Fannie Mae Still Dazed and CONfused...now sees how sales down 7.4 percent

Fannie Mae..Still Dazed and CONfused

• March 2010 revised home sales projection to up 9% from up 12%
• April 2010 revised home sales to up 6% from 9%
• May 2010 revised home sales to up 5.5% from 6%
• June 2010 revised home sales to up 3.2% from 5.5%
• July 2010 revised home sales to up 2.8% from 3.2%
• August 2010 revised home sales to up 0.8% from up 2.8%
• September 2010 revised home sales to down 7.4% from up 0.8%

Reporting by Al Noon; Editing by Padraic Cassidy)
(Reuters) - Fannie Mae (FNMA.OB), the largest U.S. mortgage funding company, on Wednesday sharply cut its forecast for annual home sales following weaker-than-expected activity in the second quarter.

The company is predicting total U.S. sales of new and existing homes in 2010 will drop 7.4 percent from 2009, compared with expectations for a 0.8 percent rise in its forecast last month. It means sales would fall to about 5.12 million homes from 5.53 million units in 2009.

The revision comes after a string of "grim" housing data following the expiration of federal tax credits for first-time home buyers, Fannie Mae economists, led by Doug Duncan, said in a monthly note. The decline in sales was also reflected in a drop in construction spending, which suggested housing would be a bigger-than-expected drag on the U.S. economy, they said.

"We expect residential investment to subtract from economic growth this year for the fifth consecutive year," they said. This is "an unusual phenomenon compared with past economic recoveries when housing acted as a strong boost."

Even so, Fannie Mae expects prices on single-family homes to rebound slightly in the fourth quarter on a year-over-year basis, marking a reversal from previous months' forecasts for a drop in all four quarters of 2010.

The price forecast is based on the Federal Housing Finance Agency's home purchase index