Fannie Mae’s Economic and Strategic Research (ESR) group has revised its real GDP prediction for 2023 to 2.5%, anticipating a slight recession in the first half of 2024. The group expects an economic ‘soft landing’ due to resilient personal consumption amidst high inflation rates. The Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI) are currently at 3.5% and 3.7% respectively.
The ESR group has linked the recent surge in long-term rates to the Federal Reserve’s stance and anticipated solid economic growth. The 10-year treasury yield saw a significant rise from 3.8% in July to 4.91% in October, leading the group to predict no further Fed rate hikes. This viewpoint is shared by other financial entities, including several Fed officials and the Mortgage Bankers Association, who are also advocating for a rate pause.
Data revisions have shown a better balance between real consumption and income than was previously reported, suggesting that the economy could withstand a higher-for-longer monetary policy. Despite this, Fannie Mae’s ESR group warns that the economy could still suffer under such a policy.
In terms of housing, home prices have remained resilient, leading to an upward adjustment of the 2023 home price expectation from 3.9% to 6.7%. However, affordability constraints are expected to slow down home price growth in 2024. Higher mortgage rates have led to a slowdown in home sales, but new single-family sales are holding up better due to inventory constraints. The existing home sales forecast predicts a fall below four million units in Q4.
Finally, Fannie Mae’s mortgage originations forecast for 2023 remains steady at $1.3 trillion, with purchase volumes expected to rise by 10% to $1.4 trillion in 2024.
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