Mortgage giant Fannie Mae says the recession is still coming at the end of the year.
Fannie Mae's internal analysts still expect a recession even as recent economic data comes out stronger than expected.
"The economy has remained more resilient than we expected earlier in the year, but we believe it is still on the path of slowing and additional headwinds are likely to arise," Chrissa Haley, CFO of the government-sponsored company that guarantees millions of mortgages, said on the company's earnings call for the second quarter on Tuesday.
"While we note the potential for soft landings recently, our economic and strategy research group expects the economy to enter a modest recession in the last quarter of this year or the first quarter of next year."
What is the reason for continuing to expect a recession? The economy and consumers have not fully internalized the effects of tighter monetary policy and tougher lending standards, with Halley stressing that more "banking pressures are still possible."
This was one of a few insightful economics and housing suggestions from Fannie Mae, which reported second-quarter net income of $4.99 billion, up 7.3% year-over-year.
Another takeaway? Haley said housing would majorly pull the economy out of this "modest" recession, specifically new home construction and sales.
So far, new home sales and construction have sometimes been the few brighter spots in the murky housing market, as rising mortgage rates have lowered inventory levels on the resale side. Then, these inventory levels, in turn, helped support home prices as historically low supply could not keep up with tepid demand from buyers.
Fannie Mae also noticed this dynamic.
"This shortfall in the supply of existing homes has led to stronger-than-expected home price growth," Priscilla Almodóvar, CEO of Fannie Mae, said on the call. "We estimate that single-family home prices rose about 5% during the first six months of the year, while many of us expected a decline."
As a result, Fannie Mae analysts predict that home prices in the United States will grow by 3.9% this year. This is more optimistic than others - who aren't expecting any growth this year - and comes after home prices posted four straight months of increases.
Forecasters at the government-sponsored institution expect mortgage rates to average 6.6% for the year. That's similar to the current rate for a 30-year fixed mortgage, which was 6.81% last week.
The liquidity Fannie Mae provides in the housing market will drop dramatically in 2023.
This has wiped out the refinancing business, and it's only a whisper of what it's been like during the pandemic, according to this supplemental chart showing how much market liquidity Fannie Mae has provided.
You can't see it, but the total unpaid principal balance of single-family refinancing was $24 billion at the end of June, a tenth the size of the $237 billion from the previous year and less than 3% of the total for 2020 and 2021. (The chart also shows how, generally, housing activity has slowed.)
"Not surprisingly, given the pricing environment, the buying share of our acquisitions was 86% in the second quarter, a level not seen in at least 23 years," Haley said.
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