Fannie Mae researchers predict sluggish economic growth in the second half of 2012, with only modest improvements in housing.

Home prices edged up in recent months, and Fannie Mae economist Doug Duncan expects home sales to increase by 9% in 2012 over 2011 figures, according to the government-sponsored enterprise's September housing outlook.

"Downside risks such as the European debt crisis, the looming fiscal cliff, and a deceleration in hiring have materialized over the past couple of months, creating a significant drag overall," the Fannie Mae September economic outlook explains. "Combined with the increase in gasoline prices since early July, headline inflation is expected to pick up, which may stifle real consumer spending growth in the current quarter and may weigh further on consumer attitudes in the coming months."

Food prices also are likely to rise due to the extensive drought conditions across the nation's farmland.

"Combined with the increase in gasoline prices since early July, headline inflation is expected to pick up, which may stifle real consumer spending growth in the current quarter and may weigh further on consumer attitudes in the coming months," Duncan said.

The Fannie report expects gross domestic product growth under 2% for the rest of the year.

The positive is home prices are ticking up after likely hitting bottom in the first quarter, Duncan said.

New home sales grew 20% from the same period last year while existing home sales are up 10% — the largest increase since 2007.

kpanchuk@housingwire.com