#United States #Washington, D.C. #Fannie Mae #Economic Research #GDP Forecast

A Robust Beginning for the U.S. Economy in 2025

As we step into 2025, recent data on gross domestic product (GDP), labor, and inflation present a promising outlook for the U.S. economy. According to the February Economic and Strategic Research (ESR) Group commentary from Fannie Mae, the economy is experiencing robust momentum despite ongoing uncertainties surrounding trade policies.

Economic Indicators Show Strength

The ESR Group has maintained its GDP growth forecast at 2.2% for the fourth quarter of 2025. This suggests a stable economic expansion, driven by strong personal consumption data from the previous year. Notably, consumer spending levels have exceeded initial expectations, suggesting a healthy demand side in the economy. Furthermore, the Consumer Price Index (CPI) outlook has been revised upward, with projections indicating an annual rate of 2.8% by the end of 2025, an increase from earlier forecasts of 2.5%. This adjustment comes on the heels of higher-than-expected inflation readings in recent months.

Despite the positive indicators, an additional 10% tariff implemented on imports from China is anticipated to exert minor downward pressure on growth while simultaneously raising inflation concerns. These trade policy uncertainties introduce risks to the projections, highlighting the delicate balance the economy is trying to maintain.

Mortgage Rate Predictions and Market Reactions

One of the critical areas of focus moving into 2025 is the forecast for mortgage rates. The ESR Group now anticipates that mortgage rates will end both 2025 and 2026 at approximately 6.6% and 6.5%, respectively. These predictions represent upward revisions from previous outlooks. The volatility in mortgage rates is expected to persist as the market reacts to ongoing trade policy announcements and new economic data.

The influence of these policies is twofold. First, there are scenarios where mortgage rates could rise, exacerbating the 'lock-in effect,' which makes current homeowners hesitant to sell and thus hampers home sales and origination activities. Conversely, if rates were to decrease, it would improve affordability and potentially stimulate housing market transactions.

Home Sales and Consumer Behavior

The ESR Group remarked on a modest upward adjustment to the existing home sales outlook for 2025, driven by stronger-than-expected sales activity in December and resilient purchase application data. However, it's important to note that the level of existing home sales is still projected to be about 22% lower than the pace seen in 2019, indicating a slow recovery from the hit taken during the pandemic.

Kim Betancourt, Vice President of Multifamily Economics and Strategic Research at Fannie Mae, noted, "Economic growth was strong at the start of the year. Nevertheless, we expect a slight deceleration as consumer spending normalizes to historical relationships with income levels."

She highlights that the uncertainties surrounding trade policies add considerable risk to both the GDP and inflation outlooks, which could affect mortgage rates significantly.

For more in-depth analyses and forecasts concerning the economy, housing market, and mortgage trends, visit the Economic and Strategic Research portion of the Fannie Mae website.

By acknowledging these emerging trends and data, stakeholders in the housing market can better prepare for the challenges and opportunities that 2025 will undoubtedly present.