The US housing market will be a "growth engine" for the economy in 2020, dispelling the risk of recession, according to Fannie Mae's chief economist Doug Duncan.
"Housing looks 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 house-building sector, decimated during the housing crisis, has still not returned to a level of production that would meet the demand of a growing population. In a normal economy, housebuilding adds 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 will likely increase 12 percent in 2020, reaching the highest level since 2007, Duncan said in a Wednesday forecast. Single-family housing starts will likely increase to 888,000, also a 13-year high, he said.
"We now expect single-family housing starts and new home sales to increase substantially, aided by a large increase in new construction as builders work to replenish 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 US economy is likely to increase by 2.1% in 2020, after gaining 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 a month ago of a 1.9% gain in 2020 and a 2.1% increase in 2019.
"Risks to growth have diminished of late, as a 'first phase' of the US-China trade deal appears to be in place and global growth looks set to reverse course and accelerate in 2020," Duncan said. "With these positive economic developments in mind, we now believe that the Fed will keep interest rates steady until 2020."