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

Fannie Mae’s Economic and Strategic Research (ESR) Group today (10-12-22) released its October 2022 commentary. According to the ESR, the combination of high inflation, monetary policy tightening, and a slowing in the housing market is still projected to tip the economy into a modest recession in 2023Q1.

The ESR expects real gross domestic product (GDP) to grow at an annualized rate of 2.3% in 2022Q3, thanks to strong net export and inventory investment activity, before contracting 0.7% in 2022Q4 as the impacts of that activity wane. The ESR is now forecasting a negative 0.1% real GDP growth on a full-year basis for all of 2022.

The ESR has lowered its forecast for total single-family home sales to 5.64 million in 2022, an annual decline of 18.1%, and to 4.47 million in 2023, an annual decline of 20.8%. These reductions are a result of the current higher mortgage rate environment. While the multifamily construction remains strong, the ESR has also revised lower its multifamily start forecast for 2023 to 390,000 units.

The Group also has revised the national home price growth in 2022 to be 9.0%—down from last month’s prediction of 16.0%. It also expects home prices to decline 1.5% in 2023, which is down from its previous prediction of a 4.4% growth in home prices.

Adding background to the report and his analysis, Fannie Mae’s Senior Vice President and Chief Economist Doug Dugan said:

“Over the last few weeks, markets have increasingly—and perhaps reluctantly—reflected the resolve of the Fed to lower inflation via rapid tightening of monetary policy. At times, the market has reacted to incoming economic data suggesting the Fed is making progress in its fight with inflation by anticipating a potential policy ‘pivot’ toward a less restrictive regimen, prompting the Fed to restate its resolve. Of course, the slowing effect on the housing market of the higher mortgage rate environment has been largely predictable, and home prices appear to have already begun trending downward. Looking ahead to the full year 2023, on a national basis, we expect an average home price decline of 1.5%. Given the ongoing tension between potential homebuyers and home-sellers at the moment, we believe the pace of sales is likely to slow even further, too.”