September 22nd, 2011 4:30 PM by Lehel S.
WASHINGTON, DC — The economy appears to be on a cusp, flirting with another economic downturn after more than two years of tepid recovery from the most severe recession in the post World War II era. According to Fannie Mae's (FNMA/OTC) Economics & Mortgage Market Analysis Group, the recovery's fragility makes it vulnerable to any additional shocks that might cause the economy to slip back into a recession. Possible shocks include a deepening of the financial turmoil in Europe; a dramatic slowdown in emerging economies, especially China; and renewed unrest in the Middle East that could send oil prices surging again. The forecast calls for continued sluggish growth at below 2 percent throughout 2012 — not enough to bring down the unemployment rate, which the Group expects to remain above 9 percent through most of next year.
Incoming data indicate that third-quarter growth accelerated modestly as consumers showed signs of life in July and August due primarily to increased auto sales thanks to the supply chain coming back online following the tragedy in Japan this spring. However, it is unlikely that the rebound in consumer spending will be sustained as consumer confidence is still on the wane.
"The weakening economic backdrop, a persistently high unemployment rate, and fear of a double-dip recession are casting a shadow over the housing market. In turn, respondents to the Fannie Mae National Housing Survey indicate a continued shift of sentiment toward renting and away from ownership, at least in the near term," said Fannie Mae Chief Economist Doug Duncan. "In the second quarter, 26 percent of Americans were worried about their job stability. When combined with the 9 percent of unemployed households, you have more than a third of the potential workforce worried about their employment status. This is hardly a strong support for housing demand."
Home purchases have been muted despite mortgage rates declining to record lows and prices at the most affordable level in a decade. New and existing home sales fell in July, and single-family starts also dropped during the month. Single-family construction spending fell as well, but multifamily construction spending rose as it started to gain the attention of large investors. Read the Multifamily Market Commentary available via link from the Economic Developments Commentary for data showing that interest in multifamily mortgages increased during the first half of 2011.
For an audio synopsis of the September 2011 Economic Outlook, listen to the podcast on the Economics & Mortgage Market Analysis site at www.fanniemae.com. Visit the site to read the full September 2011 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, and Housing Forecast.
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economics & Mortgage Market Analysis (EMMA) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the EMMA Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the EMMA Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.
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