The U.S. could see a recession in six months. At least that is what Fannie Mae forecasters expect after lowering their home sales projections for this year and next year in the wake of another sizable interest rate hike by the Federal Reserve.
According to the recent market forecast, Fannie Mae’s Economic and Strategic Research (ESR) Group anticipates the housing market to record 5.71 million and 4.98 million home sales in 2022 and 2023, respectively. That marks a 17.2% and 12.9% drop from what economists had predicted last month.
Fannie Mae largely attributed the revised forecast to the higher mortgage rates, which climbed past the 6% benchmark this month. The ESR Group also changed its multifamily starts forecast for 2022 to 542,000 units—a decline despite what experts described as a strong sector.
Equally noteworthy are projections that the nation could end up in recession as early—or late—as the first quarter of 2023.
While experts acknowledged that the second half of 2022 would likely experience economic growth, they indicated that high inflation and the Federal Reserve’s hawkish approach to tightening monetary policy coupled with the cooling housing market would probably tip the economy into a modest recession in the new year.
Fannie Mae’s projections:
- 2022 is slated to record 5.71 million total home sales—down 17.2% from 2021.
- The outlook for 2023 total home sales was revised from 5.18 million to 4.98 million units sold.
- Fannie Mae’s estimated 2021 total origination volumes were revised upward to $4.57 trillion for the year—$101 billion higher than prior estimates.
- Purchase and refinance volumes for 2021 are now estimated to be $1.9 trillion and $2.7 trillion—upward from $37 billion and $64 billion, respectively.
- Forecasts for 2022 mortgage originations are $2.44 trillion—down from previous predictions of $2.47 trillion.
- Predictions for 2023 mortgage originations were revised from $2.29 trillion to $2.17 trillion.
The takeaway:
“In our view, the recent interest rate surge is due to the market’s recognition of two critical factors: that inflation is indeed not transitory and that, to tame it, the Federal Reserve will need to be resolute, even at the risk of a possible recession,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “Inflation’s entrenchment—and the policy action likely required of the Fed—confirms the expectation in our forecast of a moderate recession beginning in the first quarter of 2023. That said, the rise in rates is having the Fed’s desired effect on housing, as house price growth began to slow in June.
“We expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, and considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates,” Duncan concluded.
