National Association of Realtors
Speaking at NAR’s Real Estate Forecast Summit on Wednesday, Chief Economist Lawrence Yun said ‘inventory is turning’ and the housing market is heading back toward a pre-COVID normal
Even though Federal Reserve policymakers voted Wednesday to raise short-term interest rates by 75 basis points, real estate professionals shouldn’t expect too much volatility in mortgage rates, according to the National Association of Realtors’ chief economist.
Speaking at NAR’s Real Estate Forecast Summit on Wednesday just before the Fed’s announcement, Lawrence Yun said the mortgage market had already priced in the expected increase in short-term rates and that further increases are anticipated in September, then another before year’s end and possibly even in the early months of next year.
“Given that [the mortgage market] may have already priced in future activity, it’s possible that we may be actually tapping out in mortgage rates dependent on what the Fed may be doing in the future months,” he told webinar attendees.
“It’s already priced in. So there could be smaller increases in the upcoming months, maybe even smaller declines. If there’s a decline, work with your clients. Maybe they want to strike at a point when mortgage rates slightly decline.
“I think most of the mortgage rate changes have already occurred. Now it’s going to be bouncing along. [A] little up, [a] little down. If you see a period of down, maybe you want to lock in those rates for that purchase.”
In a statement provided to Inman, Mike Fratantoni, chief economist for the Mortgage Bankers Association, similarly suggested that mortgage rates could be plateauing.
“[M]ortgage rates may have already peaked and could stay between 5 percent and 5.5 percent through the remainder of 2022,” he said.
“If that were to be the case, potential buyers, who had been scared off by the rate spike, might find their way back to the housing market.”
Yun pointed out that inventory had recently risen year over year for the first time in years, signaling that, though still inadequate to meet demand, “inventory is turning” and the market is heading back toward a pre-COVID normal.
“For your consumers who still have that financial capacity, they no longer have to make an offer after seeing only one home,” Yun said.
“Now [they] can be more relaxed [and] look at three, four, five homes and then determine which one is the right one. Just like the olden days.”
The days of homebuyers have to make offers immediately and bid over list in order to compete in a bidding war are “over,” Yun said.
“We are steadily returning to normalization,” he added.
That is not to say that the housing market will be seeing widespread home price declines anytime soon. Though the market is shifting and existing-home sales slid for the fifth straight month in June, the median price of existing homes hit a new record high.
Even though Realtors are cutting list prices across the country, they’re much higher today than they were a year ago, Yun said.
“That is why you are getting this conflicting report where home sales are coming down but prices are hitting [a] record high because even as the list price is getting readjusted, this is a very high list price,” he said. “They’re looking at what their neighbor’s home sold for.”
NAR predicts that home sales will decline by 13 percent this year while home prices will rise 11 percent. In 2023, the trade group expects sales to remain flat and home prices to rise 2 percent.
Regarding whether the economy is currently in recession, Yun reiterated comments he made back in May that if we are in a recession, it’s not a typical one.
“Two straight quarters of GDP decline is a clear possibility, which would mean that we are in an economic recession,” he said. “Nonetheless, [it] will be quite a bizarre recession because we have a labor shortage.”
He noted that there are nearly two job openings for every person who is unemployed, in part because there are two million fewer people in the labor force than there were before the pandemic.
Despite ever more frequent announcements regarding layoffs, Yun said job cuts aren’t widespread.
“There are job cuts in the mortgage lending as refis collapse,” he said. “[In the] technology sector they’re cutting jobs with the stock market being very shaky. But the total net across all industries we are still adding jobs.”