Notably, housing’s performance stands out as a leading indicator, presenting a mixed picture of the overall economic outlook.
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“Housing remains exhibit number one for why we expect the recession to be modest,” said Fannie Mae chief economist Doug Duncan. “It continues to outperform our expectations, and we expect that its relative strength will help kickstart the economy into expanding again in 2024.”
While existing home sales decline due to affordability constraints and tight inventory, the new home market shows promise. However, credit conditions, slower rent growth, and higher vacancy rates may impact multifamily starts. With inflation persisting and risks leaning towards further tightening, Fannie Mae urges caution while adopting a wait-and-see approach.
“There are select data available to support several alternative views of the path of the economy, though we maintain our view that a modest recession will begin in the second half of 2023,” Duncan said. “Inflation has been resistant to Fed efforts to drive it down, and we view the risks to our baseline forecast as tilted toward more tightening rather than easing – although, for the moment, the Fed has adopted a wait-and-see approach.”