Fannie Mae lowers growth estimate as home prices continue to search for bottom

Housingwire

Fannie Mae economists predict slower economic growth for 2011 as home sales and consumer spending lag, and home prices search for a bottom that’s unlikely to appear before the fourth quarter.

The overall economy is now expected to grow at a pace of 2.5% this year, down from a prior forecast of 2.9%, economists with the government-sponsored enterprise’s economics and mortgage market analysis group said Monday.

A lackluster housing market is one of the key drivers of the slowdown, the report concluded. The housing slowdown became even more pronounced this year with the home-buyer tax credit long gone and unemployment still soaring above normal levels.

With more housing inventory and higher levels of unemployed citizens, supply currently outweighs demand, according to Fannie, resulting in a projection of steeper price declines in the third quarter before a leveling off in the final three months of the year.

"Ultimately, the labor market holds the key to a housing recovery, but job growth is needed in order to activate housing demand," said Fannie Mae Chief Economist Doug Duncan. "Hiring delays will continue to push out timing for the housing rebound."

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