- Insider spoke with Mark Zandi, chief economist at Moody’s Analytics. He discussed his outlook for 2023.
- He predicts that there will be a 50% chance for recession in the next year. However, a soft landing is still possible.
- A top economist explained that a coming housing correction will not be the same as 2008’s crash.
Although commentators have been predicting a dark future for the US economy for months, Mark Zandi chief economist at Moody’s Analytics says that it’s a toss up.
He was a leading advisor to policymakers and the first economist to warn about the 2008 financial crisis. He put the 2023 recession odds at 50%. But believes it’s possible the Federal Reserve can stick a soft landing — with a little bit of luck.
It’s very close. In the end, it’s a very close call.
He warned that the economy will struggle in all scenarios for the next 12-18 months. He also said that he would not argue with anyone who anticipates a downturn.
The plus side is that the CPI October reportAnnual price growth declined to 7.7%, from 9.1% in June. This further supports the theory that inflation is at its peak. Zandi predicted that inflation would drop to 2% by 2024.
He expects that the economy will grow slower than it is now in 2023. The unemployment rate will rise to just over 4%, from 3.7% currently.
Zandi said that it is unlikely that the economy can withstand an unanticipated global event such as Russia’s invasion in Ukraine.
“There are some ‘known unknowns’, like the oil prices or what China will do about the pandemic. There are also many ‘unknown unknowns’. Things that we are unable to even imagine at the moment,” he stated.
He said that a Chinese invasion in Taiwan is not something that can be price into the markets. The same applies to other potential military conflicts.
“The Fed must catch a break. Nothing else can go off track.”
A housing correction but not a crash
The US’s economic outlook hinges on the US housing market. With the 30-year fixed mortgage rate at its lowest point, demand has dropped to a critical level. The increase was about 7%From 3% a Year Ago
Zandi explained that the demand is now lower than it was during the worst pandemic. She also said that the drop in demand would be comparable to what you saw in 2008, which Zandi noted.
However, there are important differences between 2008-2008. He said that while the price declines in the last crash were concentrated in certain areas of the country, 2023 will see widespread and falling prices in all states.
In 2008, home prices plunged up to 90% in some markets, leading to a flood of defaults and foreclosures. Zandi believes that this won’t happen next year because of the affordability of the housing market.
He stated that he expected prices to fall 10% from peak to trough with no recession. “That’s what I consider my baseline. It’s not a crash, I see it as a correction. It isn’t 2008, 2009, when prices dropped 25%-30% across the country.
For the housing market to rebound, mortgage rates need not to rise, prices must fall, and incomes must increase. He said that even if there was a recession, it would likely be closer to 20% than 10% decline in home values.
Zandi attempted to contextualize it, noting that prices have risen 40% since the pandemic.
He stated that people who obtained their mortgages or homes within the last year won’t feel happy about it. “They might be underwater. It’s only a tiny piece of the pie. This is a correction, and not a crash.
