“Next year will be particularly challenging for the US and global economies,” said MBA chief economist Mike Fratantoni. “The sharp increase in interest rates this year – a consequence of the Federal Reserve’s efforts to slow inflation, will lead to an equally sharp slowdown in the economy, matching the downturn that is happening right now in the housing market.

“MBA’s forecast calls for a recession in the first half of next year, driven by tighter financial conditions, reduced business investment, and slower global growth. As a result, the unemployment rate will increase from its current rate of 3.5% to 5.5% by the end of the year. Inflation will gradually decline towards the Fed’s 2% target by the middle of 2024.”

After more than doubling this year, MBA’s baseline forecast is for mortgage rates to end 2023 at around 5.4%.

Deputy chief economist Joel Kan noted that the slowdown in housing activity and higher mortgage rates will quickly cut the rate of home-price growth.

“MBA expects national home prices will be roughly flat in 2023 and 2024, allowing household incomes some much-needed time to catch up to elevated property values,” he said. “However, many local markets will see home-price declines, even if national price measures remain largely unchanged.”