Fannie Mae’s Economic and Strategic Research Group Releases Its Economic Commentary for November

On Tuesday (11-21-23), Fannie Mae’s Economic and Strategic Research (ESR) Group released its economic commentary for November. According to the ESR, economic growth will likely decelerate and ultimately result in a mild recession in 2023, followed by a return to growth in 2025.

The ESR Group says that while the combination of ongoing employment gains and decelerating inflation has increased the likelihood of a soft landing, the group contends that—between a likely slowdown in consumption growth stemming from an imbalance between spending and incomes and the rising real federal funds rate weighing on consumer and business activity—a downturn remains the mostly likely outcome.

In regard to housing, with mortgage rates having previously neared the 8% mark, the ESR Group expects existing home sales to decline further in the near term but bottom out in early 2024. Regardless of whether the economy manages a soft landing or enters a mild recession, the ESR Group forecasts mortgage rates in 2024 to retreat from their recent highs and average 6.8% by 2024Q4. As such, the ESR group expects home sales to begin to increase modestly over 2024 but to remain constrained by the likely persistence of the so-called “lock-in effect” and the low supply of homes for sale. New home sales and starts, which have remained comparatively resilient over the past year, are expected to remain so in 2024.

In remarks prepared to accompany the November commentary, Fannie Mae Senior Vice President and Chief Economist Doug Duncan said:

“The economy is now slowing from the otherwise robust first estimate of third quarter growth. The slowdown in employment gains has continued, and stress is growing on consumers’ ability to sustain their high levels of spending—unsurprising results that we attribute to the often-lagged economic effect of monetary policy tightening. At the same time, housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity. While many current owners with low mortgage rates will likely continue to be discouraged from listing their homes, we expect mortgage rates to trend modestly downward in 2024, which should help kickstart a gradual recovery in home sales into 2025.”