Oil Prices Cloud Economic Outlook According to Fannie Mae's Economic & Mortgage Market Analysis Group

Consumer Uncertainty Hampers Demand for Housing

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Mar 22, 2011, 08:30 ET

WASHINGTON, March 22, 2011 /PRNewswire/ -- The economy continues to show increasing signs of self-sustaining momentum, however an unexpected jump in oil prices and the potential for further tightening of fiscal policy suggest less economic momentum than previously believed, according to the March 2011 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group. Projected economic growth for the year was lowered to 3.5 percent – down slightly from 3.7 percent in February 2011, but up from 2.7 percent annual growth in 2010.

The recent jump in oil prices and unpredictability of the magnitude and duration of the oil price rise has injected additional uncertainty about the prospects for consumer spending and economic growth for 2011 and 2012. "The increase in oil prices has an impact on the economy, especially on the consumer side," said Fannie Mae Chief Economist Doug Duncan. "The U.S. consumes roughly seven billion barrels of oil each year, so every dollar increase in the cost of energy translates into a $7 billion annual tax on consumers, reducing their disposable income available for spending on other goods and services."

Consumer uncertainty also continues to stifle demand for housing, keeping the housing market on a bumpy road to recovery. "Our National Housing Survey results during the last year have been very clear regarding consumer uncertainty about the economic and housing environment," said Duncan. "This uncertainty, coupled with the rise in oil prices, is precipitating reluctance among people to take on large financial obligations such as borrowing money to purchase a home."

Following completion of the March Economic Outlook, the events in Japan unfolded and are still unfolding. This information was not included in Commentary and Forecasts, but may have an impact on the forecast outlook. Dimensions of the impact will be described in the April Economic Outlook Commentary and reflected in the Forecast numbers.

For an audio synopsis of the March 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 March 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 current multifamily market conditions. The March 2011 Commentary explores renewed interest in multifamily mortgages during 2010.

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