Expected easing trade tensions, stimulative fiscal policies, and continued consumer spending contributed to an upgraded 2020 forecast for real GDP growth of 1.9%, according to the latest commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group.

Housing added to growth in the third quarter for the first time in more than a year and a half, and the ESR Group expects that momentum to continue into the fourth quarter and the first half of 2020.

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Consumer spending is expected to remain the primary driver of economic growth for the forecast horizon, with business fixed investment poised to benefit in the new year as additional corporate expenditures work to meet sustained consumer demand. 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 the third quarter, as well as pending home sales, permits, and starts. However, Fannie said, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity.

Risks to the forecast remain weighted to the downside and include a potential breakdown in trade talks between the United States and China, as well as ongoing political uncertainty abroad. Given the range of downside risks and muted inflation, the ESR Group continues to expect one more rate cut from the Federal Reserve in early 2020 before pausing for the remainder of the year.

"Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth," said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. "A stronger-than-expected third quarter contributed to the downward revision to our fourth quarter 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."

"As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020," continued Duncan. "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."