Mortgage buyer Fannie Mae had some very fascinating insights in its October Economic Forecast, as the monthly prospectus hinted at what could be an increase in mortgage interest rates and the end of the so-called “QE3” economic stimulus by next year.
Be that as it may, the end of the U.S. government shutdown made several points on the forecast moot, but Fannie Mae was scarily accurate when it came to predicting how long the impasse would last – two to three weeks.
The report, penned by Douglas Duncan, Orawin T. Velz and Brian Hughes-Cromwick, included some revisions in the mortgage buyer’s economic growth estimates for the December 2013 ending quarter, as this metric is now at 2 percent, down from 2.5 percent. This would push full year growth down from 2 percent on the last prospectus to 1.9 percent for the October forecast.
The Federal Reserve’s decision to push forward with its “QE3” economic stimulus, which currently entails $85 billion in bond purchases, has pushed long-term mortgage rates down, and has served as a partial failsafe for what could have been a deleterious effect caused by a protracted shutdown and the possibility of the U.S. government defaulting.
Still, Fannie Mae believes that it may not be enough to hinder some short-term negative possibilities. The agency’s economists now forecast a start of stimulus tapering in 2014, leading to an end to the initiative by second half 2014. Fannie Mae does not expect funds rates to increase until the September 2015 frame, which is when unemployment should go under the Fed’s current sweet spot of 6.5 percent.
In terms of the broader housing market, Duncan, Velz and Hughes-Cromwick believe that mortgage rates will make a slow, but steady climb throughout 2014, averaging about 4.4 percent in the December 2012 quarter and 5 percent next year. Despite the rise in rates, this is still 20 to 30 basis points lower than what the economists predicted on the September prospectus.