Doug Duncan, chief economist of US mortgage giant Fannie Mae, recently warned that the US housing market is sending out signals of a slowdown, pushing the US gradually into recession.
"The most likely outcome is a mild recession, and the timing of the recession remains the main question, as the Fed policy could remain tight for longer if wage-related inflationary pressures do not subside," Duncan said in a recent statement."
The Federal Reserve has raised interest rates by 500 basis points over the past year to curb inflation, though the move has also plunged the economy into a downturn and pushed 30-year mortgages to a 20-year high.
That has put pressure on the housing market, with high borrowing costs forcing buyers and sellers to sit on the sidelines. Sales of multi-family homes are expected to decline as credit conditions tighten this year. Existing home sales have fallen to their lowest level since 2010 and are set to decline further later this year, according to Fannie Mae estimates.
"The slowdown in the housing market remains the overarching evidence that we expect the US to head toward a mild recession in 2023," Duncan said.
Fending off a deep recession
Fannie Mae's forecast model shows that US home prices, as measured by the Fannie Mae home price index, will fall by 1.2% between the fourth quarter of 2022 and the fourth quarter of 2023, and then fall by another 2.2% and bottom out between the fourth quarter of 2023 and the fourth quarter of 2024.
Even in the face of rising interest rates and high inflation, the housing market has performed better than expected, Duncan said. A relatively strong housing market could help the economy emerge from recession as early as 2024, he added.
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