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- The group’s forecast for 2024 shows economic growth rebounding to 2.0%.
- In 2024, single-family home sales are expected to rebound 18.6% from the year prior to 5.25 million.
After rebounding at a 2.6% annualized rate in the third quarter, real gross domestic product (GDP) is projected to turn negative again in the fourth quarter. That’s according to the November 2022 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
The ESR Group also expects declines in residential fixed and business investment, as well as slowing personal consumption growth, to contribute to negative growth in the fourth quarter, and it continues to expect the economy to tip into a modest recession in the first quarter of 2023.
Full-year 2022 GDP growth is now expected to be 0% while the forecasted 2023 GDP was downgraded by one-tenth to a 0.6% contraction.
The group’s forecast for 2024 shows economic growth rebounding to 2%, reflecting the beginning of an expected economic recovery.
Although inflation showed signs of cooling in October, the group predicts that the Federal Open Market Committee (FOMC) will once again raise the federal funds rate at its next meeting, and anticipates the rate topping out at approximately 5% in early 2023.
“The economy continues to slide toward a modest recession, which we anticipate will begin in the new year, with housing leading the slowdown,” said Doug Duncan, senior vice president and chief economist, at Fannie Mae. “Higher interest rates have ignited the typical reduction in residential fixed investment, which historically has led into either an economic slowdown or recession. From our perspective, the good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession.”
The group made slight updates to its forecast of total single-family home sales in 2022 and 2023, which are projected to be 5.67 million and 4.42 million, respectively. In 2024, single-family home sales are expected to rebound 18.6% from the year prior to 5.25 million, reflecting an anticipated pullback in mortgage rates and a continued lack of housing supply.
The group said that their updates reflect a financial disincentive to move because homeowners currently hold mortgages well below current market rates. The ESR Group estimates that, as of October month-end, more than 80% of borrowers had a mortgage rate at least 200 basis points below current market rates, by far the largest share in decades.
More takeaways from the November 2022 commentary can be found here.