Economy to Strengthen in Second Half of This Year

Economic activity is expected to accelerate in the second half of the year, according to Fannie Mae’s Economic & Strategic Research Group.

“We believe consumer spending will be the largest contributor to growth for the remainder of the year, particularly as consumers’ confidence, household net worth, and income growth prospects have continued to strengthen amid an improving jobs market,” says Doug Duncan, Fannie Mae’s chief economist. “On the downside, the drop in oil prices will likely continue to weigh on nonresidential investment in structures, and on balance we expect net exports to be a drag on growth this year, due in large part to the debt crisis in Greece and deteriorating economic conditions in China.”

Fannie Mae economists expect the housing market to remain part of that strength.

Source: Fannie Mae

Economists Revise 2015 ‘Housing Forecasts’

Economic growth is expected to moderate for the rest of the year, but housing is one sector that is expected to post solid gains, according to Fannie Mae’s newly released report from its Economic & Strategic Research Group.

Economists with Freddie Mac also released a report this week revising housing forecasts upward for the remainder of the year. They expect that with tight for-sale inventories home prices will rise 4.5 percent this year, revised up from 4 percent in a prior report.

“The labor market has added 5 million additional jobs, the unemployment rate is significantly lower, and housing markets are generally in much better condition than two years ago,” says Len Kiefer, deputy chief economist at Freddie Mac.

Fannie Mae economists note that mortgage applications for home purchases –a gauge of home sales — have moved up consistently for the past couple of months.

The wild card for the market may be what happens with mortgage rates in the next few months. Low mortgage rates have helped to keep homebuyer affordability high in the first quarter of this year, but housing markets will likely see an increase in interest rates for the remainder of year, Freddie Mac economists note.

Source: Fannie Mae and Freddie Mac

Housing Market Economy Likely to ‘Spring Forward’

“We have downsized our first-quarter economic growth expectations in light of several transitory factors that weighed on consumption,” says Doug Duncan, Fannie Mae’s chief economist. “Although some momentum was lost in the first quarter as consumers remained cautious in their spending, perhaps putting an emphasis on repairing their personal balance sheets and replenishing savings, we expect that consumer spending will catch up during the second quarter and continue in subsequent months, supporting our forecast of 2.8 percent growth for the year. We believe this momentum will carry over into the housing market, as well, particularly if strong consumer income growth continues.”

However, Fannie Mae economists caution that there could be some volatility, particularly with consumer spending and the financial markets, leading up to the Federal Reserve’s first expected rate hike in the coming months.

Source: “Q1 Economic Growth Measures Downsized, But Expected to Spring Forward,” Fannie Mae (April 20, 2015)