BAM Key Details:

  • Fannie Mae’s ESR Group published its August 2023 commentary on recent economic data and its current and ongoing impact on the housing market. 
  • Recent data shows a stronger economy for Q2 2023 than previously expected, leading to a revision in the ESR Group’s forecast for coming quarters. 
  • Given the resilience of the economy, combined with significant easing of inflation, a soft landing is possible, though data does suggest an eventual economic downturn, which the ESR Group now expects in the first half of 2024.

Fannie Mae has posted its August 2023 commentary on recent economic data and its implications for the U.S. housing market. 

After two consecutive months of annualized Consumer Price Index (CPI) measures hewing close to the Fed’s inflation target of 2%, the ESR Group sees an increased likelihood of a “soft landing.” 

That said, the economy has yet to feel the full impact of previous rate hikes. And wage growth remains too high to support 2% inflation over the long haul. The 10-year Treasury yield closed at 4.28% on August 16th, soaring past the high reached last October and rising to its highest point since late 2007. The 30-year fixed reached its highest point in over 20 years. 

Going forward, businesses and households alike will feel the impact of higher interest rates as more expensive credit, even if the Fed decides against any more rate hikes. 


Source: Fannie Mae

All in all, the data points to an eventual downturn, which the ESR Group now expects in the first half of 2024. 

Recession and the housing market: What the ESR Group expects

While admitting that the “if” and “when” of a recession remain uncertain—largely due to the strength of the economy and decelerating inflation—the ESR Group does expect one. 

But regardless of the how and when, they’re predicting that home prices will remain subdued by continued inventory shortages combined with affordability challenges for buyers and the lock-in effect for homeowners with lower mortgage rates. 

On the flipside, if the economy goes into recession, improvements in affordability and housing supply resulting from (likely) lower mortgage rates will be offset, at least partly, by a weaker labor market, tighter credit, and a decline in consumer confidence. 

Regarding newly-built homes, both sales and construction have held up relatively well so far, in spite of higher mortgage rates, but the ESR Group sees some downside risk from rates rising above 7% and builder confidence taking a hit in August. 

The recent climb in mortgage rates to the mid 7s hasn’t helped with that. According to the August 2023 homebuilder’s confidence survey—the National Association of Home Builders’ Housing Market Index (NAHB HMI), after seven months of improvements, homebuilder confidence has declined by six points to a level of 50 (neutral). 


Source: Fannie Mae

That decline is largely due to the effect of higher mortgage rates on buyer demand; the NAHB reported an increase in the share of homebuilders using concessions or mortgage rate buydowns to entice buyers, suggesting demand has slowed. 

The ESR Group’s baseline forecast, then, includes a modest cooling in construction, due either to a slowing economy or the dampening effect of higher-for-longer mortgage rates on both construction and home sales. 

To make a soft landing possible, a pullback in both home construction and sales may even be necessary.

Meanwhile, multifamily construction is now showing signs of deceleration now that vacancy rates are returning to more normal levels. With more units coming online, three months of year-over-year rent declines, and credit standards tightening for construction and development loans (as well as commercial real estate loans), the ESR Group’s forecast for coming quarters includes a continued slowdown in multifamily housing starts. 


Source: Fannie Mae

It is easy to run your forecast ship aground by underestimating the American consumer. Despite reduced saving, increased rollover credit card balances, and rising credit costs, consumers are sustaining consumption, supported by a decline in inflation. Nonetheless, tightening monetary policy takes a toll. Will it result in a recession? Our base case forecast is a mild recession, and it looks as though the alternative is a soft landing, which is slow growth with only a small increase in unemployment. The difference between those two alternative outcomes is not expected to make much difference to home sales. The risk to housing activity is that inflation has bottomed out and begins to reaccelerate, requiring additional tightening from the Fed.

Doug Duncan

Senior Vice President and Chief Economist, Fannie Mae

Read the full August 2023 commentary for more details. 

Takeaways for real estate agents

Optimism is a loaded word. Whatever your perspective on today’s housing market, the economy, and the future of your real estate business, your attitude toward your clients and community should ultimately reflect a genuine desire to serve. 

Keeping up with the data you need to clearly understand and articulate what you and your clients are facing is part of being the knowledge broker your community needs. 

Whatever renews your energy and stokes the fire of commitment—whether it’s a clear and present danger or an upbeat reminder that you’re doing all the right things and that you’ll ride out this storm, too (or a combination of both)—your clients should have no doubt that you’ve got their back. 

How are you communicating that this week?