Fannie Mae: Economic Growth Will Slow in Q2

Friday, 19 Apr 2013 08:07 AM

By Michael Kling

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Recent economic growth is unsustainable, according to Fannie Mae’s Economic & Strategic Research Group.

Economic growth accelerated to 3.2 percent in the first quarter — a figure that is above trend and unlikely to last, the group warns.

Fannie Mae is predicting about 2.3 percent growth for 2013, still modest but stronger than 2012’s 1.7 percent and 2011’s 2.0 percent figures.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

“[This] forecast reflects the growing realization that 2013 is off to a good start from a [gross domestic product] perspective, but we expect the stronger-than-expected first quarter pace to slow somewhat in the second quarter,” says Fannie Mae Chief Economist Doug Duncan.

“Tax hikes, sequestration and the eurozone crisis still pose significant risks to our forecast, and the fiscal tightening will likely affect consumer spending and other economic activity in coming months.”

A significant buildup in business inventories provided a one-time boost in the first quarter, but inventories should return to a more balanced level in the second quarter.

In addition, a weak jobs report for March foreshadows moderate growth this year. The unemployment rate, Duncan forecasts, will about the same this year and will fall to 7.2 percent by the end of 2014.


On the other hand, the housing recovery might be more robust than expected and may help offset fiscal headwinds, Duncan says, noting that housing numbers, especially home prices, are showing strength.

“Incoming housing indicators suggest a continued upward trajectory.”

Existing home sales rose in February for a second consecutive month to a three-year high, boosted by condo sales in the South. Plus, the number of underwater homes has been declining since 2011 and mortgage rates will remain low.

“Single-family housing and multifamily starts in March are an encouraging sign that the housing market’s recovery may pick up in the coming months,” according to Fitch Ratings.

Single-family starts decreased 4.8 percent over February, but were up 28.7 percent over last year, largely in line with expectations. Total starts were up 7 percent over February and 46.7 over last year, because of high multifamily starts, which are often volatile.

Still, housing is treading in unsteady waters.

“Realized demand is and will continue to be tempered by widespread negative equity, challenging mortgage qualification standards, lot shortages, and excess supply due to foreclosures in certain markets,” says Robert Curran, Fitch Ratings’ managing director and lead homebuilding analyst.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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