Real Estate Marketing & Beyond
Fannie Mae economists have warned that they believe a recession is likely on the horizon, though they stress that the strength of the housing market will ensure it is less severe than the Great Recession of the mid-2000s.
With inflation currently at a 40-year high and uncertainty growing due to the Russia-Ukraine conflict and other factors, economists are revising their outlooks for 2022 and 2023. Fannie Mae Economic and Strategic Research Group said in its latest commentary that the Federal Reserve is expected to pursue more aggressive monetary policy tightening through 2023, and that this will most likely soften an economic output that’s already weighed down.
The forecast downgrades real GDP growth and also includes the expectation of modest economic contraction in the second half of next year. However, economists say the projected downturn will not be nearly as severe or as long-winded as the Great Recession.
They cited the much stronger housing market, superior mortgage credit quality, a far-less leveraged mortgage financing system and ongoing housing supply constraints as reasons for the lower severity.
Fannie Mae Senior Vice President and Chief Economist Doug Duncan said his organization sees multiple drivers of economic growth through 2022. However, the need to rein in inflation, combined with other economic indicators has led it to downgrade its expectations for economic growth in 2023.
“The tight labor market and continued demand for workers, the need for firms to rebuild inventories, and the slowing of some transitory inflation impulses all suggest to us that 2022 will grow a bit faster than long-run trend growth,” Duncan said. “However, as the remaining fiscal policy stimuli fade and the predicted tightening of monetary policy works its way through the economy, we expect the impact of these factors to diminish.”
As a result, Fannie Mae said it’s forecasting a “modest recession” in 2023.
While the housing market’s strength will provide a cushion against that, economists have also forecast a slowdown in home sales and home price rises in the coming months. That’s because of higher mortgage rates, which are pricing more would-be buyers out of the market. As such, the National Association of Realtors estimates home sales will fall by 10% in 2022 compared to the year before.
“The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power,” said NAR Chief Economist Lawrence Yun recently. Home sales remain quick and prices are still rising, but “sellers should not expect the easy-profit gains and should look for multiple offers to fade as demand continues to subside,” Yun added.
