In 2016, the US economy will continue to thrive, mortgage lending standards will ease and household income will also increase, but housing affordability will remain to be a challenge due to the continued rise of home prices, said a new report from the Federal National Mortgage Association (Fannie Mae).
According the Fannie Mae's Economic & Strategic Research Group, this year, the economy and housing market will focus on "the challenge of housing affordability coupled with expected modest economic growth, as the expansion progresses through its seventh year."
In the report, Fannie Mae predicted a further labor tightening that will increase household income and job security. It also stated that lending standards will be more relaxed throughout the year, giving home buyers easier access to mortgage credit.
However, continued home price gains will outpace household income growth, which will negatively affect affordability, the report highlighted.
"The first Fed funds rate hike since 2006 has had a minimal impact on mortgage interest rates so far, and we believe mortgage rates will edge up only gradually, ending the year around 4.2 percent. Despite our expectation of only a small rise in mortgage rates, home price and income dynamics should inhibit home purchase affordability," explained Fannie Mae Chief Economist Doug Duncan.
He also added that "continued rent increases" will hamper renters' ability to purchase a home.
Overall, Fannie Mae forecasted that the US economy will grow by 2.2 percent in 2016, with China's economic slowdown, a stronger dollar value, geopolitical turmoil and uncertain monetary policies.
"... We believe the pace of improvement in total home sales should moderate to 4 percent in 2016. However, we expect the increase in single-family starts to accelerate to 17 percent this year, if easing housing supply shortages and a continued strong pace of household formation pan out," said Duncan.
