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A new report from Fannie Mae's economic research team projects home prices will reach bottom in 2013 while the nation's overall macroeconomic situation hinges on a set of risky outliers.
While consumers started 2012 with a dose of cautious optimism, market conditions have worsened and Fannie Mae economists believe "risks to the economic outlook have titled to the downside."
Doug Duncan, chief economist for Fannie Mae, released a report saying growth for all of 2012 is expected to come in at roughly 2.2%. And before Americans finish off the year, they will continue dealing with a reduction in hiring, potential issues stemming from the fiscal crisis in Europe and a potential drag on the U.S. economy during the remainder of the year. The research report outlining these conclusions was released by Fannie's Economic & Strategic Research Group on Tuesday.
"Consumers remain key to the overall outlook, as attitudes appear to be reaching a plateau after a few months of improvement early in the year," Duncan said. "Loss of momentum in labor market conditions, sluggish income growth, and decreasing saving rates suggest that consumers may need to moderate spending unless income picks up."
Duncan said this is the third consecutive year in which a spring lull stalled the overall economic outlook mid-year.
"Our view is that the underlying resilience of the economy and of consumers in particular that has been demonstrated during the past couple of years will persist," Duncan said. "However, the magnitude of the uncertainties surrounding the European debt crisis and our fiscal condition here in the U.S. implies that the risks to the outlook are clearly tilted to the downside."
On the positive side, Duncan believes housing is doing relatively well with buyers now cushioned by low interest rates and affordable home prices. Home sales are up 8% over year ago levels, Duncan added. Still, he asserts an attitude of cautious optimism is warranted when it comes to the nation's housing market.
"Main measures of home prices have firmed in recent months, as the share of distressed sales has declined in a strong seasonal period," he explained. "Despite this recent encouraging trend, the (research) group continues to expect that home prices on a national basis will show a slight additional decline before bottoming in the beginning of next year."
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