Economic Growth Slowing After Mid-Year Burst, but 2015 Growth Expected to Top 2014

Housing Market Still Grinding Upward

Katie Penote

202-752-2261

WASHINGTON, DC – Economic growth in the U.S. is slowing from the strong mid-2014 numbers to a more moderate pace heading into next year, but continued improvements in employment, income, and consumer and business spending are expected to drive year-over-year growth overall, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research (ESR) Group. Full-year economic growth is expected to come in at 2.5 percent for all of 2015, a modest increase above the 2.1 percent forecast for 2014. Although the global economic slowdown in the Eurozone, China, and Japan, as well as ongoing geopolitical events in Russia, Ukraine, and the Middle East, remain the largest downside risks to the forecast, the Group believes the risk of recession is low.

"The pace of growth around the middle of the year was well above trend, driven by an unsustainable rebound after a weak first quarter, and we anticipate that the fourth-quarter numbers will presage a more modest pace for 2015," said Fannie Mae Chief Economist Doug Duncan. "We are still seeing some conservatism on the part of consumers, who remain hesitant to take on significant credit and mortgage debt in the wake of the economic downturn. However, recent data show that their confidence is growing amid strengthening employment numbers and household incomes, which we expect to continue next year and eventually drive stronger consumption. The Fed has responded to all of this by ending its securities purchase program, which was intended to support the expansion, and we don’t anticipate any change in their balance sheet until next September after they begin to raise interest rates."

"The housing market continues to grind its way upward, but we don’t expect a breakout performance in 2015 as the fundamentals remain somewhat muted," said Duncan. "Homebuilding activity improved during the third quarter due primarily to the multifamily segment, which we expect to grow further next year, but the single-family segment has been relatively flat for some time. Although interest rates still are relatively low, the temporary burst in refinance activity appears to have subsided, and we expect that the market will turn more toward the purchase market in 2015. Overall, our view of housing starts, home sales, and home price trends is largely unchanged from the prior forecast – we believe that mortgage activity in 2015 will be very similar to 2014."

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full November 2014 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.