A strong labour market, robust consumer confidence and the gradual return of first-time buyers means that the demand for homes will see further gains even as mortgage interest rates rise. But with inventory levels unlikely to improve much over the next year, home sales will struggle to gain traction, while house prices will rise by 6%. Beyond 2017, supply conditions are set to improve gradually as more homes are built, which will ease the upward pressure on prices.
President Trump’s failure to get health care reform through Congress suggests any fiscal stimulus is likely to be delayed until early next year. Even so, the recent strength in survey evidence indicates that GDP growth will be a healthy 2.3% this year, up from 1.6% in 2016. The stimulus will then help boost GDP growth to 2.5% in 2018, before tighter monetary policy triggers a slowdown in growth to 1.7% in 2019.
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