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Economy Poised for a Stronger Second Half of 2013

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By Pete Bakel

The ongoing housing recovery coupled with improvement in both consumer confidence and the labor market are expected to boost economic growth in the second half of the year, according to Fannie Mae’s Economic & Strategic Research Group. The latest jobs report showed steady year-to-date job creation and measures of consumer confidence are at or near recovery highs. Furthermore, despite a sharp increase in mortgage rates during the past two months, home sales have held up and home prices have continued to post gains, helping to keep the economy on a positive—albeit modest—growth path in 2013.

“We are keeping a very close eye on the effect of rising mortgage rates on the housing market and the economy, but our July forecast is little changed from last month,” says Fannie Mae Chief Economist Doug Duncan. “We continue to see growth in housing, partly due to an increase in existing home sales as buyers choose to act while rates remain near historic lows. Consumer attitudes are improving amid a strengthening employment sector and we should begin to see a moderate pickup in consumer spending. Overall, we expect economic growth to come in at 2.0 percent in 2013, but further momentum later this year should help carry growth in 2014 to an above-par pace of 2.6 percent, the strongest since 2005.”

On the housing front, mortgage rates are expected to continue to rise gradually, averaging 4.7 percent in the fourth quarter of this year—about 40 basis points higher than the June forecast—but the forecast of home sales is little changed, with expectations of an 8.0 percent rise in 2013. However, while the surge in mortgage rates has not significantly hurt purchase mortgage applications, it has led to a marked decline in refinancing applications, which is expected to continue next year.

For more information, visit www.fanniemae.com.

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