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Forecast Predicts Minimal Economic Growth While Housing Increases

bubbleConsumers' conservative financial behavior suggests modest economic growth for the remainder of the year, though the housing industry appears to be gaining momentum, according to Fannie Mae's Economic and Strategic Research Group's May 2015 Economic Outlook released Thursday.

Following a weak economic first quarter, continued negative economic fundamentals including a strong U.S. dollar and the lingering effects of last year's oil price decline have resulted in a downgrade in economic growth to 2.3 percent for all of 2015, down by 0.5 percentage points from the prior forecast. The projection for economic growth in 2015 is only slightly ahead of 2014's moderate pace of 2.2 percent.

"Last year we saw a strong second quarter rebound from a weak first quarter. We expect the same pattern this year, but a more muted bounceback," Fannie Mae Chief Economist Doug Duncan said. "The drop in oil prices has led to a reduction in business fixed investment, particularly in the mining and energy extraction space, but hasn’t yet translated to a significant increase in personal spending, with consumers remaining financially conservative by choosing to ramp up their savings or pay down their debt. Incoming data point to some strengthening of consumption for the second quarter."

Leading indicators for the housing sector have shown that despite the moderate economic growth predicted, housing may experience a strong season in the spring, according to Fannie Mae. In March, existing home sales rose to their highest level in nearly two years, although for Q1 existing home sales were off slightly from the previous quarter's total. Despite a slowdown in March, new single-family home sales ended the first quarter at their strongest pace in seven years. Other leading housing indicators that show a strong season may be ahead are pending home sales (increased in March for the third consecutive month) and purchase mortgage apps, which in early May jumped to their highest level in nearly two years. Strong home price acceleration has helped to improve equity positions and loan performance, foreclosure starts fell down to their long-run average of 0.45 percent, and the early-stage delinquency rate for single-family mortgage loans declined to their lowest level since 1972, indicating an improvement in the current quality of outstanding mortgage debt and tightening labor market conditions.

"We also are seeing positive developments in the housing space, supporting our forecast of moderate but broad-based improvement in 2015 compared to last year," Duncan said. "Purchase mortgage applications have moved up consistently for a couple of months, and while refinance applications have recently pulled back, the actual volume of both purchase and refinance originations earlier in the year came in stronger than we had projected. As a result, we have raised our mortgage origination forecast to $1.46 trillion for the year."

To view the complete economic forecast, click here. For the housing forecast, click here. For the complete May 2015 economic summary, click here.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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