Fannie Mae economists see somewhat of a bifurcated economy with the GSE’s forecast for 2013 divided between predictions of a gradually improving housing market and headwinds posed by tax and federal policies that will create economic drag.

Fannie Mae’s Economic & Strategic Research Group says economic activity picked up in the third quarter, but will remain sluggish with sub-2% GDP growth projected for this year.

Yet, the housing market is improving despite all of the uncertainty that Fannie economists see in the broader marketplace.

“The U.S. fiscal cliff and debt ceiling debate as well as the weakened global economic environment are likely to create the strongest headwinds facing any real improvement this year,” said Fannie Mae chief economist Doug Duncan. “With these issues hanging in the balance, we believe risks remain tilted to the downside.”

Housing, on the other hand, is showing signs of what Duncan’s team calls a “sustainable, long-term recovery.” Duncan’s comments fall in line with those of Wells Fargo ($34.34 0%) senior economist Mark Vitner, who also thinks the housing recovery is sustainable through economic troubles.

Home prices are moving towards positive territory when compared to year ago levels, Fannie noted in its October economic update.

The GSE’s research team believes it’s likely prices hit bottom earlier this year, a necessary development that generally precedes a recovery.

Fannie suggested with record low mortgage rates and the Fed’s mortgage-backed securities purchases, consumers will begin turning towards the housing market to nab low interest rates.  The GSE expects home sales overall will rise 9% for 2012 when compared to last year.

Fannie also anticipates more refinancings considering today’s record low mortgage rates. The GSE expects total refinance originations to hit $1.8 trillion in 2012, up 20% from a year ago.

via housingwire.com