The U.S. housing market will be a “growth engine” for the economy in 2020, dispelling the risk of a recession, according to Fannie Mae’s chief economist, Doug Duncan.
“The housing sector appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years,” Duncan said. “We now expect single-family housing starts and new home sales to increase substantially.”
The housing construction sector, which was decimated during the housing crisis, has not yet returned to a level of production that meets the demand of a growing population. In a normal economy, housing construction contributes up to half a percentage point to GDP growth. In 2018, it was a drag on GDP, according to data from the Bureau of Economic Analysis.
That will change next year, according to Duncan. New home sales are likely to rise 12% in 2020, reaching their highest level since 2007, Duncan said in a forecast released Wednesday. Single-family housing starts are likely to rise to 888,000, also a 13-year high, he said.
“We now expect single-family housing starts and new home sales to increase substantially, driven by a sharp rise in new construction as homebuilders work to replenish their inventories,” Duncan said. “Despite the expected increase in the pace of construction, the supply of homes for sale remains tight, and strong demand for homes continues to drive up home prices.”
The U.S. economy is likely to grow 2.1% in 2020, after growing 2.3% in 2019, Duncan said. Although this is slower than the 2.5% GDP growth seen in 2018, it is better than Fannie Mae’s estimate from a month ago, which projected a 1.9% gain in 2020 and a 2.1% increase in 2019.
“Risks to growth have diminished recently, as a ‘phase one’ U.S.-China trade agreement appears to be in place and global growth seems to be turning around and accelerating in 2020,” Duncan said. “With these positive economic developments in mind, we now believe the Fed will keep interest rates steady through 2020.”