Fannie Mae projects mild recession in 2024, recovery by 2025
2023.11.22 17:58
Fannie Mae’s Economic and Strategic Research (ESR) Group forecasts a mild recession to occur in early 2024, followed by an economic rebound in 2025. Despite a strong third-quarter growth, the group observes that the delayed effects of monetary policy tightening are beginning to manifest, particularly in the housing market.
The ESR Group notes that employment gains have slowed and consumer spending remains high, despite increasing pressures on housing affordability. These factors contribute to a sales environment that is approaching recessionary levels. However, there is an improved outlook for a soft landing of the economy, thanks to projections of declining mortgage rates by 2024. This anticipated decrease from rates close to 8% down to an average of about 6.8% by late next year could provide a boost to home sales after they hit a low point early in the year.
While new home sales have shown resilience, based on consumer surveys, the overall recovery in sales is expected to be gradual. The persistent housing affordability issues may see some alleviation from the falling mortgage rates, which could encourage a slow increase in sales into the following year. Nonetheless, this potential recovery is likely to be limited by the enduring “lock-in effect,” where existing homeowners are discouraged from selling due to higher rates on new mortgages compared to their current ones, and a scant housing inventory.
In summary, Fannie Mae’s ESR Group predicts a downturn in the economy as we head into next year but remains optimistic about a moderate recovery that will take shape into 2025 with modestly declining mortgage rates potentially encouraging activity in the housing market.
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