Despite a near-term upgrade to its gross domestic product (GDP) projection, Fannie Mae’s Economic and Strategic Research (ESR) Group held fast to its forecast of a national recession next year in its most recent commentary.
The group bumped up its Q3 2022 GDP estimate to an annualized growth rate of 2.3%, up from the 1.3% increase it had predicted in its previous forecast. Fannie credited the upgrade to a recent rebound in net exports and business inventory investment. It noted, however, that the boost is likely short-lived and reflects a “partial normalization of global trade after a historically large trade deficit in the first half of 2022.”
Subsequently, the group expects GDP growth in the fourth quarter of this year to drop by 0.7% on an annualized basis. The newest forecast calls for full-year 2022 real GDP growth of -0.1%, a downward revision from the prior 0% growth estimate. Fannie expects more moderate contraction to follow, leading to a “modest” recession in first-quarter 2023.
Fannie Mae also reduced its outlook for total single-family home sales this year and next. Estimates for 2022 and 2023 were lowered to figures of 5.64 million units and 4.47 million units, respectively, down from the 5.71 million and 4.98 million figures projected in September. If Fannie’s newest sales projections are realized, they would represent year-over-year declines of 18.1% in 2022 and 20.8% in 2023. Fannie’s single-family home sales forecast has now been revised downward each month this year and is down 17.4% from the 6.83 million units originally forecast in January.
The forecast for nationwide home price growth also saw a substantial pullback, with year-over-year gains in Q4 2022 anticipated at 9%. September’s projection was for 16% annual growth. The ESR team expects annual price growth to enter negative territory in the second quarter of next year, leading to a full-year price decline of 1.5% in 2023. Fannie’s previous forecast anticipated positive gains of 4.4% next year.
“Over the last few weeks, markets have increasingly – and perhaps reluctantly – reflected the resolve of the Fed to lower inflation via rapid tightening of monetary policy,” said Doug Duncan, Fannie Mae’s chief economist and senior vice president. “At times, the market has reacted to incoming economic data suggesting the Fed is making progress in its fight with inflation by anticipating a potential policy ‘pivot’ toward a less restrictive regimen, prompting the Fed to restate its resolve.
“Of course, the slowing effect on the housing market of the higher mortgage rate environment has been largely predictable, and home prices appear to have already begun trending downward. … Given the ongoing tension between potential homebuyers and home sellers at the moment, we believe the pace of sales is likely to slow even further, too.”