Interest Rate Decline Ahead says NAR Economist

WASHINGTON – (By Dale King, Realty News Report) — National Association of Realtors Chief Economist Lawrence Yun imparted some optimistic real estate prognostications to professionals attending a “Residential Economic Issues & Trends Forum” during NAR’s 2024 Realtors Legislative meetings.

Right off the top, the economy chief predicted that interest rates will fall in the long term – a financial decision home buyers and sellers have looked forward to for a while.

Yun also forecast that 2024 existing-home sales will rise to 4.46 million (up 9 percent from 4.09 million in 2023) and 2025 existing-home sales will increase even further, to 5.05 million (up 13.2 percent from 2024) – with further gains coming in eight of the next 10 years.

Rents “will calm down further, which will hold down the consumer price index and make the Federal Reserve cut interest rates.” Based on data from April, he noted that the U.S. employment sector boasts six million more jobs today compared to pre-COVID highs. And the newly added employment numbers “are helping to boost home prices.”

“More jobs mean more home sales and higher housing demand,” said Yun. “You need a strong local economy for a strong housing market.”

He also added some positive comments about the real estate sector. “The referral business is key,” Yun told the crowd of Realtors. “Your past clients are super happy in terms of their wealth gains. Seven percent mortgage rates are high compared to a couple of years ago, but you have to buy a home in order to build wealth. Have Americans lost the dream of homeownership? I don’t think so.”

Still, not every word Yun said was golden. Recalling a sagging market situation from 1995, he commented there are still shortcomings to overcome.

“The U.S. currently has 40 million more total payroll jobs and 70 million more people than in 1995,” he said. “However, annual existing-home sales in 2023 experienced their worst year since 1995. So far in 2024, monthly existing-home sales rates have struggled to climb above last year’s level.”

“How is it that home sales can be this low when we’ve got so many people living in this country?” he asked. “High mortgage rates and lack of inventory have been a shock. Over the next 10 years, probably eight of those years will improve for home sales.”

Yun further explored the issue of housing inventory, saying, “Not all housing demand is being satisfied, due to lack of supply. We are looking at advocacy policies to counteract that.”

“Mortgage rates are very important,” he explained. “The Federal Reserve has delayed rate cuts. I would have thought that, by now, rates would be lower and rate cuts would have begun. Whatever rate cut the Federal Reserve does not do this year will simply be pushed back to 2025. They’re calling for a September rate cut, but we’ll see.”

Yun discussed how the 30-year mortgage and federal funds rate are in a high-rate environment. He explained that the monthly payment for first-time home buyers – with a 10 percent down payment and 80 percent of median home price – has gone up significantly during COVID, doubling the cost.

Yun questioned whether the immense size of the government deficit is further pressuring rising rates. And he also addressed government spending: “Four years out from the start of the pandemic, the U.S. is spending money as if we’re still at the height of COVID-19.”

“We had a massive budget deficit while experiencing a good economy, meaning low unemployment. People may get used to permanently high inflation, and people will be looking for an inflation hedge. Real estate is proven.”

Not every word in Yun’s address to NAR members involved numbers. “Homeowners are happy,” he said, revisiting his earlier discussion of attitude.  According to NAR data from the 2023 Profile of Home Buyers and Sellers, he said that nine out of 10 buyers (89 percent) relied on the services of a real estate agent or broker.

“Of those, there is a 90 percent satisfaction rate,” Yun said. “They would use their agent again or recommend their agent to others.”

The National Association of Realtors is America’s largest trade association, representing 1.5 million members involved in all aspects of the residential and commercial real estate industries.


May 30, 2024 Realty News Report Copyright 2024

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