NAR housing experts analyze changing housing market environment

The National Association of Realtors Real Estate Forecast Summit last week featured Jessica Lautz, NAR vice president of Demographics and Behavioral Insights, who shared findings from the Realtors Confidence Index (RCI) survey. The survey gathers monthly information from Realtors about local real estate market conditions, characteristics of buyers and sellers, and issues affecting homeownership and real estate transactions. Dr. Lawrence Yun, NAR chief economist and senior vice president of Research, then reassessed market conditions and shared the real estate forecast.

Lautz indicated sellers were still happy in the month of June, as homes stayed on the market an average of 14 days nationwide and 88% of homes sold under a month. The market saw the lowest inventory since 1999. There was an average of three offers for every home that was listed. Buyers still felt confident waving either an inspection (30%) or appraisal (32%) contingency. Twenty-five percent of sales were all cash.

The share of nonprimary residence buyers has fallen from 22% at the height of the pandemic to 16% today. The share of first-time homebuyers is still suppressed, at 30% compared with 40% historically. Distressed sales only account for one percent because of much equity gain in the last year.

Promoting listings virtually continues to be a marketing opportunity for Realtors, said Lautz. A 12% of homebuyers purchased homes virtually partly due to migration trends and the popularity of remote work. Thirty-four percent want work-from-home features and 85% purchased properties outside city centers.

Lautz said many consumers still believe they need 20% down payment to purchase at home.

“This continues to be a myth,” said Lautz. The reality is the typical down payment is 7% among first-time homebuyers and 17% among repeat buyers.

Focusing on the economy and market forecast, Yun indicated nationwide home sales are slightly below the pre-covid 2019 level. No longer is it a frenzied housing market driven by historically record low interest rates.

“Those days are gone. We are steadily returning to normalization,” said Yun.

Pending home sales fell 8% in June, which implies home sales will sink even more in the next few months. Potential homebuyers, uncomfortable with higher interest rates, are removing themselves from the market. Consumers who have the financial capacity to purchase a home can be more relaxed and able to look at more homes.

Yun expects future home price adjustments, but noted although inventory is rising slowly, it is still inadequate to meet demand. “Even as the list price is getting adjusted, prices will still be high.”

Yun forecasts sales will be down 13% this year. With mortgage rates expected to stabilize to near 6%, he projects home sales to be roughly even with 2019 levels next year and start to rise. Expect smaller gains in home prices, possibly up 11% in 2022 and up 2% in 2023.

Regarding recession, Yun said the U.S. economy is experiencing a 40-year high inflation rate, yet its unemployment rate is at a 50-year low. “Economists say two consecutive quarters of GDP decline means a recession. Others say there have to be consistent job cuts for there to be a recession, yet the total net is we are still needing workers.”

NAR’S chief economist described the labor market as “bizarre” with job growth and labor shortages at the same time. He indicated six million Americans left the workforce during the pandemic. Most are back in the workforce, but there are still two million who have not returned. Also, job growth varies around the country. The Rocky Mountain and southern states have made positive gains in job growth, while other states are still catching up.

“In an environment with rising mortgage rates, what will drive home sales is jobs,” said Yun.