National Association of Realtors Chief Economist Lawrence Yun said he thinks the housing recession is over, but that doesn’t necessarily mean it’s in recovery.
Looking at the 10-year Treasury yield, he said it's possible that the 30-year fixed rate mortgage rate, which just passed 7% recently, could go up to 8%. The 30-year fixed-rate mortgage averaged 7.09% as of Aug. 17, 2023, up from an average of 6.96%. A year ago at this time, the 30-year FRM averaged 5.13%.
Yun made his remarks Saturday at Originator Connect in Las Vegas.
He said there are a few more big data points the Federal Open Market Committee will look at before its meeting in September, including employment data and the consumer price index, “but right now it’s a coin toss as to what’s going to happen.”
Yun put the central bank’s rate hiking chances at 50/50.
The minutes from the Fed meeting in July hinted it might not be done hiking rates. “Participants stressed that the committee would need to see more data on inflation and further signs that aggregate demand and aggregate supply were moving into better balance to be confident that inflation pressures were abating and that inflation was on course to return to 2% over time.”
The July increase brought the Fed’s federal funds rate to a range targeted between 5.25%-5%, the highest level in more than 22 years. While the Fed rate doesn’t directly impact 30- and 15-year mortgage rates, it can immediately affect adjustable-rate mortgages and home equity lines of credit.
“In my view, the Fed is overreacting,” Yun said.
He said there’s a lag between what the Fed does and how it impacts the economy. He said that means the number of rate hikes it has already done will likely push inflation below its current 3.2%. The Fed is looking to get to 2%, and it’s unclear if they will stop before they get to that point.
While it’s not only mortgage interest rates impacting the real estate market, it’s also inventory. Yun said it is at historic lows: half of what it was in 2019 before the pandemic.
“Homeowners love their 3%. They don’t want to give it up,” Yun said, adding it’s possible the divorce rate will fall because “you hate your spouse, but you love your 3%.”
The good news, according to Yun, “I do believe the mortgage rate will decline in the next year.”
He said there are three reasons: rents will be higher, regional banks are suffering, and finally, the 10-year Treasury Bond’s abnormal spread always disappears in a few months.
In order to free up some real estate, Yun said his organization is looking to Congress to give capital gains tax breaks to real estate investors who release their properties back to the market to make them available to first-time home buyers.
He said the tax credit proposal would only be temporary but will allow more home buyers into the market.
