The worst of the housing inventory shortage is coming to an end, mortgage rates are stabilizing and job additions are continuing, according to NAR Chief Economist Lawrence Yun.
1. Housing Inventory and Market Conditions:
- The persistent housing inventory shortage, a major challenge in recent years, is beginning to ease.
- Mortgage rates, which peaked at uncomfortable levels in 2023-2024, are stabilizing. While rates won’t return to the 4% levels seen during Trump’s first term, they are expected to settle in the range of 5.5%-6.5%, becoming the “new normal.”
- Existing-home sales have struggled significantly since 2023, but Yun foresees a recovery with a 10% increase in 2025 and 2026, signaling that “the worst is coming to an end.”
2. Homeownership and Wealth Gap:
- Homeowners have experienced significant gains in equity, with total household equity in real estate reaching a record $35 trillion in 2024.
- Median net worth statistics highlight a sharp disparity: homeowners’ median wealth is $415,000, compared to only $10,000 for renters.
- Yun emphasized the long-term wealth benefits of homeownership, urging those able to enter the market sooner rather than later.
3. Younger and First-Time Buyers:
- The homeownership rate remains low among younger Americans, as affordability challenges and limited housing supply hinder first-time buyers.
4. Economic Indicators Driving the Market:
- Since the COVID-19 pandemic began, the U.S. has seen record-high job growth, with payroll employment at its highest as of September 2024.
- Yun underscored that housing market performance is closely tied to job creation and mortgage rates. A strong job market positions more individuals to afford home purchases.
5. Interest Rates and Federal Reserve Policy:
- Mortgage rates are projected to stabilize at 5.5%-6.5%, influenced by the Federal Reserve’s monetary policy.
- Yun forecasts six-to-eight interest rate cuts starting in early 2025, likely in January rather than December 2024, as recommended.
- If a credible plan to reduce the federal budget deficit emerges, mortgage rates could decrease further. Conversely, rising government borrowing could limit available mortgage funding.
6. Federal Budget Deficit and Housing Supply:
- The federal budget deficit remains a major economic concern.
- Without significant tax policy changes, Yun anticipates continued pressure on mortgage markets.
- Expanding housing supply is crucial to mitigating affordability issues and reducing housing costs.
7. Forecast for Home Sales and Prices:
- Yun expects a rebound in home sales and price stability over the next two years:
- Existing-home sales: 10% increase by 2025-2026.
- New home sales: 11% growth in 2025, followed by an additional 8% in 2026.
- Median home prices: Modest gains of 2% annually in 2025 and 2026.
8. Overall Market Outlook:
- While 2024 remains a challenging year for real estate, Yun expressed cautious optimism for 2025-2026, driven by stabilizing mortgage rates, job growth, and improved market conditions.
This blog is a summary of an article originally posted on the National Association of Realtors® website: nar.realtor