U.S. economy to see ‘modest recession’ next year, Fannie Mae says

By Alex Tanzi | Bloomberg

Rising interest rates at the U.S. Federal Reserve will further slow an economy already weighed down by high inflation and the fallout from the Russian invasion of Ukraine, causing a “modest contraction” in the second half of 2023, according to Fannie Mae.

“We continue to see multiple drivers of economic growth through 2022, but the need to rein in inflation, combined with other economic indicators, such as the recent inversion of the Treasury yield curve, led us to meaningfully downgrade our expectations for economic growth in 2023,” Doug Duncan, Fannie Mae’s chief economist, said in a statement.

The new forecast includes a “modest recession, but one that we do not expect to be similar in magnitude or duration to the recession of 2008,” Duncan said.

In its April economic and housing outlook, the government-supported lender said it now expects housing sales to drop 7.4% this year and 9.7% in 2023. House-price growth will slow from 20% in the first quarter of this year to 3.2% by the fourth quarter of 2023.

U.S. 30-year mortgage rates are surging this year and topped 5% this month for the first time in more than a decade.

“Historically such large movements have ended with a housing slowdown,” Duncan said. “We expect home sales, house prices, and mortgage volumes to cool over the next two years.”

Source: Orange County Register