Housing is stabilizing but excess inventory and shadow supply are hindering recovery according to the April 2010 Economic Outlook released by Fannie Mae's Economics & Mortgage Market Analysis Group. The outlook projects economic growth of 3.1 percent for all of 2010, notwithstanding the recent dip in growth for the first quarter.

"Financial conditions are improving as seen by the unwinding of various programs, most notably the MBS purchase program which ended in March. This is strong evidence that the Fed believes the financial sector can stand on its own," said Fannie Mae Chief Economist Doug Duncan. "We estimate that June 2009 was the end of the recession, a good sign that we're moving forward. Nevertheless, significant improvements in the labor market and consumer spending will be the big hurdles as we move toward recovery in the housing market and broader economy."

New home sales are at record lows and will be slow to recover until inventory of existing homes and the foreclosure overhang are worked off. However, we see key indicators for existing home sales, including pending home sales and purchase applications, are showing good signs of a pickup.

Jobs, a driving force for housing, are now moving in the right direction. Fundamentals of the labor market appear to be improving as layoffs have slowed and hiring is showing signs of life. March payroll employment increased by 162,000, the largest gain in three years; temp employment posted a sixth consecutive monthly gain; and the average workweek increased. On the downside, unemployment will remain elevated for some time, despite the peak unemployment rate of 10.1 percent likely having occurred in October 2009.