Improvements in consumer spending and consumer confidence, increased demand for goods and services, and falling unemployment claims are all positive factors for a brighter outlook as we move into 2011, according to the December 2010 Economic Outlook recently released by the Fannie Mae Economics & Mortgage Market Analysis Group. Downside risks still exist, however, including a weaker than expected employment report, the ongoing economic turmoil in Europe, and potential inflation problems in China.
For 2011, forecasted growth was upgraded from 2.9 percent to 3.4 percent based on the positives in the recent reports. The forecast anticipates improving labor market conditions, despite the huge disappointment from the November employment report. The housing recovery should gain momentum going into 2011 if the expected stronger labor market materializes.
"Despite rising mortgage rates, our forecast for home sales is stronger than the previous forecast, given our brighter economic growth and labor market outlook," said Fannie Mae Chief Economist Doug Duncan. "We expect modest increases in home sales, despite recent interest rate rises, due in part to modest additional declines in home prices, and we expect people to take advantage of affordability as their employment and income outlook brightens."
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