Fannie Forecast: Mild Recession the Likeliest Outcome
With a nod to the economy having “mixed signals,” Fannie Mae’s 3Q forecast calls for a “modest contraction” and mortgage rates “settling above 7%.”
WASHINGTON – The key question for economists: Is the U.S. headed toward a soft landing or a mild recession?
According to September 2023 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group, it’s a modest contraction.
“Mixed signals from key economic data releases continue to muddle the near-term outlook and the answer to that question, but a modest contraction remains the most likely outcome as consumption continues to outpace incomes and previous monetary policy tightening works its way through the system,” the report says.
The housing market faces renewed headwinds with mortgage rates settling above 7%, according to the ESR Group. Still, the downside risk to total home sales is limited as more sales are being driven by life events rather than discretionary factors, and the cash share of purchases remains high.
New home sales were “surprisingly strong in the first half of the year, due partly to homebuilder rate buydowns, which become more expensive when mortgage rates rise.” Going forward, the ESR Group expects new home sales to pull back slightly.
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