Published by FOX Business | May 22, 2023
Housing market recession could bleed into broader economy, Fannie Mae warns
The U.S. housing market is slowly stirring back to life after entering a deep freeze in mid-2022, but the worst may not be over for the sector just yet.
Fannie Mae economists predicted in a revised forecast that the housing market recession could regain momentum later this year as tighter credit conditions squeeze buyers, sellers and builders.
Residential fixed investment, which accounts for about 5% of total GDP and measures construction of new housing structures, residential remodeling and production of manufactured homes, already declined in the first two quarters of 2023 and is projected to continue dropping until the beginning of next year.
While the construction of multifamily housing structures has proven “surprisingly resilient in recent months,” the Fannie Mae economists are still projecting a “large slowdown in activity” later this year. Rent growth has eased – or outright declined – from the previous year while vacancy rates are also gradually increasing.
“There is a record number of multifamily units currently under construction, which are scheduled to come online later this year and into 2024,” the analysts wrote in the report. “Combined with tightening credit for construction lending, which we expect will soon be realized by a slower new project pipeline, we are expecting a significant slowdown in starts later this year.”
And the downturn in the housing market could soon spill over into the broader economy, according to Fannie Mae. The analysis shows the U.S. entering a recession in the second half of 2023, with consecutive GDP declines through the first quarter of 2024.