Even with tax hikes and spending cuts creating a significant headwind to the economy, Fannie Mae?s Economic & Strategic Research Group is maintaining its outlook for slow and steady growth in 2013.
In their February 2013 Economic Outlook, economists Doug Duncan, Orawin Velz, and Brian Hughes-Cromwick admit that unresolved fiscal policy concerns (such as sequestration or the delayed debt ceiling debate) may ?weigh to some degree on growth for the year.? However, positive signs in manufacturing, employment, and energy production ?support a risk assessment that suggests that if our forecast is wrong it is likely too conservative on growth,? they assert.
The group also expects the currently unfolding sequestration drama will have a smaller impact than other analysts predict.
?Our February forecast accounts for a modified version of sequestration unfolding in 2013, which we expect will result in less fiscal constraint?roughly a 0.2 percentage point drag,? explained Duncan, chief economist for the company. ?Our outlook is bolstered by the employment picture, which is trending better than previously reported, as well as the momentum in manufacturing and energy production. We also expect the housing recovery to broaden this year.?
However, Duncan added that ?the degree to which these drivers will serve to offset the headwinds from ongoing and forthcoming fiscal contraction is still to be determined.?
Overall, the research group projects an average quarterly GDP growth of 2.0 percent throughout 2013, with the latter two quarters making up for a slower first half of the year.
On the housing front, continued lean inventory and the increase in rate of household formation bode well for homebuilding activity and residential construction employment, the outlook says, giving housing an opportunity to contribute more to economic growth.
However, one unknown variable on the supply side is how many underwater borrowers are waiting to list their homes. According to Fannie Mae?s most recent National Housing Survey, the number of homeowners saying now is a good time to sell increased in January, suggesting prices may be reaching a tipping point for current owners to offer their homes for sale.
Given their expectations of continued improvements in housing starts, home sales, and home prices in 2013, the group projects that purchase mortgage originations will rise to $628 billion from a forecast of $530 billion last year. However, rising mortgage rates will take their toll on refinances, spurring the group to revise its projections for refinance originations downward to an estimated $880 billion in 2013 from $1.4 trillion in 2012.
While the housing recovery is expected to firm up going forward, a few challenges remain: First, the latest Senior Loan Officer Survey from the Federal Reserve shows lending standards aren?t easing up, keeping prospective buyers out of the market. In addition, the Federal Housing Administration (FHA) recently announced its plan to raise mortgage insurance premiums in an effort to shore up its finances, creating problems for first-time and existing homebuyers alike.
One major development not expected to greatly impact origination in the near term is the Consumer Financial Protection Bureau?s unveiling of qualified mortgage guidelines, which include a seven-year exclusion on loans that meet GSE and FHA underwriting requirements.
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