Fannie Mae maintains its forecast of a modest recession in the second half of 2023.

People are spending too much compared to what they’re earning. When the government tries to decrease spending it usually leads to a recession, says Fannie Mae’s Economic and Strategic Research Group.

“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,” said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae. “Housing remains exhibit number one for why we expect the recession to be modest. It continues to outperform our expectations, and we expect that its relative strength will help kickstart the economy into expanding again in 2024.”

The typical ways that monetary policy slows the economy might not work this time. The Group points to a jump in car sales due to better supply, and homebuilders’ more positive sentiment as evidence.

The ESR Group thinks the Fed will keep strict policies for a while if inflation caused by wages doesn’t go down.

Home sales have been decreasing as predicted. The ESR Group forecasts for further gradual declines throughout the year due to the ongoing challenges with affordability and inventory.

As a result, demand has shifted from existing homes to new construction. This has bolstered builder confidence and the Group’s housing starts forecast.

The Group does predict an important decrease in multifamily construction starting later in the year. This is due to tighter credit conditions, slower growth in rental prices, and more vacant apartments.

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