Amid the backdrop of high inflation, elevated mortgage rates and slowing sales activity, severely limited housing inventory will prevent large home price drops for most of the country next year, according to the National Association of REALTORS®’ (NAR) Chief Economist Lawrence Yun.
Yun recently analyzed the current state of the residential real estate market and shared his 2023 outlook at NAR’s 2022 NXT, The REALTOR® Experience, in Orlando, Florida.
“Home prices are on solid ground…as an ordinary consumer, there’s nothing to worry about. The worry is really with the industry, where you have seen mortgage brokers slashing jobs, home builders having far less business activity…so it’s really about the industry and not ordinary consumers,” Yun said. “The prospect of a home price collapse is minimal, but some markets will experience a price decline–I would say that California will be the most vulnerable.”
However, Yun noted that today’s market conditions are fundamentally different than those experienced during the Great Recession.
“Housing inventory is about a quarter of what it was in 2008,” Yun said. “Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two years.”
Driven by the unprecedented rate at which mortgage rates climbed in 2022 – from 3% in January to around 7% today – the downturn in the housing market has had an outsized impact on the nation’s overall economic performance, Yun explained.
“The slide in sales and home building has down GDP,” Yun said. “If the housing market was stabilizing and not declining, GDP would be positive.”
Yun added that signs point to mortgage rates topping out, particularly as October’s consumer price index showed inflation rising less than expected. He did, however, express concern about the spread between mortgage rates and the federal funds rate.
“The gap between the 30-year fixed mortgage rate and the government borrowing rate is much higher today than it has been historically,” Yun said. “If we didn’t have this large gap, mortgage rates wouldn’t be 7%, they would be 5.8%. A normal spread would revive the economy. If inflation disappears, then we’d see less anxiety within the financial markets and lower interest rates, which would allow owners to refinance.”
In 2023, Yun expects home sales to decline by 7%, while the national median home price will increase by 1%, with some markets experiencing price gains and others price declines. He also projects a strong rebound for housing in 2024, with a 10% jump in home sales and a 5% increase in the national median home price.
For more information, visit www.nar.realtor.
