The housing market can no longer be counted on as a driver of U.S. economic growth in either 2014 or 2015 according to August data released today by Fannie Mae. The home lending insurer cut its forecast for third quarter 2014 housing starts by 7% and its third-quarter estimate on home sales by 2.7% from its July forecast.

Year-over-year housing starts for single-family homes are now expected to rise by 3.9% over the 2013 total, down from a projected increase of 12.6% in July. Housing starts in 2015 were projected to rise 31.2% above 2014 starts according to Fannie Mae’s July forecast, but that has been cut to a gain of 22% in the August forecast.

The agency’s chief economist said:

[W]e have downgraded our outlook following the disappointing housing activity seen during the first half of the year. The impact on mortgage rates from the market’s expectation that the Federal Reserve would soon start tapering their securities purchases, combined to some degree with the weather effect in the first half of 2014, led to very little seasonal growth in housing. In the first six months of the year, total sales have run below last year’s pace. Additionally, on the demand side, there appears to be a conservatism among consumers and their willingness to take on big-ticket purchases, such as homes. We currently estimate that 2014 will finish lower in total sales figures than 2013 – and that 2015, while stronger than 2013 and 2014, will not be the breakout year some are expecting.

Total sales of new and existing homes in 2014 were expected to be down 1.2% in Fannie Mae’s July forecast and are now forecast to be down 3.2%. The total sales growth forecast year-over-year for 2015 fell from 7% to 6%.

Fannie Mae noted that the housing market lost momentum at the end of the second quarter and that near-term indicators show little sign of improvement for the second half of the year. Residential investment is still expected to grow in both 2014 and 2015, but Fannie Mae does not now expect home building and home sales to be strong growth drivers.

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