Fannie Economists: Economy Still ‘Very Vulnerable’ To Outside Shocks

Fannie Economists: Economy Still 'Very Vulnerable' To Outside Shocks U.S. economic growth will not surpass 2% before the end of 2012, making the nation ‘very vulnerable to any external shock that could trigger a downturn,’ Fannie Mae economists say.

According to the economists' latest monthly report, spillover of the Greek sovereign debt crisis into other European economies remains the event most likely to spark such a downturn.

Uncertainty in the U.S. surrounding the expiration of various tax cuts and unemployment benefits, along with the impact of new regulations, will partly determine how quickly the economy grows, Fannie Mae says. The company's Economics & Mortgage Market Analysis group says the chances of a recession by the end of next year are close to 50-50.

"In this type of environment, the housing market remains very sluggish, and consumers' willingness to dig into their savings to purchase big-ticket items is very low," Fannie Mae Chief Economist Doug Duncan says. "There's been a little seasonal cyclical pickup in housing activity recently as spring and summer sales are generally stronger than fall and winter, but leading indicators point to housing sales bouncing near the bottom at least through the end of 2012."

Duncan additionally notes that the large inventory of distressed homes is placing downward pressure on home prices.

"Now that we are entering a traditionally weak seasonal sales period, we expect home prices to show renewed declines after firming for several months," Duncan says.

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