Falling house prices in 2023, recession ahead: Fannie Mae forecast

Falling house prices in 2023, recession ahead: Fannie Mae forecast

House prices could fall over the coming year and an economic recession is looming, Fannie Mae said in a recent forecast. (iStock)

In Fannie Mae’s latest economic forecast, she confirmed her belief that the housing market would tip the United States into a recession in early 2023. The forecast also indicated that house prices could fall next year.

The mortgage giant’s Economics and Strategy Research (ESR) group has revised its economic forecast for house prices, saying it expects them to rise just 9% a year in 2022 down from its previous forecast of 16% per year. The group also predicted that in 2023 house prices would fall by 1.5% on average, down from its previous growth forecast of 4.4%.

Additionally, Fannie Mae significantly raised its gross domestic product (GDP) forecast for the third quarter of 2022 to 2.3% annualized growth. That’s up from its previous economic growth forecast of 1.3%, according to the group’s October 2022 commentary. But in the fourth quarter, the economy is expected to contract 0.7% instead of growing. 0.7% as previously forecast. GDP will then remain negative until the third quarter of next year as the economy plunges into a recession, Fannie Mae said.

“Given weak consumer spending, continued monetary policy tightening and further signs of weakness in global economic and financial conditions, we continue to expect a moderate contraction in 2023, with unemployment at the end of 2023 above 5%,” Fannie Mae said. in his forecast.

The group forecasts that total GDP for 2022 will contract by 0.1% and contract by 0.5% in 2023.

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Fannie Mae predicts a modest recession next year

While Fannie Mae forecast a recession looming on the horizon, the company also said it would likely be mild.

“We continue to expect the forecast recession to be modest, in part due to the relatively limited degree of labor market slack that we believe is needed to ease above-target inflationary pressures; once achieved , we expect monetary policy to probably ease and the economy to return to growth,” Fannie Mae said in her economic outlook.

The Mortgage Bankers Association (MBA) also recently released its economic forecast, also predicting a mild recession likely next year. And as the United States slips into a recession, the Federal Reserve is likely to ease its interest rate hikes, said Mike Fratantoni, chief economist and senior vice president of the MBA.

But while economists expect the economic slowdown to be mild, there is still a risk that the recession could turn into a broader financial crisis, Fannie Mae said.

“It should be noted, however, that historically, in periods of rising interest rates and appreciation of the dollar exchange rate, financial crises have tended to occur within the global economy” , said Fannie Mae. “Given the speed at which interest rates have risen, we believe there is a growing risk of such an event occurring in the coming quarters, which could lead to a deeper or more prolonged contraction. than our baseline forecast predicts.”

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The Federal Reserve should continue to raise rates

At its September meeting, the Federal Open Market Committee (FOMC) raised the federal funds rate by 75 basis points to combat high inflation. This is the third consecutive increase of 0.75 percentage points and the fifth rate hike this year.

The Fed also released the minutes of that meeting, which showed that it planned to continue raising interest rates in the coming months. However, he said there may be a need to slow the pace of interest rate hikes as the economy slows.

“Based on recent comments from Fed officials, we do not expect the Fed to slow its pace of policy tightening until there is clear evidence of both a loosening labor market and a deceleration in core inflation measures,” Fannie Mae said in its forecast.

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