Housing remains a bright spot in an economy where consumer spending dropped nearly a percentage point in the second quarter and a looming year-end fiscal cliff is haunting the financial markets, Fannie Mae's Economic & Strategic Research Group said Tuesday.
The group released its August 2012 Economic Outlook, which shows housing doing well with residential investment projected to contribute at least 0.2 percentage points to real gross domestic product in 2012. If that does occur, it will be residential real estate's first contribution to annual GDP since 2005.
The expected increase in home sales is supposed to come in at 9% above 2011 levels. Inventories also dropped over the past 12 months, leading to a smaller supply and a gradual uptick in homebuilding in certain markets.
While housing may be brighter today, Fannie Mae's chief economist Doug Duncan remains cautious about the remainder of the year.
"The July data hasn't changed our forecast for slow growth in 2012, but we're increasingly focused on the looming 'fiscal cliff' near year-end," Duncan said. "The debt ceiling debate, as well as current legislation that could create a drag of more than 4% on GDP in 2013, may spur further caution among consumers and businesses alike. On the bright side, we continue to see positive trends in the housing sector, which is showing signs of a durable, long-term recovery."
The economy itself remains shaky with inflation-adjusted consumer spending falling nearly a percentage point in the second quarter — the first spending drop since last August. Those factors were offset by stronger July retail sales and the strongest jobs report in five months with 163,000 positions created last month.
Duncan suggested consistent job growth could lift the ailing economy and the confidence of small businesses, but risks to the overall economic outlook remain on the downside.