Brace for Impact: Fannie Mae Forecasts A Stormy Economic Outlook

Fannie Mae Economic and Strategic Research Group (ESR) delivered a less-than-festive forecast for the economy last week.

What Happened: According to the ESR's January 2023 commentary, despite ending the year on a stronger-than-anticipated footing, the economy is still expected to slip into a modest recession in the first half of 2023.

The ESR views the current rate of consumption as unsustainable and predicts that an eventual retrenchment of the consumer will be a major factor in the upcoming economic contraction.

The ESR predicts Q4/Q4 GDP growth for 2023 to be negative 0.6%, one-tenth lower than its previous forecast.

Noting cooling inflationary pressure in the past three Consumer Price Index (CPI) reports, the ESR believes the Federal Reserve is likely nearing its eventual terminal rate but notes that upside risk remains for tighter-for-longer monetary policy should a recession be delayed or avoided altogether, or, alternatively, if inflation measures fail to cool further.

As for the housing market, the ESR expects a cumulative 6.7% home price decline over the next two years as housing affordability remains unsustainably stretched.

As a homeowner (or investor), new companies have made it possible to hedge a potential decline in your home value. Here’s how to invest as little as $100 (or more, depending on your appetite) in a rental property, to earn passive income and build long-term wealth.

Read also: Expert Economist Predictions For The Housing Market In 2023: Will Home Prices Decrease?

Don’t worry, though. A housing decline like the Great Financial Crisis is not expected, as far fewer borrowers are facing interest rate shocks, loan workout and modification programs are more robust, and aggregate residential real estate and the broader financial system are substantially less leveraged compared to the 2006-2008 period.

Start generating passive income through real estate

Check out these featured investments from Benzinga's Real Estate Offerings Screener.

Why It Matters: Instead, housing affordability is forecast to improve gradually over the longer term due to a combination of home price declines, modestly lower mortgage rates, and stronger-than-usual nominal income growth.

“There are economic signals pointing to recession but also signs that a ‘soft landing’ may be in the offing,” said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae.

“In our view, the balance still suggests a modest recession, particularly if the Federal Reserve maintains its focus on labor market tightness. While limited and tentative signs of a slowing labor market are appearing, overall, labor remains robust.”

Check Out More on Real Estate from Benzinga

• Bezos-Backed Startup Lets You Become A Landlord With $100
• Analysts Are Bullish On Industrial Real Estate: Here Are 2 Private Market Offerings To Gain Exposure
• This Little-Known REIT Is Producing Double-Digit Returns In A Bear Market: How?