Fannie Forecast Sees Weaker Growth in Housing

A second-quarter rebound combined with an upward revision for economic activity in the first quarter has given a boost to Fannie Mae's full-year economic expectations, according to the August 2014 Economic Outlook put together by the company's Economic and Strategic Research Group.

The housing market lost momentum in Q2, however, as near-term indicators show that growth slowed from Q1. Residential investment, although expected to contribute to growth in 2014 and 2015, is not expected to be a major driver of economic growth going forward as was originally forecasted.

"With respect to housing's contribution to growth this year, we have downgraded our outlook following the disappointing housing activity seen during the first half of the year," said Fannie Mae Chief Economist Doug Duncan. "The impact on mortgage rates from the market's expectation that the Federal Reserve would soon start tapering their securities purchases, combined to some degree with the weather effect in the first half of 2014, led to very little seasonal growth in housing. In the first six months of the year, total sales have run below last year's pace."

While consumer spending was the primary driver of GDP in Q1, nearly every main component of GDP improved in Q2. Inventories and employment support combined with consumer spending have raised expectations for economic growth by 3 percent, which pushes the overall economic forecast for 2014 up four-tenths to 1.9 percent.

"The August outlook supports our expectation that the economy will grow in the second half of the year at slightly above trend and push full-year growth into positive territory, albeit still weak by historical standards," Duncan said. "We expect the forecast will get a boost from consumer spending, which appears positive in the current quarter given the improving trends in personal income and hiring."

While consumer spending is expected to be a major driver of overall economic improvement, consumers still seem to be conservative when it comes to "big ticket" purchases such as homes, according to Duncan.

"We currently estimate that 2014 will finish lower in total sales figures [for housing] than 2013—and that 2015, while stronger than 2013 and 2014, will not be the breakout year some are expecting," Duncan said.