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Housing's Contribution to Economic Growth Downgraded to Sluggish: Fannie

AUG 18, 2014 6:34pm ET
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Second-quarter data show housing activity has lost momentum and may experience only minor improvements in the second half of the year, according to a Fannie Mae's Economic & Strategic Research Group.

Data indicate the overall rebound in the nation's gross domestic product during the first half of the year, and Fannie's growth expectations for 2014 and 2015 are driven by a number of factors, including a boost in consumer spending, not residential housing investment, as previously expected, according to a press release Monday.

Fannie has revised its second-half 2014 growth expectations, which will be fueled primarily by consumer spending, inventories and employment support, to approximately 3%, and its full-year 2014 forecast to 1.9%, up from 1.5%.

Fannie downgraded its outlook on housing's contribution to the nation's economic growth in 2014 based on "the disappointing housing activity seen during the first half of the year," said Doug Duncan, Fannie's chief economist. “The impact on mortgage rates from the market's expectation that the Federal Reserve would soon start tapering their securities purchases, combined to some degree with the weather effect in the first half of 2014, led to very little seasonal growth in housing."

Furthermore, he explained, the pace of sales for the first half of this year slowed down compared to a year earlier while consumer demand remains conservative suggesting that total sales in 2015 will be stronger than in 2013 and 2014, but "will not be the breakout year some are expecting," he said. The August outlook supports expectations to see some economic growth in the second half of the year at slightly above trend "albeit still weak by historical standards," Duncan said.

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