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Press Release

Economy Resumes Gradual Slowdown Following Bank Turmoil

April 21, 2023
Mortgage Demand and Home Prices Prove Resilient; Sales Expected to Decline Further

WASHINGTON, DC – Due primarily to an upward revision in recent consumer spending data, Fannie Mae’s (FNMA/OTCQB) Economic and Strategic Research (ESR) Group now forecasts stronger first quarter GDP growth but maintains its belief that economic momentum is running out of steam, according to the ESR Group’s latest monthly commentary. While the acute panic following the bank failures in March appears to have subsided, importantly, the banking turmoil occurred during an already-tightening credit cycle, and the ESR Group believes the additional, incremental tightening in credit conditions owing to the financial fallout will contribute to a modest recession beginning in the second half of 2023. As noted in last month’s commentary, the tightening of financial conditions derived from the bank failures in many ways had the same effect that additional fed fund rate hikes would have had. As such, the ESR Group now expects only a single additional 25-basis point hike from the Federal Reserve in May, followed by the re-introduction of monetary easing closer to year-end.

While housing demand and home prices have proved more resilient than previously anticipated, the ESR Group expects sales activity to remain subdued because of the persistently low inventory of homes for sale – particularly among existing homes. According to the ESR Group, this is due in large part to the “lock-in effect," in which existing homeowners are disincentivized from listing their homes and potentially giving up their lower mortgage rate. Still, strong demand for housing remains supportive of home prices; although the ESR Group notes significant regional variation in actual and expected home price movements.

“The economic slowdown has resumed – whether the end result is a modest recession or simply a soft landing remains unanswered – although we continue to expect the former, as we have since April of last year, when we first made our 2023 recession call,” said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae. “The greater-than-expected resilience of the housing sector to the affordability pressures of higher home prices and mortgages rates is central to our expectation that the recession will be modest. In our view, while it would be premature to expect no further difficulties in the banking sector other than credit tightening, we’re maintaining our baseline expectation of a modest recession, as we see signs of a weakening employment market, slowing retail sales, and declining manufacturing activity. However, the rapid response of hopeful homeowners to periodic declines in mortgage rates, even from the currently higher rates, gives us additional confidence in our use of the word ‘modest.’”

Visit the Economic & Strategic Research site at to read the full April 2023 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. See the March 2023 Economic Developments Commentary for a discussion of the conditions underlying the ESR Group’s expectations. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

About the ESR Group
Fannie Mae’s Economic and Strategic Research Group, led by Chief Economist Doug Duncan, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets. The ESR Group was recently awarded the prestigious 2022 Lawrence R. Klein Award for Blue Chip Forecast Accuracy based on the accuracy of its macroeconomic forecasts published over the 4-year period from 2018 to 2021.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit: | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog

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