Elevated mortgage rates, high home prices and limited housing inventory are making the dream of homeownership difficult for Americans, according to NAR Chief Economist Lawrence Yun.
Yun analyzed the current state of the U.S. residential real estate market and shared his 2024 outlook yesterday during the Residential Economic Issues and Trends Forum at 2023 NAR NXT, The Realtor® Experience, in Anaheim, California.
He explained that high mortgage rates and low inventory have dominated 2023, saying, “Twenty-year-high mortgage rates have held off home buyers. There’s also a lack of housing inventory to sell, which means fewer opportunities for sales in the marketplace.”
Yun said that home sales will likely decline by 18% this year, compounding a 17% reduction last year.
Driven by extraordinarily high interest rates, 30-year-fixed mortgage rates remained elevated in 2023, climbing to as much as 8%.
“These high interest rates have had a great impact on the U.S.’ overall economic performance,” Yun said.
Yun referenced the latest GDP figure, which grew by 4.9%, but warned, “Statistically, this is much better than the historical average, but if we look at this component, there are some worrying signs in the economy.” The first being that business spending is essentially flat. The second is that goods inventory is rising, meaning products are being produced but not getting sold.
“We cannot keep adding to the shelves,” said Yun. “Just like in housing, businesses have to borrow money, and business spending is down because it’s more expensive to borrow.”
Yun also addressed jobs, stating, “We are on the positive side of jobs data, but each passing month shows diminishing strength. Based on the trendline, employment could become negative. The upcoming GDP number looks to be worrisome.”
He also told the audience that as of this morning, the consumer price index (CPI) is much calmer, indicating that the Federal Reserve should adjust its monetary tightening posture.
“The 10-year Treasury yield is at 4.4%, which historically means mortgage rates could be at 6.4%, but they are much higher,” said Yun. “The bond market is forcing the Fed to pivot.”
Yun also discussed high home prices.
“Lack of inventory is providing the support for high prices, but it’s also making it super difficult for first-time buyers to enter the housing market.”
Yun said the 30-year mortgage and Fed funds rates have likely crested.
“I believe we’ve already reached the peak in terms of interest rates,” Yun said. “The question is when are rates going to come down?”
Yun forecasts that interest rates will drop to between 6-7% by the spring buying season and anticipates that more sellers will enter the market.
“Builders are back on their feet, up 5% in newly constructed home sales year to date,” said Yun. “Builders can simply create inventory. In a housing shortage environment, builders are really benefiting.”
He explained NAR’s advocacy efforts are working to help create inventory, but it will take time.
“Pent-up sellers cannot wait any longer. People will begin to say, ‘life goes on,’” said Yun. “Listings will steadily show up, and new home sales will continue to do well. Existing home sales will rise by 15% next year.”
Yun also said that international buyers have declined, but once they return to the market, there will be a boost in buying.
He reiterated the value of homeownership, stating, “Consumers are happy with real estate service. The market is fiercely competitive with so many business models among which to choose – from do it yourselfers to iBuyers to discount brokerages, to full service and rebates. American home buyers have benefited immensely from such wide-ranging choices in real estate services. Moreover, homeowners have accumulated sizable wealth over time.”
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