Fannie Mae Expects Low Rates to hold through 2014

by devteam June 20th, 2012 | Share

Thanks tornproblems in Europe and the slowing of both the US and Chinese economies,rnconsumer attitudes have plateaued after several months of improvement early inrnthe year.  Fannie Mae’s Economic Forecast</bfor June, released Tuesday, said that the lull in employment gains isrnparticularly troubling and while the probability of a renewed recession has notrnrisen, the risks to growth have shifted to the side of slower growth.</p

Prospects forrneconomic growth have been revised down to 1.9 percent annualized from anrnearlier estimate of 2.2 percent as a result of less inventory buildup andrnsmaller consumer and government spending. rnLower inventories, however, will be positive going forward as they willrnnot present a drag on growth.</p

Fannie Mae’srneconomists see a brightening housing picture saying that after the record lowsrnin single family home sales and housing starts last year the housing sectorrnappeared to be turning the corner in the first quarter; the slow pace of newrnconstruction and delays in foreclosures have combined to bring about a more balancedrnhousing market.  Indicators showed somernloss of momentum late in the quarter, possibly because unseasonably warm weatherrnpulled some activity forward but April data showed improvement in sales andrnstarts so the housing recovery seems to be back on track.  </p

Despiternpositive news on home prices, with many measures showing prices firming andrndistressed sales shares declining, Fannie Mae projects further declines inrnprices through the end of the year. </p

Lowerrnmortgage rates have boosted interest in refinancing, with mortgage applicationsrnfor refinancing rising to the highest level since February-although activity isrnstill below the levels seen during the fall of 2010.  One goal of refinancing programs has been tornboost economic activity but household desire to deleverage and the inability tornextract equity from underwater homes has somewhat limited the stimulativerneffects of refinancing although it has strengthened household finances longerrnterm. </p

Thernmulti-family construction sector has improved faster than the single-familyrnsegment, with year-to-date building activity running more than 40 percent aheadrnof last year’s activity. The sector should continue to perform well this year,rnas fundamentals continue to improve, with rising rents and net absorption farrnoutpacing completions. </p

Therncontinued flight to quality prompted by the European situation has keptrninterest rates low and Fannie Mae expects them to remain low and a support tornthe housing industry through the year.</p

Fannie Mae says they expect OperationrnTwist to be completed at the end of June as planned and that the target Fedrnfunds rate will remain unchanged until at least late 2014.  While additional easing in on the table itrnwill likely require significant deterioration in the economy before it isrnimplemented and the company does not expect an asset purchase program. </p<prnrnrnrnrnrnrnrnrnrnrnrnrn

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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