08/13/2022
Market to Ease Despite High Home Prices
A housing slowdown precipitated by low inventory and rising mortgage rates will open opportunities for some buyers, NAR Chief Economist Lawrence Yun predicts.
July 28, 2022
Catherine Mesick
Even though national GDP contracted for the second quarter in a row and home sales have fallen for five straight months, property prices are likely to continue growing because of low inventory, Lawrence Yun, chief economist for the National Association of REALTORS®, said Wednesday during NAR’s quarterly Real Estate Forecast Summit. Yun offered his economic and housing market predictions for the remainder of this year and into 2023 at the event.
One of the most unusual aspects of the current economy is the labor market, Yun said. There were more job openings than unemployed people in May—with the difference being nearly two to one, according to Bureau of Labor Statistics data. Construction job openings were at a record high in January, and these unfilled jobs point to a potential slowdown in the housing market, Yun said.
Both existing-home sales and pending home sales have been falling or stagnant for months, NAR data shows.
NOTE – this is # of sales falling - NOT prices falling
Rising mortgage rates have combined with low inventory to exert downward pressure on the market. “Closing activity will continue to sink even more,” said Yun. “Some [potential home buyers] don’t want to pay higher monthly rates. Others can’t.”
Hope for Consumers
There are bright spots in the market, such as gradually increasing inventory, which is good news for consumers. “They no longer have to make an offer after seeing only one [house],” Yun said. “They can see three or four. It’s returning to a normal process.”
Despite some homes with high list prices beginning to languish on the market, the overall lack of inventory is still leading to price gains. “Even after reductions, prices are still higher compared to one year ago and much higher compared to before the pandemic,” Yun added.
Though the Federal Reserve is expected to hike interest rates several more times this year, Yun said mortgage rates won’t rise much further because lenders have already priced in the potential increases. This can mean increased opportunity for consumers. “We may be topping out independent of what the Fed will do,” Yun said. “Rates will go a little up and a little down. It may be a good idea to lock in when the rates are down.”
Yun: Possible Economic Downturn Likely to Be Mild
A contracting economy typically means a recession, but other economic indicators are likely to mitigate the effects of the slowing economy, says NAR’s chief economist.
August 2, 2022
Catherine Mesick
The country isn’t officially in a recession yet, despite two consecutive quarters of national contraction of the gross domestic product, a commonly cited indicator of an economic downturn, says Lawrence Yun, chief economist for the National Association of REALTORS®. And several healthy economic trends, including a robust job market, coupled with new efforts to boost affordable housing could stave off a more serious slump, Yun adds.
New guidance from the Treasury enabling state and local governments to use leftover emergency COVID-19 funding from the American Rescue Plan to create affordable housing should help ease the inventory crisis and counteract the effects of a tightening economy. Still, there are questions about whether the U.S. has entered “stagflation,” a period of high inflation combined with an economic slowdown, as many Americans feel the frustrating effects of a slower economy and higher consumer prices. But the National Bureau of Economic Research, the council that watches over U.S. business cycles, has yet to declare a recession, Yun notes.
There are two major factors at work counteracting current economic conditions:
1. Job creation is robust. Total payroll jobs were over 150 million in early 2020 before the onset of the pandemic, Yun said at NAR’s Real Estate Forecast Summit last week. While COVID-19 shutdowns precipitated a steep decline in jobs, each month showed strong job creation after the restrictions were lifted. Though there is variation across the country, Yun says, the job market has largely recovered. “We are essentially at the same level of jobs and W-2 employment now compared to pre-COVID days,” he said. Data from the Bureau of Labor Statistics shows that right now, there are more job openings than unemployed people. As of June, there were 5.9 million workers searching for jobs and over 10 million job openings. So, while high unemployment typically characterizes a recession, “the ratio [today] is almost two to one,” Yun said. “It’s a very unusual recession—if we are in one.”
2. Commercial real estate is growing. Though a recession typically means bad news for commercial properties, the commercial market as a whole is flourishing despite a stagnant office sector, Yun writes in a recent REALTOR® Magazine column. Rental demand is booming, and rents are up significantly. Demand for warehouse space has surged as retailers stock up to avoid supply chain disruptions. Hotel bookings, air travel and park attendance are now above pre-pandemic levels. All of this increased activity has led to high demand for new commercial construction. “The improving construction sector means that any recession will be mild,” Yun
