Homebuyers, Owners, & Renters
      
      Homebuyers, Owners, and Renters

          
                        Business Partners
                  Single-Family Business

Helping lenders serve homebuyers and homeowners with affordable mortgages
    
          Multifamily Business

Financing for quality, affordable rental housing in every market, every day
    
          Capital Markets

Reducing risk and enhancing housing finance liquidity
          About Us
                toggle
                Who We Are
                                              toggle
                        Awards and Recognition
                                                      Diversity and Inclusion
                                                              toggle
                                Employee Resource Groups
                                                                      Progress With Purpose
                                                      Employee Code of Conduct
                                                      Community Engagement
                                                      History
                                      What We Do
                                              toggle
                        Duty to Serve
                                                              toggle
                                Manufactured Housing
                                                                      Affordable Housing Preservation
                                                                      Rural Housing
                                                                      Research Initiatives
                                                                      Colonias Investment Areas
                                                      Homeownership
                                                              toggle
                                Access to Mortgage Credit
                                                                      Restrictive Covenants
                                                      Innovation
                                                      Mortgage Finance in America
                                                      Financial Performance
                                                      Disaster Resiliency and Relief
                                                      Pilot Transparency
                                      Leadership Team
                                      Corporate Governance
                                              toggle
                        Corporate Governance Guidelines
                                                      Fannie Mae Charter
                                                      Board of Directors
                                                      Committees
                                                      Committee Charters
                                                      Code of Conduct
                                                      Bylaws
                                                      Contacting the Board of Directors
                                                      Housing Reports
                                      Investor Relations
                                              toggle
                        Quarterly and Annual Results
                                                      Annual Reports
                                                      SEC Filings
                                                              toggle
                                All SEC Filings
                                                                      Annual Filings
                                                                      Quarterly Filings
                                                                      Current Reports
                                                                      Section 16 Filings
                                                                      Proxy Filings
                                                      Additional Disclosures
                                                              toggle
                                Monthly Summary
                                                                      Capital Disclosures
                                                      Stock Information
                                                      Current Stock Information
                                                      Contact Information
                                      ESG
                                              toggle
                        Learn about our business
                                                      Environmental
                                                      Social
                                                              toggle
                                Equitable Housing Finance Plan
                                                      Governance
                                                      Sustainable Bonds
                                                              toggle
                                Green Bonds
                                                                      Social Bonds
                                                      Reports & Disclosures
                                                              toggle
                                2021 ESG Report
                                      Research & Insights
                                              toggle
                        Forecast
                                                              toggle
                                Monthly Archive
                                                                      Weekly Archive
                                                      Surveys & Indices
                                                              toggle
                                National Housing Survey
                                                                      Mortgage Lender Sentiment Survey
                                                                      Fannie Mae Home Price Index
                                                                      Refinance Application-Level Index
                                                                      Special Topics
                                                      Publications
                                                              toggle
                                Fannie Mae Working Papers
                                                                      Housing Insights
                                                                      Partner Research
                                                                      Publications Archive
                                                      Perspectives
                                                              toggle
                                Archive - 2020
                                                                      Archive - 2021
                                                                      Archive - 2022
                                                                      Archive - 2023
                                      Newsroom
                                              toggle
                        News
                                                      Media Resources
          
                        Careers
                toggle
                Our Teams
                                              toggle
                        Corporate Teams
                                                      Data & Analytics
                                                      Digital & Technology
                                                      Mortgage & Customer Solutions
                                                      Risk Management
                                      Life at Fannie Mae
                                      Diversity & Inclusion
                                      Benefits & Professional Development
                                      Campus
          
                        Contact Us
                      
            Google Translate Disclaimer
            The Google Translate feature is a third-party service that is available for informational purposes only. Fannie Mae is unable to guarantee the accuracy of any translation resulting from the tool and is not responsible for any event or damage that occurs as a result of using the translations generated by the Google Translate feature.
            OK
  Translate
        Translation Disclaimer
          Chinese, Traditional
            English
            Filipino
            Korean
            Spanish
            Vietnamese
 FM Site Nav
  

        

Homepage
                    
      Fannie Mae logo
    Toggle navigation
      Rent
                
                All Renter Resources
                                      The Rental Process
                                      Make Your Rent Count
                                      Credit Basics
                      
            Buy
                
                All Homebuyer Resources
                                      7 Steps to Homeownership
                                      HomeView Homeownership Education Course
                      
            Own
                
                All Homeowner Resources
                                      Make the Most of Your Home
                                      Refinancing Your Mortgage
                                      When It’s Time to Sell
                      
            Get Relief
                  Manage Financial Uncertainty

All Resources to Manage Financial Uncertainty

Help for Homeowners

Help for Renters

Protect Yourself from Fraud
    
          Recover from a Disaster

All Resources for Recovering from a Disaster

Recovery Assistance for Homeowners

Recovery Assistance for Renters

Protect Yourself from Fraud
                      
            Calculators & Tools
                
                All Calculators & Tools
                                      Tools for Renters
                                      Tools for Homebuyers
                                      Tools for Homeowners
                                      HomeView® Homeownership Education Course
                                      Glossary
                                      Mobile AppToggle search
 Skip to main content
          
    
    Home
                        Research and Insights
                        Forecast
                        Economic Growth Stagnating in Face of High Inflation
    Economic & Housing Outlook
Economic Growth Stagnating in Face of High Inflation
July 20, 2022
Our forecast for real gross domestic product growth (GDP) in 2022 was revised to just 0.1 percent on a Q4/Q4 basis, down from our previous forecast of 1.2 percent growth. This was largely driven by recent incoming data revisions pointing to a modest contraction of GDP in the second quarter as decades-high inflation and rising interest rates weigh on consumers and firms. While we do not believe a recession has yet begun, economic growth is clearly stagnating alongside high inflation. With the full effects of monetary and fiscal policy tightening still working through the economy, we now expect a modest recession to begin in Q1 2023 as opposed to our previous expectation of it occurring in the latter half 2023. Thus, our forecast for 2023 GDP growth was revised downward to negative 0.4 percent from a previous negative 0.1 percent. We forecast the unemployment rate will rise to around 5.5 percent by the end of 2023 compared to the current level of 3.6 percent.

Our lower GDP forecast means we also revised downward our year-end inflation outlook on softening prices for durable goods, energy, and other commodities, in addition to slower wage growth as economic activity weakens. We forecast the Consumer Price Index (CPI) will rise 5.7 percent in 2022 on a Q4/Q4 basis (down from 7.3 percent) and the core measure will be 5.0 percent higher (5.1 percent previously). Note that following the completion of our forecast, the CPI reading for the month of June came in higher than expected, meaning that there is upside risk to our near-term inflation outlook.

Additionally, we revised lower our forecast for total home sales in 2022 to 5.82 million units, a 15.6 percent decline from 2021 and steeper than our previous forecast of a 13.5 percent drop. Sales expectations for 2023 were revised downward to a pace of 5.15 million units, from 5.29 million. In contrast, our quarterly update of our home price forecast was revised upward for 2022 to 16.0 percent growth on a Q4/Q4 basis, up from a previous 10.8 percent. The change was in large part driven by stronger incoming actual price growth through Q2, which increased on a non-seasonally adjusted basis by 11.2 percent, compared to our previous forecast of 7.7 percent. We still anticipate a strong deceleration in house price growth going forward as the lagged effects of higher mortgage rates and a slowing economy weigh on home purchase demand. Following completion of our forecast, some more recent market indicators suggest that home price growth could moderate at a faster pace than currently projected. Taking both sales and home price forecast changes into account, we have revised lower our forecast for 2022 mortgage originations to $2.53 trillion (previously $2.60 trillion), while slightly upwardly revising 2023 forecast originations to $2.22 trillion (previously $2.20 trillion), respectively. For the latter, a higher home price outlook outweighed a lower sales forecast.

**Downward Revisions to Data Point to Q2 GDP Contraction**
We now expect that second quarter 2022 GDP declined at an annualized pace of 1.4 percent, down from our previous forecast of 2.5 percent growth. This substantial change was driven principally by a contraction in real personal consumption expenditures data for the month of May, which fell 0.4 percent, as well as large downward revisions to the readings for March and April. This more recent data paints a picture of a far less resilient consumer in the face of high inflation than previously thought. As a secondary factor, revisions to first quarter GDP also revealed that business inventory restocking was stronger over the period than previously reported, meaning that there is now less need for firms to continue to build inventory. Comments from major retailers suggesting they are holding more than the desired level of stock for certain items supports this notion. Inventory investment was a major driver of growth over recent quarters, so an anticipated slowdown will now drag on GDP growth moving forward.

Real personal consumption expenditures revised much lower in March & April in latest data release

One of the ongoing risks to the forecast is determining how consumers will behave in light of two key competing factors. On one hand, despite strong nominal wage gains, inflation-adjusted incomes have been flat to negative in recent months, weighing on discretionary spending. On the other hand, in aggregate, households continue to have a large built-up stock of savings in their checking accounts and remain less leveraged than they were prior to the onset of the COVID-19 pandemic. This suggests that households can continue to dip into savings and take on more debt to drive consumption in the near term. In fact, outstanding revolving credit balances have been rising in recent months and are up 6.7 percent through May since December 2021. It is uncertain, however, how much further consumers will be able and willing to do this, leading to near-term risk to our GDP forecast in both directions. Built-up savings are not distributed equally, and many more modest-income households have exhausted their previously built-up savings at this point and may not have access to additional credit. Furthermore, in part due to recession-like low levels of consumer confidence, many consumers able to drive spending growth may not be willing to do so, which remains a risk going forward. However, given recent data trends such as June retail sales and the more recent pull back in energy prices since June, which should help real income growth in July, we forecast real personal consumption will grow modestly moving into Q3 2022.

**But Not a Recession... Yet**
Our expectation of negative GDP growth in Q2 would translate into two consecutive quarters of contraction, which is often thought to define a recession. While a convenient rule of thumb, it is not the technical definition per the National Bureau of Economic Research (NBER), the official arbiter of business cycle timing. In declaring a downturn, a more holistic view of economic indicators is used, and in this light, we do not believe a general economic contraction began in the first half of this year. The Omicron wave of COVID-19, coupled with supply chain disruptions led to some anomalies in Q1 data not reflective of the overall economic trend in our view. An alternative (but theoretically similar) measure of economic activity, Real Gross Domestic Income (GDI), rose by 1.8 percent annualized in Q1 in contrast to the GDP decline of 1.6 percent. Business fixed investment, which historically falls during a recession, grew by a robust 10 percent annualized in Q1, a strong signal of continued expansion. Additionally, historically in the quarter where a recession is deemed to have begun, the unemployment rate has begun to rise. This was not the case in Q1, and payroll employment growth has continued to be robust, adding on average over 500,000 jobs per month in Q1. In Q2, the unemployment rate remained at the cycle low of 3.6 percent, and most other non-GDP indicators of economic activity, while decelerating, are not yet pointing to a contraction. We expect Q3 to show a modest return to GDP growth.

GDP & GDI deviated significantly in most recent quarter

Household and establishment surveys are showing different views of the labor market

However, some recent data is a bit puzzling. Payroll employment growth continues to be far more robust than what has historically been consistent with weak GDP growth. Of note, while month to month the household survey measure of employment used to calculate the unemployment rate tends to be more volatile, it has now clearly developed a weaker trend over the past three months that is consistent with stagnating growth. Historically, when the two employment measures diverge, there have often been revisions moving them closer together. This is something to watch moving forward as it represents a risk that employment growth could be weaker than most recently reported.

We are assuming for now that reported payroll employment growth, which grew by 372,000 in June, is an accurate reading, which is also consistent with continued strong job openings measures through May. However, as monetary policy continues to tighten and economic growth is expected to be modest in the near term, we are forecasting employment gains will slow in the third and fourth quarters, down from over 300,000 per month currently to around 100,000 by year end. The hotter-than-expected CPI report for the month of June, where topline inflation rose by 1.3 percent over the month and was up 9.1 percent from a year prior, suggests that the Federal Reserve will continue to aggressively tighten policy. We are expecting another 75-basis point hike at the July FOMC meeting, but following the CPI release, futures markets are increasingly pricing in the possibility of a 100-basis point hike. We expect the Fed to continue to tighten until there is evidence of inflation cooling, even if this increases the risk of recession. Multiple FOMC members have made recent comments suggesting a willingness to take this risk. Following the inflation report, the 2-10 Treasury yield curve inverted again, which historically is one of the better forward-looking indicators of recession. Taken as a whole, we now have as our baseline forecast a modest recession beginning in Q1 2023, which would likely then see the Federal Reserve beginning to cut its target rate in light of rising unemployment and softening inflation.

**Home Sales Forecast Revised Downward on Weaker Economic Outlook**
Both existing and new home sales came in for the month of May in line with our expectations. The former fell 3.4 percent to an annualized pace of 5.41 million units and were down 8.6 percent from a year earlier. Meanwhile, new home sales rebounded 10.7 percent in May after plunging 12.0 percent in April. Still, new home sales were down 3.1 percent from a year prior. Despite recent sales being close to expectations, we have meaningfully revised downward our sales outlook for later in 2022 and into 2023. This is primarily driven by the updated macroeconomic outlook and an expectation of an earlier recession than previously forecast. We now project 2022 existing home sales to end the year around 4.57 million annualized units, down from our previous forecast of 4.83 million units. Existing sales for 2023 are forecast to total 4.55 million units, compared to our prior outlook of 4.67 million. New home sales are expected to fall below 600,000 by the end of the year on a quarterly annualized basis and then remain at similar levels in 2023.

Home sales expected to slow further due to rising rates and forecasted recession

House price growth in 2022 still expected to decelerate

We expect house price growth to decelerate over our forecast horizon; however, price appreciation remained robust through the second quarter. As measured by the Fannie Mae Home Price Index, house prices rose 19.4 percent in Q2 from a year prior, down only slightly from the Q1 year-over-year change of 20.5 percent. While we have upgraded our house price growth expectations for the whole of 2022 due to this strength to date, we expect deceleration of non-seasonally adjusted quarterly price growth from around 6 percent in Q2 to 1.5 percent by Q4 2022.

Home price changes tend to lag changes in home sales as prices tend to be “sticky”. Sellers are often reluctant to cut their asking price, and buyers’ expectations are based on recent comparable sales. But there are early signs of slowing price growth. According to Redfin, the share of listings experiencing price cuts continued to rise, with 7.1 percent experiencing one per week as of the most recent July 10 reading, up from around 2 percent in March. Asking prices have also fallen in recent weeks. Meanwhile according to Realtor.com, the number of active listings as of July 9 is now up 28 percent from a year prior. While this remains a tight market, the direction is clearly loosening.

New home sales continue to be driven by sales of homes under construction

On the new construction side, there continues to be an elevated share of homes sold that are currently under construction. This partially represents ongoing supply chain issues and order backlogs on the part of homebuilders. However, it also represents housing units that are currently in the pipeline to eventually be lived in by a household. When that occurs, existing homes where these new homebuyers currently reside, whether owned or rented, will be freed up, adding to the available supply of listings on net.

**Offsetting Factors Lead to Changes in Originations Outlook**
Several factors contributed to revisions to our mortgage originations outlook. A modestly higher mortgage rate forecast along with a weaker GDP outlook led to a lower volume of expected loans originated, both for purchase money and refinance mortgages. However, the upward revision to our house price forecast increases the expected dollar size per loan originated.

Taken together, total market mortgage originations are projected to be $2.53 trillion in 2022, a downward revision of $71 billion from the prior month’s forecast. Purchase volumes were revised downward by $30 billion to $1.78 trillion and refinance volumes by $41 billion to $756 billion. In 2023, we expect total originations to fall to $2.22 trillion, but this is still an upward revision of $19 billion from last month’s forecast, entirely due to an upward revision to purchase originations. This is because higher home prices outweigh the down revision to home sales.

**Economic & Strategic Research (ESR) Group**
July 15, 2022
For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes.

***Data sources for charts:****Bureau of Labor Statistics, Bureau of Economic Analysis, National Association of REALTORS®, Census Bureau, Fannie Mae ESR Analysis .*

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

****ESR Macroeconomic Forecast Team****

**Doug Duncan, SVP and Chief Economist**
	**Mark Palim, VP and Deputy Chief Economist**
	**Eric Brescia, Economics Manager**
	**Nick Embrey, Economist**
	**Nathaniel Drake, Economic Analyst**
	**Richard Goyette, Economic Analyst**

TOPICS
  
Fannie Mae Corporate
  
  
      Twitter
              Facebook
              Linkedin
              Email
Research and Insights
                                                              Forecast
                                                              Monthly Archive
                                    Weekly Archive
                                    Surveys & Indices
                                    Publications
                                    Perspectives

Related Links

July Press ReleaseJuly Economic Forecast 
July Housing Forecast 
July Multifamily Market Commentary

Our Company
    About Us
      Contact Us
      Careers
      Investor Relations
      Newsroom
      Research & Insights
      ESG
  Business Partners
    Single-Family Business
      Multifamily Business
      Capital Markets
	      Suppliers
      Developer Portal
  Homebuyers, Owners, & Renters
    Educational Resources
      Credit Basics
      HomeView Homeownership Education Course
      HomePath - Search for Homes
      Make Your Rent CountCalculators & Tools
      All Calculators and Tools      Glossary of Key Terms
      Mortgage Calculator
      Down Payment Assistance Search Tool
      Mobile AppLet Us Help You
      Contact a Housing Counselor
      Manage Financial Uncertainty
      Recover from a Disaster
    
    
  

      
Social media
  

        
            Follow us
          Follow us
          Facebook
          Twitter
          LinkedIn
          Instagram
    Footer
  

        
            Legal
          Privacy
          Digital Accessibility
                Cookie Preferences
            © 2024 Fannie Mae