Modest Housing Recovery Will Continue -Fannie

The theme for the economy and the housing market's in 2014 has been set for months; the economy will continue to slowly strengthen; the modest recovery in housing will be sustained. Each monthly or quarterly report or round of economic analysis seems to merely join the chorus. Fannie Mae's most recent entry on Wednesday merely added a new note. Growth is expected to strengthen during the second half, but not enough to save the year.

Katie Penote, a member of Fannie Mae's Economic & Strategic Research (ESR) Group, writes that the economy experienced the worst performance in five years in the first quarter and incoming data for the second quarter suggests only a moderate improvement. The first quarter's problems are attributed to a significant downward revision in healthcare spending. During the third and fourth quarters, she says, economic activity is expected to accelerate, driven principally by consumer spending with help from business, capital investment, and residential investment. Government spending may also contribute to growth for the first time in five years but inventory investment and exports will be a drag.

But the third and four quarter growth won't be enough to overcome what happened in the first and second and Penote's group is revising its full year forecast for the DGP down to real growth of approximately 1.5 percent from 2.1 percent in its prior forecast.

"Our findings in the July forecast suggest that full-year growth in 2014 likely will be weaker than 2013," said the company's Chief Economist Doug Duncan. "We expect the economy to grow approximately 3.0 percent in the second half of the year, although there is an element of uncertainty given government statisticians’ difficulty in assessing the full scope of healthcare expenditures.

“Overall, our forecast calls for growth to come in at around 1.5 percent for the year, which would be the worst performance of Q4-over-Q4 growth in the current economic expansion. On the bright side, real personal income grew for the fifth consecutive month in May and hiring has continued on an upward trajectory, which should help boost consumer spending during the remainder of 2014."

 The housing data, Duncan said, points to a continued but modest rebound, in line with Fannie Mae's prior estimate. He noted that recent housing activity had taken a seasonal bounce as predicted but many indicators remain were they were a year ago if not lower. “For all of 2014, we continue to expect total home sales to decline about 2.0 percent and total mortgage originations to decline approximately 41.0 percent,” he said. “We also expect total single-family mortgage debt outstanding to rise slightly this year before strengthening further in 2015."