-quarter scenario. That may sound good on the surface, but there remains some additional concern over the key housing component for the economy.

The report’s tag line is “Economic Growth Outlook Remains Little Changed Despite First-Quarter Stall.” If things are just fine, it may seem at least a bit puzzling why Fannie Mae sees mortgage originations declining by about 9% in 2016.

Fannie Mae’s forecast from its Economic & Strategic Research Group showed that consumer and business spending and net exports came in below expectations, and trade, inventory and business investment likely weighed heavily on gross domestic product (GD) in the first quarter. The exception for keeping the growth and estimates unchanged for 2016 is that the group does not view weakness in the first quarter as the start of deteriorating economic activity. In actuality, they expect slightly better growth in the second quarter, with a pickup in consumer spending that should continue over the rest of the year.

The 2016 GDP estimate is 1.9%, followed by 2.0% growth projected in 2017. Slightly better forecasts were seen for the personal consumption expenditures component of the economy, with a gain of 2.2% projected for both 2016 and for 2017. Fannie Mae’s unemployment forecast is 4.8% for 2016 and 4.7% for 2017.

Residential fixed investment is forecast to rise by 7.5% in 2016 and 4.2% in 2017. So as far as a 9% decline projected for mortgage originations in 2016, that decline is broken down as roughly $1.56 trillion, with a refinance share of 40%.

Whether or not you think the economy will do as well as these projections, one serious issue that has arisen of late is housing affordability — or a lack of affordability. Prices for homes have risen and inventory in many regions and cities remains quite low.

We wanted to include some direct commentary from this report for context. Fannie Mae Chief Economist Doug Duncan said:

We expect a healthy labor market, the solid hiring trend seen during the last few months, and stronger household incomes to boost consumer spending over the rest of the year despite weak economic activity in the first quarter. The fourth consecutive increase in the labor force participation rate amid solid job growth has slowed the decline in the unemployment rate, and, combined with anemic productivity growth, may help explain the failure of wages to accelerate more rapidly. With the uptrend in the labor force participation rate and subdued wage pressure, the Fed appears to feel less urgency for a second fed funds rate hike, particularly given that risks to global economic and financial developments are tilted to the downside. We now expect only one rate hike in 2016 in the second half of the year.

Our forecasts for housing activity, mortgage rates, and mortgage originations are little changed in the April forecast. We expect total mortgage originations to decline about 9.0 percent in 2016 to $1.56 trillion, with a refinance share of 40 percent. Sustained improvement in the labor market and personal incomes among young adults should draw more potential homebuyers into the housing market, but many will continue to face affordability challenges. Home price growth has been rising at a faster clip than incomes, and the increasing supply of single-family housing is skewed toward larger and less affordable homes. These factors continue to weigh on housing affordability, particularly for first-time homebuyers.

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