Recession or soft landing? It may not matter much for housing outlook

Home sales set to ‘remain subdued’ either way, according to Fannie Mae economists

The outlook for the U.S. economy has been much rosier of late, with robust spending figures and two straight months of Consumer Price Index data edging closer to the Federal Reserve’s target inflation range of 2%. Such indicators have improved the odds of a soft landing while decreasing the likelihood of a recession, according to Fannie Mae — but in terms of housing activity, it may not matter.

Per the newest forecast from Fannie’s Economic and Strategic Research (ESR) Group, home sales are set to “remain subdued within a tight range” regardless of whether or not the economy enters a recession. If it does, both affordability and inventory are likely to improve, due to falling interest rates.

These swings, however, are also likely to be at least partially offset by a softer labor market and tighter credit standards, as well as a psychological effect on consumers who may enter savings mode. If the economy does avoid a full downturn, the historical dearth of inventory, coupled with affordability woes and the impact of the interest rate “lock-in” effect, still provide enough downside risk to home sales activity.

Fannie now forecasts total home sales of 4.90 million units in 2023, which would equate to a 13.6% year-over-year decline if realized and would hover around the lowest level of sales in more than a decade. The market is still expected to turn a corner in 2024, with projected total sales of 4.93 million units, which would be an 0.6% increase from 2023.

Single-family mortgage originations are currently forecast at $1.60 trillion this year, similar to the previous forecast. Next year, originations are predicted to grow to $1.92 trillion, an increase from the $1.90 trillion previously projected by the ESR group.

As far as whether or not Fannie expects a recession, the government-sponsored enterprise still foresees a “mild” recession in its crystal ball by the beginning of next year.

“It is easy to run your forecast ship aground by underestimating the American consumer,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “Despite reduced savings, 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.”


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