Fannie Mae: US to see ‘modest recession’ in 2023

Government-supported mortgage giant Fannie Mae said Tuesday the U.S. will see a “modest recession” in 2023 due to inflation and other economic factors. 

The company predicted in an economic and housing forecast that such a recession will be caused by the record-high inflation the U.S. is seeing, the Federal Reserve tightening monetary policy and the effects from Russia’s war on Ukraine. 

“As such, we’ve updated our 2023 forecast to include a modest recession, but one that we do not expect to be similar in magnitude or duration to the recession of 2008,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in a statement. 

The company gave multiple reasons why it is not expecting a recession as bad as the one seen in 2008 due to the current state of the housing market, including a mortgage credit quality that is “far superior” and mortgage servicers that are better equipped than they were at that time. 

However, the company expects home sales, house prices and mortgage volumes all to drop in the next two year, Duncan said.

“In particular, we expect house price growth to decelerate to a pace more consistent with income growth and interest rates,” he said.

“Moreover, if mortgage rates remain relatively elevated, we expect the added affordability constraint to price out some would-be first-time homebuyers and contribute to the slowing of demand,” Duncan added. 

The forecast comes as the World Bank announced on Monday it is lowering its growth forecast over the next year due to the Russian invasion of Ukraine.

“People are facing reversals in development for education, health and gender equality. They’re facing reduced commercial activity and trade. Also, the debt crises and currency depreciations have a burden that falls heavily on the poor,” World Bank President David Malpass said during a conference call.