Based on the current trajectory of the economy, a mild recession is still likely in 2024, with a return to growth in 2025, according to the most recent analysis from the Fannie Mae Economic and Strategic Research (ESR) Group. While positive employment gains and decelerating inflation are increasing the probability of a soft landing, the ESR group says a downturn is most likely due to an expected slowdown in consumption growth.
With mortgage rates having previously neared the 8% mark, the ESR Group expects existing home sales to decline further in the near term but bottom out in early 2024. Regardless of whether the economy manages a soft landing or enters a mild recession, the ESR Group forecasts mortgage rates in 2024 to retreat from their recent highs and average 6.8% by the fourth quarter. As such, the ESR group expects home sales to begin to increase modestly over 2024 but to remain constrained by the likely persistence of the so-called “lock-in effect” and the low supply of homes for sale. New home sales and starts, which have remained comparatively resilient over the past year, are expected to remain so in 2024.
“The economy is now slowing from the otherwise robust first estimate of third quarter growth,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “The slowdown in employment gains has continued, and stress is growing on consumers’ ability to sustain their high levels of spending – unsurprising results that we attribute to the often-lagged economic effect of monetary policy tightening. At the same time, housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity.”
