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62 | M REPORT SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Fannie Mae Expects Housing to Drive Economic Growth The GSE said 2019 trends in single-family housing are expected to continue into 2020. 2 020 is forecasted to see growth of 2.1%, accord- ing to the latest com- mentary from the Fannie Mae Economic and Strategic Research (ESR) Group. Housing, the ESR Group notes, is one of the key factors driving growth, alongside consumer spending and business fixed investment. "While we believe the strength and resilience of the American consumer is the lynchpin of near-trend GDP growth, this year we expect consumer demand to re-establish housing construction as a significant contributor to economic growth—hence our theme for the year: A resilient economy overcomes risks to drive housing," said Fannie Mae SVP and Chief Economist Doug Duncan. "Strong labor markets, rising wages, and improved household balance sheets offer consumer spending upside potential, including the ability to withstand minor economic disruptions." Fannie Mae expects the growing economic strength from housing that emerged in 2019 to carry into the rest of 2020, including solid growth in single-family construction spending and low mortgage rates. Recent studies have indicated that this increased residential construction spending could help limit the negative effects of capital- spending weakness, despite not taking up a large segment of the economy. According to Bloomberg utilizing data from the Atlanta Fed, the stronger U.S. housing market could provide a cushion from the effect of a "derailment" in corporate spending. Bloomberg notes that recent earnings announcements show order books are growing at a few builders, including Lennar Corp. "The indicators that we see and hear from our customers reflect confidence in the stability of the economy and in the job market," Stuart Miller, Lennar's Chairman, said on the company's recent earnings call. While housing remains the bright spot in economic growth, the Fannie Mae ESR Group also identified which factors may cause a trend to the downside, including geopolitical tensions. For example, as analysis from First American Financial Corporation notes, global uncertainty—such as the conflict between the U.S. and Iran—impacts not only geopolitical relations but also the U.S. housing market. However, Duncan noted what is offering "greater balance" in the latest ESR Group forecast. "Simmering geopolitical tensions, trade concerns, potential equity overvaluation, and weakening manufacturing data suggest the risks to our forecast are skewed slightly to the downside, while accelerating global growth and consumer spending power offer upside and greater balance than in previous forecasts," said Duncan. "We also continue to expect the Fed to maintain its hands-off approach to monetary policy in the new year, with no changes to the target federal funds rate despite persistently low inflation."