Uncertainty in the economy confirms lower expectations for economic growth and a slower-than-normal recovery, according to the August 2010 Economic Outlook, released by Fannie Mae's Economics & Mortgage Market Analysis Group.
The forecast calls for 2.5% growth in the second half of this year, with some pickup expected in 2011. Housing activity – a central component to the recovery – is expected to remain flat for the remainder of the year due to a greater-than-expected number of sales being pulled forward into the second quarter.
Low 30-year fixed mortgage rates, projected to average 4.5% for 2010, are expected to boost refinance activity but likely will not be low enough to trigger a refinance boom.
‘The inability of the financial sector, business and households to determine the likelihood of events on the economic horizon is making planning for the future difficult,’ says Fannie Mae Chief Economist Doug Duncan. ‘It is particularly difficult to know how the economy will evolve, given recent and forthcoming policy changes. Because of this uncertainty, downside risks are trumping upside potential.
"Corporate profits are strong, but uncertainty around future labor costs is hindering near-term hiring," he continues. "The Fed is reinvesting maturing [mortgage-backed securities] into treasuries as a strategy to keep long-term interest rates low, but uncertainty about reform in the financial sector is constraining credit availability."
SOURCE: Fannie Mae