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Fannie Economist: Europe ‘Clearly’ in Recession

The chief economist with ""Fannie Mae"":http://fanniemae.com/portal/index.html said Tuesday that Europe is ""clearly"" in recession and forecasted that the United States will endure market corrections for the next five years as housing largely stays in the doldrums.


""Doug Duncan"":http://www.fanniemae.com/portal/about-us/company-overview/leadership/duncan.html, VP and chief economist with Fannie, made remarks at the ""2011 MPact Mortgage Banking Conference and Expo"":http://www.thefivestar.com/mpact/, which former Secretary of State Condoleezza Rice headlined Monday evening with a speech on her tenure with the Bush administration.

Duncan predicted that annual growth will hedge toward 1.5 percent over the next year ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a drop from 2.5 percent in third-quarter annual growth recorded by Fannie's Economics and Mortgage Market Analysis Group in November.

He also touched on debt crises in Europe, saying that a ""disorderly set of failures├â┬ó├óÔÇÜ┬¼├é┬ª will impact our economy.""

Analysts continue to stay near the sidelines about whether the euro zone is in a downturn. Debt-ridden European countries remain an eyesore for investors, which find U.S. Treasury debt highly attractive by comparison and help keep mortgages rates near record lows.


The likelihood of a default by Greece led French President Nicolas Sarkozy and German Chancellor Angela Merkel to seal a rescue package worth trillions of euros for the debt-saddled nation in November.

Rice discussed problems with the euro zone during her keynote address, highlighting the trouble encountered by European politicians like Merkel when she needs to approach German taxpayers for more bailout funds.

""We know now that the Greeks were cooking the books,"" she told an audience of lenders and servicers gathered at MPact.

Ratings agency ""Standard & Poor's"":http://www.standardandpoors.com/home/en/us added to market worries by placing 15 euro zone countries ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a list that includes heavyweights France and Germany ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô under negative review last week, citing a 40-percent chance for recession.

Duncan described the housing market as one that would likely continue to fluctuate, with house prices flattening, mortgage interest rates static, and consumer demand for rental properties upward bound in 2012.

""The bigger problem today is a demand problem,"" he said, tying the difficulty to low job growth.

He said that unemployment would likely remain at or near 9 percent over the next year, notwithstanding a drop to 8.6 percent last week, which the ""Labor Department"":http://www.dol.gov/ reported in tandem with news that the economy added 120,000 jobs over November.

The good news?

Duncan said that real estate will be ""a good place to be"" in the next five years once the employment situation improves and new construction projects align with existing homes on the market.

[Editor's Note: The Five Star Institute is the parent company of _MReport_.]