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NAR Economist: Rising Interest Rates Not Good for Home Sales, But Won’t Trigger a 2020 Recession

NAR Chief Economist Lawrence Yun speaks to journalists in Boston. Photo credit: Ralph Bivins, Realty News Report

BOSTON –  (Realty News Report) – Mortgage rates are expected to rise in 2019, but a recession in the next 12-18 months doesn’t appear in the cards, said Lawrence Yun, the National Association of Realtors’ chief economist said during the Realtors Conference & Expo here.

Mortgage rates, now just below 5 percent will increase to about 5.3 percent in 2019 and edge up to 5.5 percent in 2019, Yun said, referring to 30-year, fixed-rate mortgages. “Rising mortgage rates are never good news for housing, but when you have rising interest rates and still have job creation, home sales will remain roughly stable,” he added.

More homebuyers will turn to adjustable rate mortgages (ARMs) as rates rise, the economist said in a news conference Friday.

Yun said home appreciation nationwide is expect to increase 6 percent over the next two years but noted the U.S. Federal Reserve is expected to increase interest rates later this year and could increase rates 2-3 times next year.

GNP growth will moderate over the next few years, but Yun emphasized he didn’t see a recession on the horizon because there is still job creation and unemployment is expected to be at a low level.

Yun said that the U.S. economy is “good” with low unemployment, record high job openings, historically low jobless claims, job additions for eight straight years and wages beginning to increase. “This type of activity in the economy should support the housing market, even as interest rates rise,” said Yun.

Although Yun predicts no recession, he said rising interest rates could be considered a threat to lead to economic decline, so the Federal Reserve can be expected to be cautious. “The Federal Reserve is mindful they could trigger a recession,” the economist said.

Yun estimates that existing-home sales will finish at a pace of 5.3 million—a decrease from 2017 (5.51 million). In 2019, sales are forecasted to increase to 5.4 million, a 1 percent increase.

The national median existing-home price is expected to rise to around $266,800 in 2019 (up 3.1 percent from 2018 this year and $274,000 in 2020. “Home price appreciation will slow down – the days of easy price gains are coming to an end – but prices will continue to rise,” he added.

The economist also commented on the Houston housing market, which has reported strong sales in 2018.

“The Houston market has recovered quite nicely from Hurricane Harvey,” Yun said, “Home sales came back within several months due to the strength of the local economy, with strong job creation. Because of the job creation, Houston can build affordable homes because people have to live someplace.”

Nov. 5, 2018 Realty News Report Copyright 2018

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