Fannie Mae: Economy at a Crossroads

October 18, 2011 (Shirley Allen)

Despite recent marginally positive economic trends, Fannie Mae’s Economics & Mortgage Market Analysis Group continues to gauge the odds of a recession by the end of next year at close to fifty-fifty.

According to Fannie Mae’s October 2011 Economic Outlook, the economy is stuck in a slow growth scenario with economic growth expected to be no greater than 2 percent through at least the end of 2012.

“In this type of environment, the housing market remains very sluggish and consumers’ willingness to dig into their savings to purchase big ticket items is very low,” said Fannie Mae Chief Economist Doug Duncan. “There’s been a little seasonal cyclical pickup in housing activity recently as spring and summer sales are generally stronger than fall and winter, but leading indicators point to housing sales bouncing near the bottom at least through the end of 2012.”

Fannie says the slow growth rate that is expected over that extended period of time makes the economy vulnerable to any economic shocks that could trigger another downturn.

Externally, the most likely event that could have an effect on our economic growth in the United States would be the ongoing debt crisis in Greece and the effect it would have on the other countries in Europe if Greece were to default.

Here at home, economic growth faces uncertainty as we steam towards the end of the year with the effects of the scheduled expiration of various tax cuts and unemployment benefits along with the impact of forthcoming regulations possibly contributing to a slowing in economic growth during the coming year.

The housing sector faces enormous challenges over the next year as the market adapts to new loan limits, Congress deals with the question of what is a qualified residential mortgage and the effects of its implementation and what Fannie Mae’s and Freddie Mac’s role in the residential housing industry should be.

Mortgage servicers are also expected to step up their foreclosure efforts which are likely to result in additional downward pressure on home prices as those foreclosures start to hit the market.

“Home prices are a key factor for any positive movement in the housing market, and the large inventory of distressed homes working their way through the market is putting downward pressure on prices. Now that we are entering a traditionally weak seasonal sales period, we expect home prices to show renewed declines after firming for several months,” Duncan stated.

Tags: Fannie Mae, economic crossroads, housing market, economic growth, housing activity, economic shocks, slow growth, mortgage servicers

Source:
Fannie Mae