BAM’s Key Details:  

  • A new Fannie Mae report projects positive growth of 0.4% in Q4 2022 before a modest recession in 2023. 
  • The Economic and Strategic Research (ESR) Group sees the current rate of personal consumption growth as unsustainable
  • While Fannie Mae forecasts a modest recession for 2023, their report anticipates meaningful recovery for the economy and housing market in 2024. 

After an uptick in GDP for the third quarter—and encouraging personal consumption data at the start of Q4—it now looks as though the economy will eke out positive growth of 0.4% in 2022 before entering a modest recession in 2023. 

At least, that’s the hot take from Fannie Mae’s December 2022 commentary

That said, Fannie Mae’s Economic and Research (ESR) Group doesn’t expect the current rate of personal consumption growth to last. The combination of a low consumer savings rate and a higher debt-to-income ratio will likely drive down consumption in the coming months. 

Recession, inflation, and the federal funds rate

A number of cyclical indicators are still pointing toward economic contraction for 2023. But at a negative 0.5%, the ESR Group’s forecast for next year’s GDP growth is slightly better than last month’s forecast of a negative 0.6%. The group expects the economy to start expanding again in 2024 with a 2.2% annual growth rate. 

As measured by the Consumer Price Index, inflation slowed again in November. And the Federal Reserve will likely monitor wage growth metrics to help determine whether and for how long it should continue raising the federal funds rate. 

With a recession expected at the start of 2023, the group speculated on a plausible scenario in which the Federal Reserve begins cutting the federal funds rate in mid-2023. 

Home sales for 2023 and 2024

Thanks to the recent pullback in mortgage rates, the ESR Group has modestly upgraded its projections for single-family home sales to 5.72 million for 2022 and 4.57 million for 2023. 

The expected economic slowdown, combined with the lock-in effect for homeowners with low mortgage rates, is the two-fold reason behind Fannie Mae’s projection of a decline in 2023 home sales. 

If homeowners don’t have to move, the market has made it more advantageous for many to stay put. 

The outlook is more positive for 2024, when the ESR Group expects a 14.7% rebound in home sales to 5.24 million, mainly due to the expected rebound for the economy and stabilizing mortgage rates—after the currently abnormal gap between the 10-year Treasury rate and the 30-year mortgage rate shrinks as expected. 

While uncertainty still exists, a growing set of signs, including an inverted yield curve, weakness in the Conference Board’s Leading Economic Index, and a slowdown of manufacturing activity, support our ongoing contention that the economy is likely to contract next year. We expect housing to continue to slow, even though mortgage rates have come down recently. Home purchases remain unaffordable for many due to the rapid rise in rates over the last year and the fact that house prices, though certainly slowing and in some places declining, remain elevated compared to pre-pandemic levels. Of course, refinancing is still not practical for the vast majority of current mortgage holders, which we expect will also continue to constrain mortgage origination activity.

Doug Duncan

Senior Vice President and Chief Economist, Fannie Mae

Top takeaways for real estate agents

Sellers who still enter the market likely have some equity they can apply toward their next home purchase. And buyers who can still secure a mortgage and are motivated to take advantage of the increase in housing supply have more room to negotiate with sellers and builders of new construction.

Even in a constricting economy and housing market, opportunities for both buyers and sellers are still there. And the agents who thrive in this market will be the ones who are tireless in finding those advantages for their clients and helping them make the best decisions.

Be honest with your clients and prospects about the market—both national and local—and provide them with the data and insights they need.