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Strategies & Market Trends : Freddie Mac (FRE) pops the housing bubble

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From: mlkr7/21/2010 11:16:00 AM
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Growth Expectations Shifting Down According to Fannie Mae's Economics & Mortgage Market Analysis Group
Federal National Mortgage Association Common Stock (OTCBB:FNMA)
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Today : Wednesday 21 July 2010
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Concerns about the global economic recovery, including lingering worries regarding European sovereign debt, and increasing caution at home among private employers and consumers are evidence of the tenuous nature of the current economic recovery, according to the July 2010 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group. The group has revised its projected growth for 2010 to 2.8 percent from 3.2 percent, and remains on guard for a setback amidst increased uncertainty and downside risks.

"We have shifted into a lower gear in the economic expansion, due in no small part to the increase in financial-market volatility in recent months," said Fannie Mae Chief Economist Doug Duncan. "As a result, private-sector employers are tentative about hiring decisions; businesses are building cash, but generally are investing in capital rather than labor. That reluctance to hire has had a knock-on effect on consumers, who are spending less as the deleveraging process continues."

The headwinds in housing have also picked up, according to the group. Though the anticipated expiration of the homebuyer credit had led to forecasts of diminished activity in the third quarter, the fall off was steeper than expected. The group now expects housing sales in 2010 to be basically flat, though it expects a modest recovery for housing in the fourth quarter and into next year -- due in large part to the support that historically low mortgage rates are providing.

"We believe that residential investment will have a neutral effect on economic growth this year, which makes the current recovery quite unusual," Duncan said. "Housing has historically played a significant role in leading the country out of recession."
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