The U.S. Will Likely Enter a Recession in 2023
The U.S. economy posted negative GDP growth in the first two quarters of 2022. Still, officials didn’t officially declare a recession because of competing positive economic indicators such as strong job numbers and consumer spending. However, a growing chorus of economists now predicts that the United States will enter an official recession in the months ahead.
JP Morgan Chase CEO Jamie Dimon predicts the U.S. will be in a recession within six to nine months. He bases this prediction on the Federal Reserve’s decision to continue raising interest rates and also blames the economic impacts of the Russie-Ukraine conflict and the Covid pandemic. Inflation is also a clear problem, as consumer goods and services prices grew 8.2% between September 2021 and 2022.
Other top economists have similar predictions. Moody’s Analytics chief economist Mark Zandi forecasts a recession in 2022, and Bloomberg Economics places the odds of a US recession within the next year at 100%. Fannie Mae predicts that the U.S. economy grew in Q3 and will also grow in Q4 before posting negative growth in Q1 2023.
How Will a Looming Economic Downturn Affect the Housing Market?
With a recession likely on the horizon, homebuyers and sellers should stay informed on the direction of the housing market. Interest rates on a 30-year fixed-rate mortgage are now averaging over 7.0%, and national home prices recently reached all-time highs. However, home prices are finally declining after a couple of years of record growth — in July and August, sales prices declined by 1.05% and 0.98%. Homebuyers and sellers can also expect negative price growth in the months ahead.
Generally, forecasts from top firms such as Goldman Sachs, Morgan Stanley, and Moody’s Analytics now expect that the housing market will see prices fall by 5 to 10% throughout 2023. However, a recession could push home prices down even more over the long term. Moody’s Analytics predicts that U.S. home prices will decline between 15% to 20% from 2022’s high point if there is a recession. To put that in perspective, home prices declined 27% from their peak between 2006 and 2012.
While it is impossible to predict precisely where home prices will be at the end of 2023, the odds that prices will decline, potentially substantially, keep growing. The main culprit is high-interest rates, which will likely stay around an average of 6.5% next year. High-interest rates and home prices, combined with a looming recession, will make homeownership unaffordable for even more Americans.
As a result, sellers will have to lower their sales prices, as the market is shifting more and more in favor of buyers. Sold homes were on the market for a median of 25 days a year ago but now sit on the market for 33 days, a 28% yearly increase. Additionally, fewer homes are selling for an above-asking price — 45% of houses sold for the above-asking price a year ago, compared to 30% now.
Unfortunately, even if home prices decline 15 to 20% from 2022 peaks, as Moody’s Analytics predicts, high-interest rates will ensure that buying into the housing market remains difficult for most Americans who have never owned property.