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The Federal Reserve’s attempt to quell inflation by putting upward pressure on interest rates seems to be working, and while a slowdown could provide relief for prospective buyers, it may also point toward a 2023 recession. New home sales fell 16.6% in April while inventory rose to a nine month supply, and as a result, the May NAHB/Wells Fargo Housing Market Index (HMI) fell 8 points to its lowest reading since June 2020, NAHB reports.

NAHB predicts a mild recession in 2023 as the Fed continues to tighten its monetary policy in a cooling market still recording record high home prices and a lack of inventory.

Elevated inflation, ongoing construction cost increases and higher interest rates are now slowing the housing market. And declining housing demand and weakening builder sentiment provide recession concerns for next year, as housing traditionally leads the business cycle. While the Federal Reserve is attempting to quell inflation and achieve a soft landing (by tightening monetary policy and returning inflation to target levels), history suggests that based on current rates of inflation and labor market tightness, the probability of avoiding a recession is small.

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