October 18, 2012Signs of Improvement Emerge but Economic Outlook Remains Uncertain
WASHINGTON, DC – Recent economic reports indicate activity ticked up in the third quarter, but overall economic growth is expected to remain at a sluggish sub-2 percent rate this year, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. A positive September jobs report, continued resilience in the housing market, and the Federal Reserve’s latest quantitative easing measures appear to have bolstered consumer confidence, with September retail sales posting relatively good results. However, uncertainty surrounding ongoing financial and policy issues both domestically and abroad may restrain meaningful economic growth in 2012.
"The U.S. fiscal cliff and debt ceiling debate as well as the weakened global economic environment are likely to create the strongest headwinds facing any real improvement this year," said Fannie Mae Chief Economist Doug Duncan. “With these issues hanging in the balance, we believe risks remain tilted to the downside. News from the housing sector is more positive, with various indicators showing continued momentum toward a sustainable, long-term recovery. Notably, home prices are inching back into positive territory on a year-over-year basis. Results from our September National Housing Survey also show consumers’ home price change expectations have remained positive for nearly a year."
Although home prices are likely to dip somewhat in the winter season following typically stronger spring and summer months, the Group’s expectation that home prices hit bottom earlier this year remains. Combined with record-low mortgage rates, aided by the Federal Reserve’s latest round of mortgage-backed security purchases, more consumers are likely to enter the housing market. The Group expects total home sales to rise approximately 9 percent this year from last year’s depressed levels. However, the biggest impact from declining mortgage rates will be to extend the ongoing refinance boom, helping to improve household cash flows, thereby allowing homeowners to spend more, save more, or pay down their debt. As a result of renewed declines in mortgage rates, the Group revised higher their projected refinance originations, bringing their forecast of overall originations to $1.8 trillion in 2012, a gain of 20 percent from last year.
For an audio synopsis of the October 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full October 2012 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.