Fannie Mae’s Economic and Strategic Research Group Revises Q1 GDP Forecast Higher

Citing an upward revision in recent consumer spending data, Fannie Mae’s Economic and Strategic Research (ESR) Group is now forecasting stronger Q1 GDP growth while maintaining its belief that economic momentum is running out of steam.

According to the ESR Group’s latest monthly commentary (4-21-23), while the acute panic following the bank failures in March appears to have subsided, importantly, the banking turmoil occurred during an already-tightening credit cycle; and the ESR Group believes the additional, incremental tightening in credit conditions owing to the financial fallout will contribute to a modest recession beginning in the second half of 2023.

In regard to housing, the ESR Group notes housing demand and home prices have proved more resilient than previously anticipated. However, the ESR Group expects sales activity to remain subdued because of the persistently low inventory of homes for sale—particularly among existing homes. The report says this is due in large part to the “lock-in effect,” in which existing homeowners are disincentivized from listing their homes and potentially giving up their lower mortgage rate. Still, strong demand for housing remains supportive of home prices; although the ESR Group notes significant regional variations in actual and expected home price movements.