The Federal Open Market Committee’s decision to not raise interest rates at its November meeting came as welcome news to the housing industry, leading to a dip in mortgage rates after a streak of increases. But industry analysts are still concerned about a housing recession.
Analysts at Wells Fargo recently warned that a rate cooldown likely won’t lead to a market boost, citing the overall cost of both building and buying a home.
“After generally improving in the first half of 2023, the residential sector now appears to be contracting alongside the recent move higher in mortgage rates,” economists Charlie Dougherty and Patrick Barley wrote in a research note. “Although mortgage rates may gradually descend once the Federal Reserve begins…
Despite recent optimism surrounding the Federal Reserve’s “soft landing” strategy, economists at Fannie Mae are still expecting a mild recession next year.
Fannie Mae’s Economic and Strategic Research Group wrote in a note that mixed economic signals this month make it difficult to guess the near future, but a “modest contraction” in early 2024 remains the most likely outcome of the Fed’s inflation fight.
They cite consumption outpacing incomes, big differences between gross domestic product and gross domestic income over the past three quarters, and previous policy tightening still moving through the systems as signs of what’s to come.
Additionally, households are expected to restrict spending in the latter part of the year as inflated prices catch up to budgets.…
By DESMOND LACHMAN
There is good news and bad news for the U.S. housing market. The good news is that by this time next year, mortgage rates will be substantially lower than they are today. The bad news is that by this time next year, the U.S. is more than likely to be in a meaningful economic recession.
The main reason for believing that next year we will have both lower interest rates and a recession is that the Fed is currently engaged in monetary policy overkill and that monetary policy operates with long and variable lags. Those lags are thought to be between 12 and 18 months. That means the economy, which is already showing clear signs of slowing,…
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…
By CHUCK GREEN
To home sellers who agonizingly watched the prices of their abodes recede recently, leaving a nasty gash in profits, there’s little to say but “ouch.”
Want a touch of solace? Apparently, the waters are rippling with plenty of others in the same predicament.
A first quarter 2023 U.S. Home Sales Report released by ATTOM showed that on median-priced single-family home and condo sales across the country, profit margins dipped to 44.2%, sagging from 48.7% in the fourth quarter of last year.
A silver lining is that the typical investment return stayed relatively high. In fact, it was nearly double where it was four years ago. From the peak of 56.1% in the second quarter last year, the…
Recent bank failures have created another problem for the housing market: lack of credit.
First American’s Potential Home Sales Model– a measure of what a healthy level of home sales should be based on market fundamentals– fell by 2.5% month-over-month in March. Year-over-year, it is down 10.7%, a loss of more than 640,000 sales.
The biggest contributor to the decline was tightening credit standards, First American says. At the beginning of the pandemic, lenders reduced credit due to the increased likelihood of forbearance and delinquency, but it slowly began to ease.
Now, credit is tightening again thanks to banking uncertainty.
“There are fears that the recent bank failures will prompt lenders to be much more conservative with their lending,” said…
Despite an upwardly revised Q3 GDP estimate, Fannie Mae’s Economic & Strategic Research Group has predicted a recession in 2023 and warned it could be worse than expected. The group estimates Q3 GDP will be 2.3% annualized, up from its earlier prediction of 1.3%. However, it says that the boost “is likely to prove temporary” and forecasts Q4 growth to be -0.7% annualized. The revision accounts for “partial normalization in global trade following a historically large trade deficit in the first half of 2022,” which will be overcome by Q4. Unemployment is expected to exceed 5% by the end of 2023 as a result of the recession. The group noted that labor market tightness– which typically contributes to inflationary pressure…
Mortgage rates nosedived by 31 basis points last week, dropping below 5% for the first time since April, Freddie Mac reported Thursday. Freddie’s Primary Mortgage Market Survey (PMMS) found that the 30-year fixed-rate mortgage (FRM) averaged 4.99%. Last week it averaged 5.30%, and a year ago at this time, the 30-year FRM averaged 2.77%. “Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” said Sam Khater, Freddie Mac’s Chief Economist. “The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.” Recession fears are adding to a dip in homebuyer demand spurned on…
Gross domestic product declined for a second quarter, down 0.2% on the heels of Q1’s 0.4% dip, the Commerce Department said. By a common definition, this means that the U.S. has entered into a recession. The National Bureau of Economics, a non-profit that determines when the U.S. is officially in recession, defines it as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Many economists say they don’t believe the economy has fully entered recession, pointing out that falling GDP is only one measure of many. Fed chairman Jerome Powell said the data should be taken with “a grain of salt.” But formal definitions notwithstanding, a majority of Americans…
