Fannie Mae’s Economic and Strategic Research Group is out with its latest outlook and forecast, anticipating a subdued housing market for the remainder of the year.
The ESR notes that while the while the acute panic following the bank failures in March have subsided, the tightening of financial conditions derived from the bank failures had the same effect that additional fed fund rate hikes would have had. As such, the group says that economic momentum is simply running out of steam.
“The economic slowdown has resumed—whether the end result is a modest recession or simply a soft landing remains unanswered—although we continue to expect the former, as we have since April of last year, when we first made our 2023 recession call,” said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae. “The greater-than-expected resilience of the housing sector to the affordability pressures of higher home prices and mortgages rates is central to our expectation that the recession will be modest.
“In our view, while it would be premature to expect no further difficulties in the banking sector other than credit tightening, we’re maintaining our baseline expectation of a modest recession, as we see signs of a weakening employment market, slowing retail sales, and declining manufacturing activity,” Duncan continued. “However, the rapid response of hopeful homeowners to periodic declines in mortgage rates, even from the currently higher rates, gives us additional confidence in our use of the word ‘modest.’”
While housing demand and home prices have proved more resilient than previously anticipated, the ESR Group expects sales activity to remain subdued because of the persistently low inventory of homes for sale—particularly among existing homes.
Additionally, the ESR Group now expects only a single additional 25-basis point hike from the Federal Reserve in May, followed by the re-introduction of monetary easing closer to year-end.
