Fannie Mae economic outlook for the second half of 2015 less upbeat

2Q GDP drop, China drive headwinds but should slow interest rate growth

The first print of second-quarter economic growth was weaker than expected, and its composition presents a less optimistic outlook for the rest of the year, according toFannie Mae’s Economic & Strategic Research Group.

The federal government’s upward revision to first-quarter growth was essentially offset in the second quarter, due in large part to a drop in nonresidential investment in equipment and structures.

Fannie’s researchers say that these factors, coupled with continued headwinds from a strong dollar and renewed declines in crude oil prices, are expected to continue to pose challenges in the current quarter, although consumer and government spending will likely provide support.

Housing is expected to contribute to 2015’s growth, with year-to-date main housing indicators staying well above year-ago levels.

“While consumer spending growth picked up as we expected in the second quarter of this year, other components disappointed,” said Fannie Mae Chief Economist Doug Duncan. “On balance, our full-year growth outlook remains unchanged from the prior forecast at 2.1%.

“We hold by our previous comments that income growth still needs to strengthen, particularly for younger households, in order to drive significant housing growth, but we are nonetheless seeing some positive improvements in the housing sector,” said Duncan.

Home sales have trended up and inventories are lean, supporting strong home-price appreciation, Duncan says.

“That price growth, driven by laggard supply response, helps build equity for existing owners but is a headwind for first-time buyers,” he says.

But given significant uncertainties from Greece and China — as evidenced by the red ink on Wall Street today — along with continued global monetary easing, and an expected slow pace of monetary tightening by the Fed, Duncan says he anticipates mortgage rates to rise only gradually through next year, which should continue to help support mortgage demand.

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