Fannie: The Economy Underperforms

Economic growth was weaker than expected in the second quarter and that's prompted a less optimistic outlook for the remainder of the year, according to Fannie Mae's Economic & Strategic Research Group.

Continued headwinds from a strong dollar and renewed drops in crude oil prices are expected to continue to pose economic challenges in the latest quarter, Fannie Mae economists note. But the housing market is expected to contribute to more growth this year in the economy. The main housing indicators are all well-above year-ago levels year-over-year.

"While consumer spending growth picked up as we expected in the second quarter of this year, other components disappointed," says Doug Duncan, Fannie Mae chief economist. "However, incoming data suggest some upward revisions may be in the cards for the second quarter. Furthermore, job creation remains steady, with full-time employment getting closer to pre-recession numbers, and household net worth continues its gradual rise. On balance, our full-year growth outlook remains unchanged from the prior forecast at 2.1 percent."

Income growth needs to strengthen, particularly among younger households, in order to drive significant housing growth, Duncan says.

"But we are nonetheless seeing some positive improvements in the housing sector," says Duncan. "Home sales have trended up and inventories are lean, supporting strong home price appreciation. That price growth, driven by laggard supply response, helps build equity for existing owners but is a headwind for first-time buyers. Given significant uncertainties from Greece and China, continued global monetary easing, and an expected slow pace of monetary tightening by the Fed, we anticipate mortgage rates to rise only gradually through next year, which should continue to help support mortgage demand."

Source: Fannie Mae