Economy Strengthens Heading Into 2014 As Cloudy Policy Debate Begins to Clear

Housing Continues Its Journey Toward Normal Activity

Written by: Pete Bakel

WASHINGTON, DC – Recent data show that the economy and housing market continue to transition to more normal levels of activity and are poised to gather further momentum heading into 2014, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. In particular, as uncertainty surrounding fiscal and monetary policy wanes, consumer spending and manufacturing activity should improve and contribute to additional housing growth. Real economic growth is expected to come in at approximately 2.2 percent for all of 2013, which is roughly in line with the Group’s forecast at the beginning of this year, with an increase to 2.7 percent expected next year.

“Looking ahead into 2014, we believe the fiscal and monetary policy debate will continue to influence consumer and business attitudes, although we expect to see a meaningful pickup in growth next year as some of those lingering policy issues now are beginning to clear,” said Fannie Mae Chief Economist Doug Duncan. “Consumer spending, which is a key driver of economic growth, should climb somewhat as the impact of recent fiscal tightening fades and as labor market conditions continue to improve. Furthermore, consumer attitudes already appear to have recovered from the temporary government shutdown in the fall. Strong October consumer spending growth and a jump in November auto sales should help build momentum for further spending growth in the fourth quarter. In addition, the November jobs report showed solid gains in hours worked and in earnings, pointing to stronger growth in wage-and-salary income and providing support for consumer spending.”

“With regard to housing, we expect that the improving employment picture next year will be accompanied by a sustained increase in interest rates, which in turn will roll over into the mortgage market,” said Duncan. “While that will likely drag on housing growth expectations, we believe the housing recovery will continue on a modest upward trend toward more normal levels. Our forecast calls for additional home price increases next year, although declining investor demand and other factors are expected to slow the pace of appreciation. Overall, 2013 housing indicators have shown about the performance we expected and we believe that their gradual march toward normal will continue into 2014.”

For an audio synopsis of the December 2013 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full December 2013 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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