According to Fannie Mae New Recession Chances are 50/50

October 17, 2011

Economy at a Crossroads According to Fannie Mae’s Economics & Mortgage Market Analysis Group

Mixed Near-Term Performance for Housing, but Subdued Trend Remains in Place

Pete Bakel

202-752-2034

WASHINGTON, DC – Despite recent marginally positive economic trends, the economy is stuck in a slow growth scenario that is expected to continue for a relatively extended period. According to Fannie Mae’s (FNMA/OTC) Economics & Mortgage Market Analysis Group, economic growth is expected to be no greater than 2 percent through the end of 2012 – a growth rate that makes the economy very vulnerable to any external shock that could trigger a downturn, the most likely of which remains contagion of the Greek sovereign debt crisis to other economies in Europe. External factors coupled with uncertainty surrounding the degree of domestic fiscal austerity, including the scheduled expiration of various tax cuts and unemployment benefits, and the impact of forthcoming regulations, remains a factor in determining how fast the economy will grow. In turn, the Group continues to gauge expectations of a recession by the end of next year at close to fifty-fifty.

“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,” said Fannie Mae Chief Economist Doug Duncan. “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.”

“Home prices are a key factor for any positive movement in the housing market, and the large inventory of distressed homes working their way through the market is putting downward pressure on 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 stated.

For an audio synopsis of the October 2011 Economic Outlook, listen to the podcast on theEconomics & Mortgage Market Analysis site at www.fanniemae.com. Visit the site to read the full October 2011 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, and Housing Forecast.