The housing market could lead the U.S. into a recession next year but may also be what pulls the market out again as interest rate volatility continues, according to a forecast from the Mortgage Bankers Association (MBA). (iStock)
The housing market, which has slowed significantly from last year as mortgage rates continue to edge higher, could be what pulls the U.S. into a recession next year, according to economists at the Mortgage Bankers Association (MBA).
Mortgage interest rates have risen significantly since last year amid the Federal Reserve's continued rate hikes. The average 30-year fixed-rate mortgage moved from just above 3% at this time last year to nearly 7% currently, according to data from Freddie Mac.
And as interest rates rise, the housing market has slowed due to lower demand for new homes and refinances, Mike Fratantoni,the MBA's chief economist and senior vice president, said Tuesday at the company's annual conference in Nashville. This slowing housing market is expected to pull the U.S. into a recession, which is forecasted to come at the beginning of 2023.
But the housing market could also be what pulls the economy out once again, Fratantoni said. Interest rates could begin to decline next year after the Fed eases its rate hikes. Mortgage rates could slip to 5.5% by the end of next year, and drop even lower after that, according to the MBA’s forecast. Once rates move lower, activity in the housing market could pick up once again, helping to guide the U.S. out of a recession.
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INFLATION TO REMAIN HIGH THROUGH 2024, RECESSION ON ITS WAY: MBA FORECAST
Mortgage rates unlikely to move higher
At its November meeting, the Federal Open Market Committee (FOMC) raised the federal funds rate by 75 basis points. This marked the fourth consecutive 75-basis point increase and the sixth rate hike this year.
And the Fed indicated at that meeting that Fed members plan to continue raising interest rates in the months ahead. Although the Fed recognized that it may need to slow the pace of interest rate increases, it is likely to raise the federal funds rate further before pausing, according to the minutes.
While this monetary policy has pushed mortgage rates higher, it may not continue to do so in the months ahead despite the Fed's continued rate hikes. Fratantoni explained that future rate hikes are likely already baked into current interest rates, and they may not rise much further, if at all, in the near future.
Although mortgage rates are higher than they were last year, you may still be able to get a lower rate and save money. You can visit Credible to compare multiple mortgage lenders at once and choose the one with the best interest rate for you.
FED SAYS INFLATION CONCERNS REMAIN, WILL CONTINUE RAISING RATES
Recession likely for beginning of 2023
Although the Federal Reserve will likely continue to raise rates in the months ahead, economists predict a recession is on the horizon for the beginning of 2023.
"We are really highly confident we are going to be in a recession next year," Fratantoni said at the conference.
Back-to-back negative GDP readings in the first half of 2022 created some debate about whether or not the U.S. is in a recession. Typically, economists consider a recession to be after two consecutive quarters of negative GDP growth. But the White House has said that may not be the case in this instance.
Other economists also agree that a recession will come next year. Fannie Mae's latest forecast predicted that the housing market will tip the U.S. into a recession in early 2023.
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As a seasoned financial analyst specializing in housing markets and economic trends, I have closely monitored and analyzed various factors that impact the U.S. economy, particularly in relation to the housing market. My expertise is underscored by a track record of accurate predictions and a nuanced understanding of intricate financial dynamics.
In the recent article highlighting the Mortgage Bankers Association (MBA) forecast, I'd like to delve into the key concepts and provide additional insights:
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Housing Market Slowdown:
- The housing market has experienced a significant slowdown attributed to the rise in mortgage rates. Mortgage interest rates have surged, moving from just above 3% to nearly 7% within the past year.
- The diminished demand for new homes and refinances has contributed to the deceleration in the housing market, as mentioned by Mike Fratantoni, the MBA's chief economist.
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Potential Recession in 2023:
- The forecast from the Mortgage Bankers Association suggests that the slowing housing market could lead the U.S. into a recession at the beginning of 2023.
- Economic indicators such as the Federal Reserve's continued rate hikes and the resulting impact on mortgage rates are key contributors to this recession prediction.
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Recovery Through Housing Market:
- Interestingly, the same housing market that is anticipated to contribute to the recession could also be the catalyst for economic recovery. Fratantoni suggests that as interest rates ease in the coming year, the housing market might experience a resurgence.
- The MBA's forecast envisions a potential decline in mortgage rates to 5.5% by the end of the following year, with further decreases afterward. This, in turn, could stimulate activity in the housing market and guide the U.S. out of the impending recession.
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Federal Reserve's Role:
- The Federal Reserve's decision to raise interest rates is a central theme in the article. The November meeting of the Federal Open Market Committee (FOMC) resulted in a 75-basis point increase in the federal funds rate, marking the fourth consecutive hike and the sixth for the year.
- Despite the Fed's commitment to further rate hikes, there is a suggestion that future increases are already factored into current interest rates, potentially limiting their future impact on mortgage rates.
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Inflation Concerns and Monetary Policy:
- The article touches on the Federal Reserve's recognition of inflation concerns and its commitment to raising rates. While the Fed acknowledges the need to slow the pace of rate increases, it is expected to continue the upward trajectory in the near term.
- The potential impact of inflation on the housing market and the broader economy is a crucial aspect to watch, as highlighted by the MBA forecast.
In conclusion, the intricate interplay between housing market dynamics, interest rates, and broader economic trends is a key focus of my expertise, and the insights provided in the article align with my in-depth understanding of these financial intricacies.
