Economic and Housing Outlook: Recession Will Begin in 2023
Economic and Housing Outlook: Recession Will Begin in 2023
Abstract
Important Points The ESR Group expects inflation, as measured by the Consumer Price Index, to have moderated to 5.7% on a year-over-year basis, down from the June reading of 9.1%. Due to inflation, Fannie Mae is seeing homes listed for sale increasingly reducing prices, and both construction and home sales are receding. The ESR Group predicts inflation, as measured by the Consumer Price Index, to have eased to 5.7 percent year on year by the fourth quarter of 2022, down from 9.1 percent in June, and then to 1.6 percent by the end of 2023, somewhat below the Fed's 2 percent objective. Housing Sales Forecast Reduced Due to Weaker Economic Outlook The ESR Group also revised its forecast for total home-sales growth in 2022 to a decline of 15.6%, compared to its June prediction of 13.5%. However, the group revised upward its home-price appreciation forecast to 16% year-over-year growth in 2022 from the previously projected 10.8%. They continue to expect a significant slowing in home price increase in the future due to the lag effects of rising mortgage rates and a deteriorating economy impacting buyer demand. Fannie Mae's Home Price Index shows house prices grew 19.4% year-over-year in Q2, down from Q1's 20.5%. They've increased their home price growth predictions for 2022 due to this strength, although they expect quarterly price growth to slow from 6% in Q2 to 1.5% by Q4 2022. Home price changes tend to lag changes in home sales as prices tend to be "Sticky". Sellers are reluctant to lower their asking price, while buyers base their expectations on previous transactions. The upward revision to their house price forecast increases the expected dollar size per loan originated.