–Now Sees 30-Year Fixed Mortgage Rate Below 5% Through Q1 2012

By Yali N’Diaye

WASHINGTON (MNI) – Fannie Mae Monday revised down its estimates for
both home prices and growth in the United States this year, noting that
the key to the housing recovery remains the labor market.

“Weakness in economic activities spanning manufacturing, consumer
spending, jobs, and housing has resulted in the group downgrading
projected growth for the current quarter, as well as for the second half
of they year,” Fannie Mae’s Economics & Mortgage Market Analysis Group
said in its June Economic Outlook.

The mortgage giant also revised down it projections for the 30-year
fixed mortgage rate, which it now expects to remain below 5% through the
second half of 2012.

The housing forecasts show the 30-year mortgage at 4.8% at the end
of this year, compared with the May estimate of 5.2%. In fact, Fannie
Mae said it is likely to remain under 5% until the second quarter of
2012, when it is projected to reach 5.0%.

“Prospects for accelerating growth have grown dimmer recently due
to downward revisions of first-quarter economic activity and slowdowns
across a broad set of indicators during May,” Fannie Mae said. As a
result, it now forecasts 2.5% GDP growth this year, compared with a
projection of 2.9% last month.

The 2.5% growth estimate is “more than a full percentage point
lower than the forecast at the beginning of the year,” the report said.

Going forward, “Ultimately, the labor market holds the key to a
housing recovery, but job growth is needed in order to activate housing
demand,” said Fannie Mae’s Chief Economist Doug Duncan. “Hiring delays
will continue to push out timing for the housing rebound.”

Fannie Mae now sees the unemployment rate at 8.8% at the end of
2011, up from it’s 8.5% estimate in May. The improvement in the jobs
situation through the end of 2012 is also expected to be slower, with
the unemployment rate now expected to be 8.6% at the end of 2012,
compared with 8.0% in May.

Against this backdrop, home prices are not only expected to decline
more than had been anticipated in May, but next year’s rebound — while
still expected to happen — is projected to be weaker.

The FHFA index is seen down 3.3% in 2011, compared with a 2.0%
decline initially expected in May. In 2012, prices are seen recovering
by 1.8%, compared with a 2.5% estimate in May.

** Market News International Washington Bureau: 202-371-2121 **

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