Recession is still on the horizon, but housing may support the economy moving through it, according to Fannie Mae’s Economic and Strategic Research Group.
In recent commentary, the group noted that mixed economic data has muddied the waters on the economy’s strength. But recession “remains the most likely outcome” of tightening monetary policy and late-stage business cycle dynamics.
Inflation has improved thanks to slowing domestic and global economic growth, but core inflation is still sticky.
“Lessons learned from the inflationary era of the 1970-80s … lead the ESR Group to expect that the Fed will maintain its restrictive monetary policy stance until it is abundantly clear that inflation pressures from the labor market have eased,” the group stated.
But that evidence may not surface until recession is already en route, leading experts to take a “when, not if” stance on its likelihood.
Housing strength appears to be the only upshot to this gloomy outlook.
Lack of inventory has kept prices high and building activity abundant.
“[H]ousing prices continue to show stronger growth than what was previously expected given the suddenness and significant magnitude of mortgage rate increases… We do expect housing will be supportive of the overall economy as it exits the modest recession,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
In particular, low-rate lock-in for Gen X and Baby Boomers aging in place have put pressure on inventory.
Builders are adding to supply, but it could take years to fill in the gaps.
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