Recession or Not, CRE Forecast Calls for a Bumpy Ride in 2023

January gets its name from the Roman god Janus, a two-faced god that presides over doors, gates, and thresholds— the lord of all comings and goings. As we look to the new year, January, true to its namesake, provides us with the unique opportunity to reflect on the year that was while speculating about the year that is to come. And 2023 is proving to be quite the forecast.

Wall Street is anticipating a recession, with soaring unemployment, collapsing inflation, and the worst profit outlook in a generation. Commercial real estate forecasts are also surprisingly candid in predicting turbulence. Only 5.5% of those surveyed by Bisnow did not think there would be a recession, with 38% predicting we are, in fact, in a recession and 42% expecting a shallow one. The Bloomberg economic model has even predicted, without hesitation, that there was a 100% chance of a recession in 2023, making this the best-telegraphed economic downturn in all economic history.

As a professional prognosticator myself, these types of forecasts would typically result in termination. There is no upside to being bearish. If you are right, everyone hates you; and if you are wrong, everyone will constantly point it out. So, what gives? Why is everyone predicting a recession in 2023? And, if they are right and there is one, what would that mean in terms of unemployment?

The Survey of Professional Forecasters is the oldest quarterly survey of macroeconomic forecasts in the United States, starting in 1968 by the American Statistical Association and the National Bureau of Economic Research. The Federal Reserve Bank of Philadelphia has since run this survey beginning in 1990. One of the questions in this survey, dubbed “The Anxious Index,” asks the panelists to estimate the probability that real GDP will decline in the next four quarters. This index often increases just before recessions begin, peaks during recessions, and then decreases when recovery seems near. The most recent reading of this index is 47.2, indicating that forecasters believe in roughly equal odds that real GDP will decline in the first quarter of 2023.

Looking at the historical data is not encouraging.

The Anxious Index tends to exceed 40 in the middle to late stages of a recession as a coincident indicator. The only exception was in Q4 of 1979, when the indicator was one quarter early (the recession started in Q1 of 1980).

As a reminder, the official declaration of a recession is made by the National Bureau of Economic Research (NBER), which is very cautious in dating a recession typically taking nearly a year after it has started to officially announce its presence. Declaring an end to recessions is equally cautious and time-consuming, often occurring a year after recovery has begun. Thus, entire recessions can sometimes come and go before the official announcement.

Keeping these limitations in mind, the Anxious Index has correctly predicted eight out of the last eight recessions before the official NBER declaration.

Another useful indicator of recession is the inverted yield curve, which is the difference between long-term and short-term interest rates (“the slope of the yield curve” or “the term spread”). This indicator has borne a consistent negative relationship with subsequent real economic activity in the United States, with a lead time of about four to six quarters. Since 1960, a yield curve inversion (as measured by the difference between ten-year and three-month Treasury rates) has preceded every recession on record.

In November 2022, the 10-year treasury yield was 3.89 percent, and the three-month treasury yield was 4.25 percent, meaning yields have inverted, and a recession should be expected within the next 12 to 18 months. Looking ahead 12 months, the model used by the Federal Reserve Bank of New York estimates a 38% chance of recession by November of 2023.

The last indicator we will be examining is our last possible hope of avoiding a recession and one I will be watching closely in the months ahead. The Sahm Rule was intended to be a type of dead man’s switch on monetary policy, where automatic stabilizing payments and other policy tools could be triggered at the start of a recession without human intervention. It was envisioned as a type of fail-safe whereby the economic machine could be steered away from a potentially dangerous direction in the event of a weak or ineffectual governing body.

This requires an unambiguous, simple rule—a single variable with an incredibly low rate of false positives.

The U3 national unemployment rate has bottomed at 3.7%. The Sahm rule will be triggered if the unemployment rate reaches 4.3 percent or higher. If that happens, we will be four months into a recession. This rule has predicted 12 of the last 12 recessions, as shown below by the starting and final unemployment rates.

Recessions are serious, which is why the NBER takes its time announcing its arrival.

1. If the Sahm rule is triggered in 2023, history dictates we can expect the unemployment rate to continue to rise to at least 6.5 percent. Currently, there are roughly 6 million unemployed Americans, with the potential for an additional 4.5 million unemployed Americans in 2023 – 2024.

2. If there is no rise in unemployment in 2023, there will not be a Federal Reserve U-turn, and asset prices, stocks, bonds, and real estate will continue to see price declines. If there is a.) a dramatic rise in the unemployment rate, b.) and there is a Federal Reserve U-turn, and c.) Quantitative Easing (QE) restarts, then there will not be a “mild recession,” but likely 4.5 million additional unemployed persons. Cheap money alone might may not be enough to save the economy this time.


While 2023 starts with so much doom and gloom, chances are equally likely it may also surprise the upside. Janus is the herald of transitions—of doors and gates. The only certainty we have is that we cannot remain at the threshold but must venture beyond and experience the many lows but also the great highs that await us. And as Yogi Berra reminds us, “Predictions are hard, especially about the future.” Onward!

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Thomas Galvin is the Director of Research for Stream Realty Partners’ Southwestern Region. He is a real estate economist with a focus on understanding and explaining macroeconomic trends through a commercial real estate lens.

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