Freddie Mac's September 2011 Economic Outlook is focused on the recent Federal Reserve Bank announcement of its Maturity Extension Program (aka Operation Twist) and its potential impact on the economy generally and real estate in particular.  On September 21, the Fed said that over the next 9 months it would be divesting itself of $400 billion securities with remaining maturities of three years or less, and investing the proceeds in securities with six to 30 year maturities.  The Fed is making the move in the expectation that it will exert further downward pressure on long-term yields and promote additional loan demand, thus stimulating the economy over time.

The Economic Outlook said that interest rates, perhaps in anticipation of another Fed move following its  earlier interventions with qualitative easing with QE ($1.7 trillion) and QE2 ($600 billion) had moved lower since the beginning of September and  long-term mortgages are now at "extraordinary lows" for both single-family and apartment and commercial mortgages.

Frank E. Nothaft, Chief Economist for Freddie Mac, said that, by itself monetary policy may gradually promote economic growth in the coming year, "but coupling it with fiscal stimulus could accelerate growth in 2012 if the fiscal initiative operates in tandem."  The Administration's 'American Jobs Act,' he said is one such example of a fiscal policy response.  The proposed combination of temporary tax cuts or extensions of existing ones along with $202 billion in spending on a variety of programs should give a near-term boost to consumer spending and business investment, and with the budgetary offsets the Administration expects in later years, should not add to the federal deficit over time.

Nothaft quotes data from Macroeconomic Advisors (MA) which estimates that the Jobs Actg  would result in economic growth next year more than a point faster with about 1.3 million additional workers employed by the end of 2012.  That job growth would push unemployment down about 0.3 to 0.4 percentage points from where it would be without any stimulus but still leave it above 8.0 percent at the end of that year.  MA, Moody's Analytics and the Conference Board all expect the effects of the bill to dissipate as they project into 2013. 

A better economy and more substantial job creation would also lift consumer and business-owner outlooks.  Financial worries among consumers are likely holding back home sales, Nothaft said, but boosting job and income growth will support consumer confidence and also stimulate household formation.  With monetary policy expected to keep interest rates low for a while affordability will remain high for homebuyers.  In the meantime, many have chosen to rent and this is reflected in an improved rental market which is expected to see continued strong demand over the next year.

Freddie Mac has changed many of its projections for the remainder of 2011 and into 2012 and few of these changes are positive.  The table below shows the changes for the fourth quarter of this year and the fourth quarter of 2012 as they were projected in August and then in September.

Fourth Quarter 2011

Fourth quarter 2012

Aug 2011

Sept 2011

Aug 2011

Sept 2011

Real GDP (%)





Unemployment Rate (%)





30 yr FRM





Housing Starts (millions)





Total Home Sales (millions)





FMHPI House Price Appreciation (%)





1-4 Family Mort. Originations





      Conventional (billions)





      FHA/VA (billions)





Refinancing Share - Orig. (%)





Residential Mortgage Debt (% chg)