Economist claims soft landing is possible but only as an exception, not a norm
Fannie Mae has forecast a “modest recession” in the latter half of 2023 – but not one as severe as the Great Recession, according to chief economist Doug Duncan.
Inflation has soared at its fastest pace in more than 40 years, with costs for food, gasoline and housing wiping out what little income raises Americans have received. Inflation is forecast to have peaked in March on an annual basis at 8.5%. Still, it is expected to remain elevated at 5.5% in Q4 2022, Fannie Mae reported.
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These factors, along with the fallout from Russia’s invasion of Ukraine, are the reasons behind Fannie Mae’s call of a recession.
“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,” Duncan said in a statement.
However, Duncan said the anticipated slump will “not be similar in magnitude or duration to the recession of 2008.” He explained that a soft landing for the economy is still possible – but it is likelier the exception than the norm.
Read more: US mortgage rates cross 5% for first time in a decade
On housing, Fannie Mae expects house sales to drop 7.4% in 2022 and 9.7% in 2023 after the average 30-year fixed mortgage rate hit a 5% benchmark last week – the highest level in more than a decade. Meanwhile, house price growth will slow from 20% in Q1 2022 to 3.2% in Q4 2023.
“Historically such large movements have ended with a housing slowdown,” Duncan wrote. “We expect home sales, house prices, and mortgage volumes to cool over the next two years.”
