Economic Report: Fannie Mae’s chief economist sees house prices falling by 6.7% over the next 2 years. These are the warning signs.

by | Jan 26, 2023 | Stock Market

The real-estate sector is in a quandary. The housing market was a wild rollercoaster ride that ended with a big fat splat last year, with mortgage rates doubling and demand plummeting.

Home sellers aren’t keen on listing their homes, given that they’ve recently secured an ultra-low mortgage rate. Home buyers, as a result, are struggling to find good options as the number of homes for sale remains low.  So where will the supply come from, to meet buyers’ demand? And what happens if a recession hits? Will home prices fall? MarketWatch spoke with Doug Duncan, senior vice president and chief economist at Fannie Mae
in a video interview.  Duncan’s team, which is the economic and strategic research group at Fannie Mae, recently published its economic and housing forecast.  MarketWatch: What happens if the U.S. Federal Reserve raises interest rates to 5.5%? What does that mean for the housing market? Duncan: The housing sector has a very well established relationship with monetary policy. It’s one of the most interest-rate sensitive sectors, if not the most interest rates in the sector.  We made our first call on the recession [to occur this year]. We looked ahead and we said, if things unfold over the next 9 to 12 months in the following way, we think we’ll have a mild recession in 2023. That looks like it’s a pretty good call. It’s possible it could be a soft landing.  Our base case is something in the neighborhood of a 0.5% to 1% decline in GDP over 2023. 

“‘We think we’ll have a mild recession in 2023.’”

— Doug Duncan, chief economist at Fannie Mae

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