Signs of Improvement Emerge but Economic Outlook Remains Uncertain

Significant Growth Hinged on Domestic and Foreign Concerns

Housing Market Continues Steady Climb to Recovery

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Oct 18, 2012, 09:00 ET

WASHINGTON, Oct. 18, 2012 /PRNewswire/ -- Recent economic reports indicate activity ticked up in the third quarter, but overall economic growth is expected to remain at a sluggish sub-2 percent rate this year, according to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group. A positive September jobs report, continued resilience in the housing market, and the Federal Reserve's latest quantitative easing measures appear to have bolstered consumer confidence, with September retail sales posting relatively good results. However, uncertainty surrounding ongoing financial and policy issues both domestically and abroad may restrain meaningful economic growth in 2012.

"The U.S. fiscal cliff and debt ceiling debate as well as the weakened global economic environment are likely to create the strongest headwinds facing any real improvement this year," said Fannie Mae Chief Economist Doug Duncan. "With these issues hanging in the balance, we believe risks remain tilted to the downside. News from the housing sector is more positive, with various indicators showing continued momentum toward a sustainable, long-term recovery. Notably, home prices are inching back into positive territory on a year-over-year basis. Results from our September National Housing Survey also show consumers' home price change expectations have remained positive for nearly a year."

Although home prices are likely to dip somewhat in the winter season following typically stronger spring and summer months, the Group's expectation that home prices hit bottom earlier this year remains. Combined with record-low mortgage rates, aided by the Federal Reserve's latest round of mortgage-backed security purchases, more consumers are likely to enter the housing market. The Group expects total home sales to rise approximately 9 percent this year from last year's depressed levels. However, the biggest impact from declining mortgage rates will be to extend the ongoing refinance boom, helping to improve household cash flows, thereby allowing homeowners to spend more, save more, or pay down their debt. As a result of renewed declines in mortgage rates, the Group revised higher their projected refinance originations, bringing their forecast of overall originations to $1.8 trillion in 2012, a gain of 20 percent from last year.

For an audio synopsis of the October 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full October 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 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 purchasing or guaranteeing mortgage loans originated by 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