Soft consumer spending, coupled with ongoing labor-market duress, has precipitated downgraded growth expectations for the remainder of 2010 and most of 2011, according to the September 2010 Economic Outlook released by Fannie Mae's Economics & Mortgage Market Analysis Group. For all of 2010, the group expects growth to come in at 2.2%, before gradually strengthening modestly to 2.5% in 2011.
Demand for housing also continues to struggle despite home-price declines and drops in interest rates to generational lows, reflecting household concerns about personal finances and weak employment prospects.
‘We continue to see a supply-and-demand imbalance in the housing sector, with very low levels of sales activity,’ says Doug Duncan, Fannie Mae's chief economist. ‘This is further delaying housing's return to normalcy.’
Whereas housing usually contributes to economic growth at this stage in the post-recession cycle, ‘slow housing growth is detracting from overall economic growth,’ Duncan says.
‘Very low mortgage rates are spurring refinance activity, but we don't expect low rates to boost purchase activity as long as the labor market remains weak,’ he says.
SOURCE: Fannie Mae