NAR: If Rates Stay at 7%, Home Prices Won’t Fall

The chief economist for the National Association of Realtors (NAR) believes that elevated mortgage rates and declining sales, combined with a severely limited inventory, will prevent large price drops in the housing market nationwide in 2023.

NAR Chief Economist Lawrence Yun provided his 2023 outlook on the residential real estate market on Friday during NAR NXT, The Realtor Experience, an event held in Orlando, Fla.

"For most parts of the country, home prices are holding steady since available inventory is extremely low," Yun said. "Some places are experiencing price gains, while some places, most notably in California, are seeing prices pull back."

He compared the current market to the one that existed during the Great Recession, and said today’s market conditions are fundamentally different.

"Housing inventory is about a quarter of what it was in 2008," Yun said. "Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two years."

With mortgage rates climbing this year at an unprecedented rate — from 3% in January to around 7% in October before falling last week — the resulting downturn in the housing market has had a significant effect on the nation's overall economic performance, Yun said.

"The slide in sales and home building has [brought] down GDP," he said. "If the housing market was stabilizing and not declining, GDP would be positive."

He added that signs point to mortgage rates topping out. He cited October's consumer price index, which showed inflation rising less than economists had expected — at a 7.7% annual rate vs. the predicted 7.9%. 

Yun did express concerns, however, about the spread between mortgage rates — now hovering around 6.6% — and the benchmark federal funds rate, for which the Federal Reserve has set a target range of between 3.75% and 4%.

"The gap between the 30-year fixed mortgage rate and the government borrowing rate is much higher today than it has been historically," he said. "If we didn't have this large gap, mortgage rates wouldn't be 7%, they would be 5.8%.”

Yun said a “normal spread” would revive the economy. “If inflation disappears, then we'd see less anxiety within the financial markets and lower interest rates, which would allow owners to refinance,” he said.

In 2023, he said, he expects home sales to decline by 7%, while the national median home price will increase by 1%, with some markets experiencing price gains and others price declines.

He also projects a strong rebound for housing in 2024, with a 10% jump in home sales and a 5% increase in the national median home price.

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