Economic Growth Expectations Remain in Place Despite Weak First Quarter, According to Fannie Mae's Economics & Mortgage Market Analysis Group

Sustained Improvement in Housing Remains Elusive

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May 20, 2011, 12:01 ET

WASHINGTON, May 20, 2011 /PRNewswire/ -- Economic growth slowed sharply in the first quarter to 1.8 percent from 3.1 percent in the fourth quarter of 2010, according to the May 2011 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group. However, the long-term forecast remains intact with expected sustainable growth of above 3 percent during the next couple of years. The first-quarter slowdown was due, in large part, to a number of significant temporary factors, including severe winter weather, the tragedy in Japan, political unrest in the Middle East and North Africa, and rising gas prices. Temporary factors notwithstanding, near-term gains are anticipated for the second quarter as the economy is expected to recoup some of the losses experienced in the first quarter of 2011.

Consumer spending growth held up well despite the sharp rise in gasoline prices, with spending expected to track firmly into the second quarter. Importantly, strong job gains in April marked the third consecutive month of solid growth - a good indication that the labor market is gaining momentum and an upside factor for consumer confidence, which inched up slightly during the quarter. Consumer confidence needs to maintain an upward trajectory in order to have a positive impact on housing.

Sustained improvement in housing continues to remain elusive, but some positive movement is expected as we move through 2011. Single-family homebuilding activity remained weak during the quarter, with housing starts and new home sales staying flat at depressed levels. Existing home sales are showing some rebound, however, distressed sales continue to account for a large share of sales and the share of distressed sales has risen in recent months.

"The confluence of low interest rates, historically low home prices, and improving employment has not yet reached all the way through to consumer attitudes, which we continue to survey on a regular basis," said Fannie Mae Chief Economist Doug Duncan. "In spite of the positives surrounding the housing market, we see that consumers are still hesitant to take on a large financial obligation. Nevertheless, we do forecast some improvement in home sales over the course of 2011 compared to 2010."

For an audio synopsis of the May 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 May 2011 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, and Housing Forecast.

Also available via link from the Economic Developments Commentary is the Multifamily Market Commentary by Kim Betancourt, Director, Multifamily Economics and Market Research. The Commentary provides information on the improvement in first-quarter 2011 multifamily sector fundamentals.

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.

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.

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SOURCE Fannie Mae