Fannie Mae’s Economic and Strategic Research Group Lowers Its GDP Expectations for 2022

On Thursday (3-17-22), Fannie Mae’s Economic and Strategic Research Group (ESR) released its March 2022 Economic Commentary, which takes a deeper look at macroeconomic pressures on the market. The ESR says it is downgrading its GDP expectations for the upcoming year.

The ESR has indicated that continuing supply chain issues, increasing inflation, and the conflict in Ukraine are all placing macroeconomic pressure on the market. These factors have resulted in the downgrading of their expectations for GDP growth by year-end from 2.8% in their February 2022 commentary to 2.3% in their March 2022 commentary.

The ESR notes that their outlook is based upon a quick resolution in Ukraine which may not accurately reflect actual events and represents “substantial downside risks to both the macroeconomic and housing outlooks.”

The Federal Reserve’s recent move to raise interest rates in a responsible manner to avoid causing a recession was also further complicated by the recent geopolitical conflict. But despite this uncertainty, the ESR expects the Fed to continue raising rates another five times this year and another three times in 2023—a total of eight adjustments.

In a statement prepared for the release of the ESR March Economic Commentary, Doug Duncan, Fannie Mae Senior Vice President and Chief Economist said:

“A slowing economy, decades-high inflation, expired fiscal stimulus, tightening monetary policy, and now Russia’s invasion of Ukraine are all weighing on the health of the US economy. We marked down our growth expectations this month by half a percentage point for 2022, but risks remain firmly to the downside. The interruptions to the trade of energy, agriculture, and other commodities are putting upward pressure on inflation and making an already difficult task for the Federal Reserve even more challenging.”

“Housing is currently acting as support to an otherwise slowing economy, although it is adding significantly to inflation. Even as interest rates are rising and reducing affordability, demographics are still strong supports for demand, and the paucity of existing home supply is supporting new construction and sales. The degree to which monetary ease is capitalized into home values suggests increased risk as rates rise, but this may be offset by some evidence that housing is an intermediate-term hedge against inflation.”

“We expect home purchase loan volume to hold up reasonably well but refinance activity to fall off considerably over our forecast horizon, perhaps totaling only a third of originations, unless there is a drop in mortgage rates, which we do not expect. Nonetheless, from a historical perspective, mortgage rates around 4 percent for fixed-rate loans is still a consumer-friendly rate for a home purchase.”