Fannie Mae has released some of its expectations for 2016 and 2017 based upon changes in the new administration ahead. The government-sponsored entity’s Economic & Strategic Research Group released its November 2016 Economic and Housing Outlook and said that while the new administration brings economic uncertainties, it’s still expecting modest growth.

Fannie Mae views the slowdown in job growth and business investment as an indication that the economic expansion has transitioned to a late-cycle phase. This is where growth tends to moderate and make the economy more vulnerable to shocks.

The group continues to expect economic growth to pick up in the second half of this year. GDP is expected to average 2.4% in the second half versus 1.1% growth during the first half — for an average of 1.8% full 2016 GDP. Fannie Mae stills sees a similar pace of growth expected for 2017.

Fannie Mae made numerous quotes in its forecast. They have not made formal changes yet, but did say that the group will incorporate new policy assumptions into forecasts as they become more concrete.

Some of these quotes and outlook statements were noted as follows by Fannie Mae:

• Given campaign themes, we may see some changes in policies regarding corporate and individual tax rates, infrastructure investment, government spending, health care, and immigration.
• We expect near-term growth would get a boost from any tax cuts and spending increases that are made, but if new policies result in sharply higher tariffs on China and Mexico, rethinking the Trans-Pacific Partnership, and renegotiating the North American Free Trade Agreement, it would likely drag on growth.
• In our fourth quarter GDP forecast, we expect domestic sales to strengthen and business investment in equipment to rebound, given a recent improving trend in core durable goods orders.
• We don’t anticipate a substantial turnaround going forward given the uncertainty of government policy facing businesses.
• Consumer spending is also likely to be a key growth driver, although we expect consumers will remain cautious given recent weakening in real disposable income.
• We also expect that residential investment will no longer drag on GDP as single-family construction spending has showed signs of stabilizing.
  The lack of homes for sale, particularly at the lower end of the market, continues to be a significant challenge for housing.
• Demand from first-time buyers has increased with household formation and is outpacing supply, leading to significant price increases and affordability challenges for entry-level buyers.
• Home purchase affordability will be constrained further if the recent pickup in mortgage rates persists, which would present a downside risk to our forecast of housing and mortgage activity.

This may not seem like much will change, but Fannie Mae remains a controversial government-sponsored entity. Some in Congress would like to see it shut down or altered drastically because the mortgage mess was such a massive contributor to the great recession. Fannie Mae is likely to make its formal changes next year after the new administration’s policies become more concrete.

 

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