RealEstateEconomyWatch.com

Fannie Mae’s economists see 2.5 percent overall growth in the second half of 2010 but forecast housing will be flat for the remainder of the year due to a greater than expected number of sales being pulled forward into the second quarter by the homebuyer tax credit.

The outlook for projected growth in the second half was revised downward from Fannie Mae’s projections of 2.8 percent in July and 3.2 percent in June.  In the new August 2010 Economic Outlook released today, Fannie’s economists no longer foresee the modest recovery for housing in the fourth quarter and into next year that they predicted in their July forecast.

Low 30-year fixed mortgage rates, projected to average 4.5 percent for 2010, are expected to boost refinance activity but likely will not be low enough to trigger a refinance boom, said Fannie’s economists nor support a fourth quarter housing recovery as previously predicted.

“The inability of the financial sector, business, and households to determine the likelihood of events on the economic horizon is making planning for the future difficult,” said Fannie Mae Chief Economist Doug Duncan. “It is particularly difficult to know how the economy will evolve given recent and forthcoming policy changes. Because of this uncertainty, downside risks are trumping upside potential. Corporate profits are strong, but uncertainty around future labor costs is hindering near-term hiring. The Fed is reinvesting maturing MBS into Treasuries as a strategy to keep long-term interest rates low, but uncertainty about reform in the financial sector is constraining credit availability. Consumers are lowering their leverage and positioning themselves to resume consumption, but they face uncertainty about employment and the renewal or expiration of tax cuts,” said Duncan. “The upside possibilities are there, however the key sectors are reticent to contribute meaningfully to expansion.”

Duncan’s gloomy comments contrasted markedly with Fannie’s July forecast which said “the headwinds in housing are picking up” and his June comment that “Clearly, housing still faces headwinds but housing starts are expected to increase slightly by year end.”