Fannie Mae: Economic Growth to Continue; Fed Tapering Poses Risk

Fannie Mae: Economic Growth to Continue; Fed Tapering Poses Risk

BY: TORY BARRINGER

After trudging along throughout the first half of the year, economic growth is gaining momentum as expected, according to an Economic and Housing Outlook from Fannie Mae’s Economic & Strategic Research (ESR) group.

“Our macroeconomic and housing forecast shows very little change from July, and the steady pickup during the past few months validates our expectations for the second half of the year,” said Fannie Mae chief economist Doug Duncan.

Looking ahead, the group expects GDP growth will average 2.0 percent for the year, accelerating to 2.6 percent in 2014 as fiscal drags peel away and the housing recovery continues.

“The biggest risk to this forecast is the expected reduction in the Federal Reserve’s asset purchases, which would likely put additional upward pressure on interest rates and lead to some volatility in capital markets,” Duncan explained. “Although the nature and timing of the tapering are still to be determined, we continue to expect the Fed will scale back its asset purchases and end the program by spring.”

Duncan also noted the country “may see some fiscal tightening this fall as the debate over federal spending and the debt ceiling takes place.”

However, while the financial picture isn’t completely clear, sustainable growth in consumer spending and the employment sector are expected to help offset downside risks from the Fed’s tapering of purchases.

At the same time, the group remarked that “[t]he housing recovery appears to have weathered some of the uncertainty, although additional growth is expected to be modest rather than robust while the market awaits an easing of credit conditions in the presence of rising interest rates.”

For now, the team is sticking to its forecast of continued improvements in home prices, though the pace of growth is expected to slow significantly from the last year.

Originations are expected to drop off from an estimated $2.03 trillion in 2012 to $1.75 trillion in 2013 and $1.09 trillion next year. In that time, refinance volume is projected to drop off to $345 billion by the end of 2014—less than half of expected purchase origination volume.

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