NAR Economist: Higher Interest Rates Hurt Home Sales but Won’t Cause a 2020-Style Recession
NAR Chief Economist Lawrence Yun speaks to journalists in Boston. Photo credit: Ralph Bivins, Realty News Report
BOSTON – (Realty News Report) – Mortgage rates are likely to rise in 2019, but a recession within the next 12 to 18 months does not appear likely, said Lawrence Yun, chief economist for the National Association of Realtors, speaking at the Realtors Conference & Expo in Boston.
Yun forecasted that 30-year fixed mortgage rates, currently just under 5 percent, will climb to roughly 5.3 percent in 2019 and edge up to about 5.5 percent later that year. “Rising mortgage rates are never good news for housing, but when you have rising interest rates and continued job creation, home sales will remain roughly stable,” he said.
As rates increase, more buyers are expected to consider adjustable-rate mortgages (ARMs), Yun added during a Friday news conference.
Yun projected national home price appreciation to increase about 6 percent over the next two years. He also noted the U.S. Federal Reserve is expected to raise short-term interest rates later this year and may do so two to three times next year, which could influence mortgage pricing.
Gross national product growth is expected to moderate in the coming years, but Yun stressed he does not anticipate a recession because job creation continues and unemployment is projected to remain low.
“The U.S. economy is in good shape,” Yun said. “We have low unemployment, record-high job openings, historically low jobless claims, eight straight years of job gains, and wages beginning to rise. This mix of economic activity should support the housing market even as interest rates climb.”
Although Yun does not foresee a recession, he acknowledged that rising interest rates pose a risk that could slow economic activity, and he expects the Federal Reserve to act cautiously. “The Federal Reserve is mindful that it could trigger a recession,” he said.
Yun estimated existing-home sales will finish the year at a pace of 5.3 million units, down from 5.51 million in 2017. He forecast sales to increase modestly to about 5.4 million in 2019, a roughly 1 percent gain.
The national median existing-home price is expected to reach about $266,800 in 2019, up approximately 3.1 percent from 2018, and to rise to around $274,000 in 2020. “Home price appreciation will slow — the era of easy, large price gains is ending — but prices will continue to climb,” Yun said.
Yun also commented on Houston’s housing market, which showed strong sales in 2018.
“Houston has recovered well from Hurricane Harvey,” he said. “Home sales returned within months because the local economy remained strong and job creation resumed. With those jobs, the market can support construction of affordable housing — people need places to live.”
