Although the full-year 2017 economic growth forecast remains unchanged at 2.2%, hurricanes Harvey and Irma may have lingering effects in the housing sector, according to the Fannie Mae Economic & Strategic Research (ESR) Group’s October 2017 Economic and Housing Outlook.
“While economic data prior to the hurricanes showed increased momentum, housing data were losing steam as lean for-sale inventory and strong home price appreciation, especially in the lower-end of the price range, restrained sales and home purchase affordability,” the report stated. “Hurricane Harvey exacerbated the slowdown in sales in August, and Irma will likely lead to additional pullback in September.”
In August, existing home sales fell for the third consecutive month to reach a 12-month low, with sales dropping sharply in the South and in the West. The number of homes for sale posted the 27th consecutive year-over-year drop, falling 6.5%, according to the report.
Here’s an excerpt from the report explaining the drop:
Housing supply appears to be a problem rather than housing demand, as homes are selling fast, with existing homes staying on the market for 30 days or less for the fourth consecutive month. New home sales also dipped to a new 2017 low in August. While Hurricane Harvey likely drove the decline in sales in the South, sales also fell in the Northeast and the West.
Leading indicators point to further drops in home sales. Pending home sales, which record contract signings of existing homes and usually lead closings by one to two months, fell in August for the fifth time in six months to hit a 20-month low. On a year-over-year basis, pending home sales posted the fourth drop in five months. While pending sales decreased in the South, sales posted the sharpest decline in the Northeast, suggesting that Harvey was not the only factor restraining activity.
Next year, Fannie Mae expects economic growth to moderate to 1.8%, with upside risk from potential tax reform and downside risk from restrictive trade policy and geopolitical tensions.
Consumer spending growth likely weakened and residential investment declined sharply in the third quarter, according to the report.
“The impacts from this season’s hurricanes on the U.S. economy were wide-ranging but should dissipate over time,” said Fannie Mae Chief Economist Doug Duncan. “These include the loss of momentum in consumer spending and residential investment, as well as a decline in September payrolls and August home sales and contract signings.”
Still, though, the GSE did not change its economic growth forecast.
“We expect economic activity to rebound in coming months,” Duncan added. “The recovery will likely be slower for home sales and home building, however, as the labor shortage and rising material prices will likely worsen after the hurricanes, exacerbating already-tight inventory. While we expect full-year economic growth for 2017 to come in at the same rate projected in our prior forecast, we now believe that total home sales will be essentially flat this year compared with the moderate rise predicted in the prior forecast. Despite muted underlying inflation, we continue to expect the Fed to raise rates for the third time this year in December.”
