Fannie Mae forecast pushes recession start out to 2H23

Fannie Mae cut its mortgage origination forecast for 2023 by 8%, while reducing next year's outlook by 7%, as it pushed out its timing for the start of a recession to the second half of this year.

Its March prediction now calls for $1.55 trillion of mortgage originations during 2023, down from $1.69 trillion in February. For 2024, the government-sponsored enterprise is looking at $1.89 trillion of volume, versus $2.03 trillion a month ago.

Much of the work on the outlook was done prior to the failures of  Silicon Valley Bank and Signature Bank and the Federal Open Market Committee's decision to raise short-term rates 25 basis points, but those developments didn't impact the baseline analysis, Fannie Mae said. 

"Inflation has now been joined by financial stability concerns as threats to sustained growth," Doug Duncan, Fannie Mae's chief economist, said in a press release. "These particular pre-recessionary conditions are not unusual, as bank failures often follow monetary tightening — but this may well be the catalyst for the modest recession we've been expecting since April 2022."

Duncan also upgraded his gross domestic product estimate for the first quarter to 0.9% growth. But he calls for contractions of 0.2%, 1.3% and 0.6% over the next three quarters.

For the full year, he expects a 0.3% decline in GDP.

But GDP will return to positive movements throughout 2024, the Fannie Mae forecast said.

Today's economic environment is more akin to the savings & loan crisis of the mid-1980s, which for all intents and purposes put the thrift industry out of business, rather than the financial upheaval that happened in 2008, Duncan said.

Significant increases in interest rates during the 1980s, along with poor fiscal management practices, resulted in massive numbers of thrift failures into the following decade. It also resulted in a modest recession in 1991.

The availability of jumbo mortgages and residential construction loans also has been impacted by the turmoil that has spread to other small- and mid-sized banks, Duncan noted.

Another forecaster has reduced its 2023 estimate in this environment too.

The Mortgage Bankers Association's latest forecast, dated March 20, calls for $1.84 trillion in mortgage volume this year, a slight reduction from February's prediction of $1.87 trillion.

"The dip in mortgage rates has boosted borrower demand in recent weeks," Bob Broeksmit, the MBA's president and CEO, said in a statement following the release of the group's Weekly Application Survey, which increased for the third week in a row. "While rates remain much higher than a year ago, MBA is forecasting a gradual decline, with the 30-year fixed rate falling to around 5.3% by the end of the year."

However, the association has boosted its estimate for 2024 to $2.304 trillion from January's $2.279 trillion. The MBA's crystal ball for 2025 was unchanged at $2.468 trillion.