The US housing market remains unstable, possibly causing an economic recession
The US National Mortgage Association (Fannie Mae) said that the recession in the housing market in this country has not yet come to an end, and it could cause negative effects on the economy.
The US housing market, in the words of the housing bulls, has stabilized. New home sales are picking up again thanks to aggressive policies that have pulled buyers back into the market. Meanwhile, mortgage rates falling below 7% and the market entering a busier spring have helped homes in many areas move from adjustment mode to growth mode. But in fact, according to real estate platform Zillow, 16% of these markets saw home prices fall between March and April.
According to Fannie Mae, the downturn in the US housing market is not over yet and could become more severe as we move into the summer and fall months, when the market is quieter.
In 1/2023, US housing market performance as measured by fixed investment in private housing (i.e. the core of housing GDP) declined on a nominal basis over the course of four consecutive quarters. More declines may continue. Fannie Mae predicts residential fixed investment will decline in Q2/2023 (-5.9%), Q3/2023 (-9.1%), Q4/2023 (-6.4%) and Q1/2024 (-first%).
“There is a record amount of housing under construction, expected to come online later this year and in 2024. Along with tightening credit for construction loans, our above forecast will soon come to fruition. reality, especially later this year as project progress slows down,” economists at Fannie Mae wrote in their recently released report.
According to Fannie Mae’s forecast, the decline in the condominium segment will erase the economic incentives created by the private housing segment, which has benefited this spring thanks to preferential policies to attract customers. of the investor.
Over the past year, the housing market has been one of the few US sectors stuck in a recession. Fannie Mae’s forecast model predicts that the housing market downturn will spread and push the country’s macro-economy into recession. Fannie Mae is forecasting a decline in US GDP in Q3/2023 (-1.2%), Q4/2023 (-1.7%) and Q1/2024 (-0.5%).
“A mild recession is very likely. However, its timing remains undetermined as the Fed may continue to tighten policy for longer as wage-related inflationary pressures do not ease,” said Fannie Mae.
While Fannie Mae’s forecast model predicts that the housing market will push the US economy into a recession, the organization’s economists also believe that the housing market will also be a buffer against a recession. deep economic recession.
“We see conditions in the residential and auto construction sectors as more likely to be a buffer against the severity of the recession, by being a potential driver of economic growth,” they wrote in the report. potential for recovery rather than a means to prevent it.”
Unlike real estate platforms Zillow and CoreLogic, which forecast a slight increase in house prices in 2024, Fannie Mae thinks the downward adjustment in house prices will return soon. Fannie Mae’s house price index could fall 1.2% from Q4/2022 to Q4/2023, then drop another 2.2% from there to Q4/2024. This would mark the first annual decline in house prices as measured by this index since 2012.
By the time home prices across the country bottom out in Q4/2024, Fannie Mae predicts prices will be 5.28% below their peak in Q2/2022. But results can vary from region to region.
However, the organization considers this to be a slight correction, not a collapse of the housing market. The reason is lack of housing supply. In fact, the number of homes for sale is still 40% lower than it was before the pandemic.
“Although mortgage rates are still high compared to a few years ago, the severe shortage of supply still helps maintain home prices. Of course, the shortage of homes for sale is now exacerbated by the “stuck in effect,” which has left many households with low mortgage rates reluctant to put their homes up for sale,” said chief economist Doug Duncan. by Fannie Mae in a recent report.
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