Fannie Pushes Recession Forecast to Second Half of 2023
Written By: Joel Palmer, Op-Ed Writer
While recent bank failures have created economic uncertainty, they have had little effect on the outlook for the housing and mortgage industries.
In its latest Economic and Housing Outlook, Fannie Mae’s economists said they already expected economic contraction in 2023 prior to failures of Silicon Vally Bank and others.
“Inflation has now been joined by financial stability concerns as threats to sustained growth,” said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae. “These particular pre-recessionary conditions are not unusual, as bank failures often follow monetary tightening – but this may well be the catalyst for the modest recession we’ve been expecting since April 2022.”
Fannie’s updated forecast increases the first-quarter gross domestic product estimate and pushes out the timing of an anticipated recession from the second quarter of this year into the second half of the year.
Fannie expects first-quarter GDP to grow 0.9 percent annualized, up from its prior expectation of a contraction of 0.4 percent. It also upgraded its 2023 growth forecast to negative 0.3 percent from negative 0.5 percent, while downgrading its 2024 growth forecast to 1.2 percent from 1.8 percent, reflecting the later start of the expected recession.
The latest housing forecast also has an upward revision in the first quarter with downgrades for the end of the year.
“The rapid uptick in home sales in response to modest rate declines earlier this year corroborates our long-standing expectation that the housing sector will help moderate any future recession due to the significant pent-up demand,” Duncan said.
Fannie now expects total home sales in 2023 to decline 18.4 percent from the 2022 total (previously a 17.6 percent decline) followed by a partial rebound in 2024, with home sales rising 7.1 percent for the year (previously 9.6 percent).
They also modestly downgraded their forecast for total single-family mortgage originations in 2023 to $1.55 trillion (previous $1.69 trillion) and in 2024 to $1.89 trillion (previously $2.03 trillion).
The current purchase mortgage forecast is now $1.24 trillion for 2023, a downgrade of $76 billion from previous forecasts. The 2024 purchase forecast now stands at $1.35 trillion, down $106 billion from the prior forecast.
The National Association of Realtors reported last week that pending home sales grew in February for the third consecutive month.
“After nearly a year, the housing sector’s contraction is coming to an end,” said NAR Chief Economist Lawrence Yun. “Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.”
For refinances, this month’s higher rate expectation drove downward revisions in Fannie’s originations forecast by roughly $60 and $40 billion in 2023 and 2024, respectively.
Fannie said recent banking turbulence could have the following effects on mortgage and housing activity:
A tightening of single-family mortgage lending in the jumbo market because it is almost entirely funded by the banking sector.
A negative impact on construction activity due to borrowers having more challenges securing financing for single-family and multifamily projects from regional and community banks that specialize in this area.
A pull back on mortgage rates in light of the 10-year Treasury rate falling, with may boost the spring buying season.
In perhaps another sign that a recession is looming, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will enhance their payment deferral policies.
The new policies will allow borrowers facing financial hardship to defer up to six months of mortgage payments. This is similar to the policy employed during the COVID-19 pandemic.
FHFA said that the success of COVID payment deferrals prompted them to make it available to borrowers experiencing other eligible hardships.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
