Economic Activity Continues to Underperform Despite Third Quarter Spike

Fiscal Cliff Remains Key Risk Factor to Near-Term Growth

Contribution of Housing Small but Growing

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Dec 18, 2012, 09:00 ET

WASHINGTON, Dec. 18, 2012 /PRNewswire/ -- The accelerated pace of economic activity seen in the third quarter has ebbed, revealing a continued sluggish recovery in the fourth quarter, according to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group. Full data regarding the disruptions from Hurricane Sandy and the effect on consumer and business confidence due to fiscal cliff uncertainties are not yet available, but both are likely to restrain growth in the current quarter and near term. Other factors including the Euro zone recession, sovereign debt crisis, and tensions in the Middle East also continue to pose potential risks to future growth. However, despite an expected 1.2 percentage point drag due to fiscal tightening, modest economic growth of sub-2 percent remains forecasted through early 2013 with a pickup in activity beginning in the second half of the year.

"With data pointing to soft economic conditions and the fiscal policy debate hanging in the balance, we expect growth in the current quarter to moderate from the pace seen last quarter," said Fannie Mae Chief Economist Doug Duncan. "On the bright side, the housing market has stayed resilient and continues to show signs of a strong, sustained recovery. Mortgage rates remain close to historic lows and home sales and home prices are trending positively. For the first time since 2005, residential investment is poised to contribute to annual economic growth this year, albeit on a small scale."

"Despite unsteady macroeconomic conditions, we anticipate housing and mortgage activity to gain momentum in 2013," continued Duncan. "As expected, the Federal Open Market Committee's action last week shifts monetary policy into cruise control, as long as the unemployment rate remains elevated and inflation stays under control. We expect mortgage rates to remain low next year, continuing to support the housing market. Total home sales should increase by approximately 8 percent in 2013, following an estimated 10 percent rise in 2012. Although home prices have dipped during the seasonally weak fall and winter seasons, year-over-year gains have strengthened significantly above 2011 levels, and we expect that trend to continue in coming years."

For an audio synopsis of the December 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full December 2012 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) 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 ESR 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 ESR 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.

Fannie Mae is a leading provider of mortgage credit in the United States. We guarantee and purchase loans so that families can buy homes, refinance their existing mortgages, or access affordable rental housing. Fannie Mae is focused on assisting homeowners in distress, stabilizing neighborhoods, and encouraging sustainable lending. We are committed to improving our financial condition and our priorities are aligned with the public interest. Our work supports the housing recovery today and is helping to build a better housing finance system for the future.

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SOURCE Fannie Mae