Fannie Mae Sets Growth Forecasts for ‘Slow’

A weaker-than-expected first quarter has researchers at Fannie Mae amending their forecast for growth in 2014, but they still project acceleration as the year progresses.

In its Economic and Housing Outlook for April, Fannie Mae’s Economic and Strategic Research Group notes economic activity slowed in Q1 even more than was forecast, partly due to a sharp decline in inventory investment as consumer spending waned.

Citing that drop—as well as unusual weather patterns and a “surprising widening” in February’s net exports—the group brought its projection for first-quarter economic growth down 0.5 percentage points to 1.5 percent annualized.

Even with the adjustment, Fannie’s prediction calls for economic growth at 2.7 percent in 2014, a slight increase over last year’s 2.6 percent expansion.

“The April economic forecast is similar to February and March, where slow growth has been the common denominator, but we expect to see a slight pickup beginning this quarter,” explained Doug Duncan, chief economist at Fannie Mae.

Supporting that growth forecast are expected improvements in consumer spending, relief from fiscal policy concerns, and strengthening in the housing market—though expectations for the latter also had to be scaled back, thanks to the year’s slow start.

“Some but not all of the weakness is likely related to the abnormally severe winter weather and should rebound in coming months,” the group said. “However, a significant share of the weakness appears to be related to the sharp decline in housing affordability and could persist for some time.”

However, Duncan added, “the recent loss of momentum is likely a temporary one.”

The group expects sales of new, single-family homes to rise 14.8 percent over 2013’s total to 494,000, a downward revision from 519,000. The forecast looks worse for existing homes, which are now expected to fall 1 percent to about 5.0 million.

Origination projections have also been brought down, with purchase originations expected to hit $724 billion as refinances drop to $417 billion.

Overall, Fannie Mae expects housing to contribute 0.3 percentage points to this year’s economic growth.