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Turmoil in the banking system may serve as the catalyst for a modest recession, but it’s likely to resemble the savings and loan crisis of the 1980s more than the 2008 financial crisis, Fannie Mae economists said Friday.
The failures of Silicon Valley Bank and Signature Bank could prove to be a double-edged sword for housing — providing a tailwind for home sales in the form of lower mortgage rates but also prompting small and midsized regional banks to tighten lending standards, Fannie Mae economists said in their latest monthly economic and housing forecasts.
“While home sales experienced a large bump in February following a pullback in mortgage rates … recent mortgage application data suggest that last month’s level of home sales will be temporary,” Fannie Mae economists said. Ongoing banking instability “may affect the availability of jumbo mortgages and residential construction loans due to the high concentration of those originations stemming from small and midsized banks.”
Forecasters with Fannie Mae’s Economic and Strategic Research Group published their latest monthly forecast Friday, but the numbers were finalized on March 13 — just days after the failures of Silicon Valley Bank and Signature Bank and more than a week before the Federal Reserve’s March 22 meeting.
Economists at the mortgage giant say recent turbulence in the banking sector adds some uncertainty to their forecast but doesn’t fundamentally change their baseline outlook.
Fannie Mae economists have been predicting a 2023 recession since last April. But stronger-than-expected economic data have pushed back the anticipated start of the recession from the second quarter to the second half of this year, they said.
“Regardless of how the banking turbulence plays…