NAR Chief Economist Lawrence Yun

© Kevin Berne

NAR Chief Economist Lawrence Yun predicts a slowdown in GDP and job growth next year but still says residential real estate will be strong.

Yun: Barring a Major Trade War, No Recession in Sight

November 8, 2019

Compared to a year ago, the economy is on firmer footing, and the outlook for residential real estate is improving, said National Association of REALTORS® Chief Economist Lawrence Yun on Friday at the REALTORS® Conference & Expo in San Francisco. “A year ago, conditions were soft, mortgage rates were close to 5%, and consumers were backing off,” said Yun, addressing a packed audience at the Residential Economic Issues & Trends Forum. “When housing is positive, the economy doesn’t go into a recession. There will be no recession if there is no major trade war.”

Yun foresees GDP growth of 1.6% next year, down from 2% in 2019, while 1.5 million jobs are expected to be created in 2020, a slower pace than this year’s forecast of 2 million.

Home sales have been buoyed because of the Federal Reserve lowering interest rates three times this year, and current mortgages rates for 30-year fixed loans are in the vicinity of 3.7%. Yun says rates should remain under 4% for the year ahead.

Yun clarified that falling mortgage rates are less related to actions taken by the Fed than they are to “communications about policy changes” by the Fed. The national homeownership rate has been steadily recovering over the past three years and is now approaching 65%. Still, that remains well below the pre-housing crash rate of 69% in 2004.

Low interest rates and strong job creation have led to increasing home prices in most parts of the country. “We’re seeing high housing costs because of the housing shortage. We have underbuilt for 10 years,” he said. “We need more construction to tame housing inflation.” Only two states, Illinois and Connecticut, are showing a slowdown in buyer traffic. Yun noted, though, that slower price rises in new construction reflect the fact that builders are starting to add more affordable units, an encouraging sign amidst the protracted shortfall in housing inventory.

While favorable mortgage rates are a help to all buyers, Yun noted that first-time buyers are more likely to act in response to incremental changes. “First-time buyers are more sensitive to small changes in mortgage rates. They help get buyers into homeownership,” he explained.

Risks to Rates

Yun is keeping a close eye on the state of GSE reform, an NAR advocacy priority, to ensure that consumers have continuing access to 30-year, fixed-rate mortgages. “If there is no government guarantee [of those mortgages], interest rates will rise,” he said.

Inflation caused by a variety of conditions, including continuing housing shortages, tariffs, and a strengthening economy can also lead to higher interest rates. Yun forecasts that the inflation rate will fall from 2% this year to 1.7% in 2020. The federal budget deficit is another threat to the low-interest-rate environment.