Second-Haf Growth Strengthens, but Outlook Remains Worrisome According to Fanne Mae's Economics & Mortgage Market Analysis Group

November 18, 2011

Housing Improvement Expected to be Woefully Slow Through Next Year

Pete Bakel

202-752-2034

WASHINGTON, DC – After nearly stalling out in the first half of the year, the economy saw some improvement during recent months. According to Fannie Mae’s (FNMA/OTC) Economics & Mortgage Market Analysis Group, the economy expanded at a 2.5 percent annualized rate in the third quarter while gains in recent employment data helped confirm that the economy will skirt recession this year. Nevertheless, the U.S. continues to remain vulnerable to shocks, including the ongoing financial crisis in Europe, particularly in Greece and Italy, and the debate over fiscal policy in the U.S. – both of which indicate a slower economic growth path in 2012. Moreover, it appears likely that Europe will slip into a recession, the degree of which will have an impact on the pace of growth for the U.S. in the coming year. The Group expects 2011 existing home sales will be little changed from 2010, with 2012 existing home sales only slightly higher.

“Despite a small numerical pickup in housing activity, the housing market continues to be essentially flat and we do not expect the recent uptick to be a sustained trend,” said Fannie Mae Chief Economist Doug Duncan. “Consumer sentiment is in a holding pattern at depressed levels. In turn, the likelihood of positive developments in the housing market remains a concern.”

“We’re pleased that third-quarter and early fourth-quarter economic, employment, and housing indicators have been in positive territory, and, most importantly, that there’s been no slide back into U.S. recession. Our hope has been that these last few months of positive growth would buy the economy time to shore up a sustainable growth path,” Duncan stated. “Any sustained growth will depend on a pickup in employment and consumer confidence and spending. Unfortunately, a recent increase in consumer spending occurred despite the biggest drop in real personal disposable income since the third quarter of 2009, which resulted in a full percentage point decline in the saving rate in the third quarter. This large decline bodes poorly for consumer spending growth early next year, especially if the payroll tax cut and emergency unemployment benefits expire at the end of the year as scheduled.”

For an audio synopsis of the November 2011 Economic Outlook, listen to the podcast on the Economics & Mortgage Market Analysis site at www.fanniemae.com. Visit the site to read the full November 2011 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.