Above, NAR Chief Economist Lawrence Yun
WASHINGTON D.C.—The housing market is experiencing its worst two-year stretch for home sales in three decades, with National Association of REALTORS® (NAR) Chief Economist Lawrence Yun painting a stark picture of an industry caught between the Federal Reserve and high mortgage rates.
During his talk at the Residential Economic Issues and Trends Forum at NAR’s midyear REALTORS® Legislative Meetings, Yun told a packed ballroom that, despite his recent recognition from the Wall Street Journal as one of the country’s top economic forecasters, “the forecast that is most important, is not panning out.”
“I thought at this conference, I would share some good news with you. ‘Home sales are rising. Momentum is building.’ But we are not seeing that. The market remains very, very difficult at the moment. As you all know, the recovery has been delayed,” Yun said. “Part of the delay in recovery, one can say, is that the Federal Reserve has changed their outcome.”
Over the past 30 years, the U.S. has had the lowest home sales in the past two years, and the 2025 monthly data has yet to show recovery. Unless the second half of the year shows improvement, it might be another year of difficult home sales, Yun warned.
There has been a shift in housing demand, though, with a 20% increase in mortgage applications, excluding refinancing, over the past couple of years. The demand is certainly there, Yun added.
Nationwide forecast offers peek of optimism
Yun is betting on home sales picking up during the second half of the year.
In 2025, Yun predicts a 6% increase in existing-home sales and a 10% increase in new-home sales. He expects mortgage rates to settle down at 6.4%, through a combination of a rate cut, along with the fact that the spread between the 10-year treasury and the 30-year fixed-rate may be lower.
He sees median home prices climbing by 3% and job gains continuing for the remainder of the year, at a rate of 1.6 million.
Looking ahead to 2026, Yun expects existing-home sales to increase by 11% and new-home sales to rise by 5%. He predicts that mortgage rates will reach 6.1% and that the median home price will climb 4%. Job gains are expected to continue at a rate of 2.4 million next year.
The builder advantage
Builders of new construction appear to be in a different position than REALTORS®, joked Yun, citing reports from this April having the highest level of sales in three years.
The reason for high new-home sales? Higher incentives at lower prices, Yun said.
Builders also have higher inventory compared to REALTORS®, who play a waiting game due to the lock-in effect.
Builders are innovating with mortgage rate buydowns, as they have more leeway than REALTORS® in playing around with mortgage rates.
“The builders, rather than reducing the price by $20,000, they’re saying, ‘Let’s use this $20,000 mortgage rate buydown.’ And by doing so, they have lowered the monthly payment costs, and consumers are somehow responding to that more monthly payment cost over the more full prices,” Yun said.
Rates at the Fed and its impact on mortgage rates
Because of President Trump’s tariffs and the uncertainty tied to them, the Fed, Yun said, has lowered the economic growth forecast and raised the inflation expectation. This higher potential for inflation has essentially put the Fed on pause, without any cuts, he added.
“President Trump saw this, and in a way only President Trump can respond. He said, ‘Jay Powell is a fool. He is an idiot.’” Yun joked to the audience.
When the Fed cut rates last September, it didn’t have an impact on mortgage rates, but Yun said that during its next round of cuts, there may be a “meaningful impact on mortgage rates.”
The spread between treasury rates and mortgage rates is typically 150 – 200 basis points, but the spread has been “abnormal,” Yun told the audience Tuesday.
“In simple language, today’s 10-year treasury rate is at 4.4%. Mortgage rates today should be at 6.4% or even 6%, possibly, under normal spread. Rather, we are at 7% because of the larger-than-normal spread,” Yun said.
What does this mean for average Americans?
Yun told REALTORS® Tuesday that although their past clients are happy with their fixed monthly payments, the monthly payment obligation for new buyers entering the market has greatly risen due to the high mortgage rates.
“That’s what is killing the market,” he said.
The good news is that income is outpacing home price growth, Yun added. However, it’s still all about mortgage rates—“the magic bullet”— coming down. Right now, it’s just a waiting game.
Rates and tariffs; What else is impacting rates?
Although eggs are a hot topic in today’s economy, Yun set the record straight at the NAR conference this week.
“The price of eggs is irrelevant to the weight of the consumer price inflation…Shelter cost is a big heavyweight—one-third of the weight—and the shelter cost is coming down, and the trend line continues to say it will be disinflationary,” Yun said.
The Fed will cut rates once inflation is under control, said Yun, who shared some inflationary and disinflationary costs that also impact rates:
- Tariff (inflationary)
- Shelter cost (disinflationary)
- Deregulation (disinflationary)
- Oil (disinflationary)
- Reciprocal tariff to zero (disinflationary)
- Weaker economy (disinflationary)
- Dumping and weaker dollar (inflationary)
- Pharmaceutical drugs (disinflationary)
Many of the heavyweight components are coming down.
Two to three years ago, rent prices were rising rapidly, but they are now trending downwards, Yun shared. Gasoline prices are back to pre-pandemic levels, he added. Yun is still monitoring the prices of prescription drugs.
There are now 7 million more total payroll jobs than pre-pandemic, which is “all potential-housing demand,” Yun said.
Here is Yun’s full presentation.
