NAR chief economist: We may be in for a ‘most unique’ recession

National Association of Realtors

Lawrence Yun predicted this year’s housing market will see declining sales, rising home prices and an American Dream increasingly out of reach.

At the National Association of Realtors’ midyear conference this week, several association executives said they would set their budgets once they heard the latest forecast from Lawrence Yun, NAR’s chief economist.

Yun, who one conference speaker described as a “rock star,” made the rounds at multiple conference sessions on Wednesday. He predicted that this year’s housing market would be one with declining sales, rising home prices and an American Dream increasingly out of reach as home affordability erodes.

And if a recession is coming, it’s not going to be the kind we experienced in 2008. We may meet the formal definition of a recession — a decline of GDP in two straight quarters — but jobs are so abundant and workers so scarce that statistically there are two jobs for every unemployed person, according to Yun.

“We had a contraction in the GDP in the first quarter and some economists say now the risk of a recession is 50 percent,” Yun told thousands of attendees at the Realtors Legislative Meetings’ Residential Economic Issues and Trends Forum Wednesday morning.

“But it’s a highly unusual recession in the sense that job openings are sky-high. So even if there’s a recession, it looks like job creation will continue, which is important for the healthy market.”

Contrary to the red-hot markets of 2020 and 2021, Yun predicted that home sales will fall by 9 percent this year, and home prices will rise 8 percent, adding up to a 1 percent decline in sales volume. He anticipates that next year’s sales volume will rise 3 percent due to a more moderate 1 percent drop in sales and 4 percent rise in home prices.

Source: NAR

Mortgage rates have been rising and that has historically meant a decline in home sales, he said, but not a big decline, except for the housing bust of the Great Recession.

Still, higher mortgage rates and a severe lack of inventory pushing up home prices has meant housing costs have increased by 55 percent in the past year: from a monthly mortgage payment of $1,686 on a $400,000 loan to a monthly payment of $2,606 on a $480,000 loan, according to Yun.

“Your clients are feeling this,” he said.

“Some of your clients are in total shock at the moment,” he added.

While wages have risen six percent in the past year, those gains have been wiped away by an 8.5 percent rise in inflation, according to Yun.

Still, the gap between actual mortgage payments and how much homes are worth is getting bigger, because actual mortgage payments aren’t rising even as home prices are, according to Yun.

“So a question from a consumer is: Are we in a housing market bubble? One response you can say is clearly, we’re not in an excessive debt situation,” Yun said.

The current inventory shortage is a result of “excessive” homebuyer demand and 15 years of under-building after the Great Recession, according to Yun.

“We need more construction,” he said, blaming land use and zoning regulations, a construction labor shortage and a lack of available lots.

Overall, Yun forecasts a return to a pre-pandemic market — which may feel like a significant drop given the go-go days of the past two years.

“We don’t know exactly what’s going to happen, but my best guess is that we may actually see a decline [in home sales] of about 15 percent by the third and fourth quarter on one year or more,” he said.

“This means that we may be seeing unit sales activity back to pre-COVID days. We had a huge surge [in 2020 and 2021]. Now we’re retreating back to pre-COVID days. Prices are still high. Prices are not retreating. Then by 2023 some time with job creation, home sales may return to positive territory.”

At the Multiple Listing Issues and Policies Committee meeting later that morning, Yun told attendees that they needn’t worry about their membership numbers.

“In my overall forecast, prices will pretty much neutralize any decline in sales… so the overall dollar revenue for Realtors in terms of their commission income will not change,” he said.

See all of Yun’s slides here.