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The National Association of Realtors’ chief economist on Tuesday predicted mortgage rates of around 6 percent to become the “new normal” and suggested consumers should buy now to avoid a feeding frenzy when rates fall further.
With the average 30-year mortgage rate hovering around 7 percent through much of 2024, NAR Chief Economist Lawrence Yun warned Tuesday on CNBC that consumers shouldn’t expect rates to fall far anytime soon.
“The mortgage rate will not go down to 3 percent, 4 percent or even 5 percent,” Yun said during the CNBC appearance. “The new normal will be around 6 percent.”
It’s the latest in a series of predictions made by the nation’s best-known real estate economist during a challenging two years, revealing just how difficult it is to accurately pin down a wily housing market in uncertain times.
Time and time again, conventional wisdom and market performance suggested to housing economists throughout the U.S. that one thing would happen, only for the opposite to come to pass.
“The big picture is we had a very unique situation,” Matthew Gardner, a real estate economist in Seattle, told Inman on Wednesday. “There were no books to refer to. Things should have occurred the way we expected them to, but they didn’t. The rules were broken, and they were broken in a thousand different ways.”
As a real estate economist and respected interpreter of the U.S. housing market for agents, Yun has navigated one of the most unpredictable moments in the nation’s history — with the occasional misstep that comes with the job.
A review by Inman of public statements and forecasts Yun has made since the summer of 2022 — when the pandemic was still cresting high across the globe — reveals how the crosscurrents of skewed market fundamentals and a polarizing Federal Reserve strategy tangled to create a genuinely unpredictable economy. Read below to see the economist’s forecasts over the past 24 months.
June 10, 2022
When the 30-year mortgage rate averaged around 5.25 percent — up from about 3.1 percent to start the year — Yun said it was possible rates were near their peak.
The Prediction: “High inflation means many more interest rate hikes by the Fed. The mortgage market may have already priced this in, so most of the increases in mortgage rates may have already occurred with only small changes in the upcoming months,” Yun said at the time.
The Reality: By the end of 2022, the average 30-year mortgage rate rose by over 1 percentage point, to 6.42 percent.
July 8, 2022
After another report of strong jobs and wage growth, Yun predicted mortgage rates would rise. At the time, the 30-year fixed rate mortgage sat around 5.3 percent.
The Prediction: “Mortgage rates took a breather this past week on the prospect of less aggressive Fed interest rate hikes in the upcoming months,” Yun said. “Mortgage rates, however, will be higher next week as the job market continues to expand.”
The Reality: The rate actually ticked up the following week before dropping through late July and into August. Then they spiked in the fall.
July 20, 2022
As with other economists, Yun predicted that mortgage rates would fall once the market saw signs of inflation stalling out, which began to happen in the summer of 2022.
The Prediction: “If consumer price inflation continues to rise, then mortgage rates will move higher,” Yun said. “Rates will stabilize only when signs of peak inflation appear. If inflation is contained, then mortgage rates may even decline somewhat.”
The Reality: In fact, inflation peaked at 9.1 percent in June 2022 and fell throughout the ensuing 12 months, to 3 percent in June 2023. Mortgage rates, meanwhile, continued to spike, rising from 5.09 percent in June 2022 to 6.79 percent in June 2023.
July 27, 2022
Yun again suggested that mortgage rates may have peaked and that home sales “should” rise by early 2023.
The Prediction: “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize,” Yun said. “With mortgage rates expected to stabilize near 6 percent and steady job creation, home sales should start to rise by early 2023.”
The Reality: Instead, rates climbed starkly higher through the end of the year, from 5.3 percent the following day to a peak that year of 7.08 percent in November.
Existing home sales fell through the rest of 2022 before jumping up in February 2023 and then falling nearly every month for the rest of last year.
Sept. 28, 2022
The Prediction: In its pending home sales report from late September, NAR said that “Yun expects the economy will remain sluggish throughout the remainder of this year, with mortgage rates rising to close to 7 percent in the coming months.”
The Reality: That’s precisely what happened, as mortgage rates soared to 7.08 percent in November.
Oct. 28, 2022
Yun predicted a “new normal” for interest rates as the country stubbornly grasped the reality of mortgage rates that had reached their highest level in over two decades.
The Prediction: “The new normal for mortgage rates could be around 7 percent for a while,” Yun added.
The Reality: Not long after, market fundamentals began to play tricks on economists, as historically reliable sources of information used to predict mortgage rates became unreliable.
Nov. 10, 2022
In early November, as mortgage rates hovered around 7 percent, Yun saw that the rates weren’t responding as they typically would based on the federal funds rate and the 10-year Treasury rate.
The Prediction: “A return to a normal spread between the government borrowing rate and the home purchase borrowing rate will bring the 30-year mortgage rates down to around 6 percent,” Yun said.
The Reality: Instead, mortgage rates would climb over the coming year.
Dec. 13, 2022
Based on the historical fundamentals of the market, Yun again expected mortgage rates to fall.
The Prediction: “He expects the 30-year fixed mortgage rate to settle at 5.7 percent as the Fed slows the pace of rate hikes to control inflation,” NAR wrote of Yun’s expectations.
The Reality: The Fed would continue hiking rates through mid-summer of 2023, declining to deliver the relief economists said was needed for mortgage rates to fall.
Jan. 12, 2023
With much of the nation expecting the Federal Reserve to stop its interest rate hikes as inflation continued rapidly falling, Yun again predicted rates would fall.
The Prediction: “Inflation has been coming down. Mortgage rates will also, therefore, come down,” Yun said.
The Reality: Despite falling inflation, mortgage rates soared through most of the year, rising to nearly 8 percent in the fall.
Feb. 3, 2023
While responding to a strong jobs report in February 2023, Yun outlined what he thought must happen for rates to fall below the 6 percent mark from the mid-sixes.
The Prediction: “Just as mortgage rates were trending down towards 6 percent, there could be a temporary rise. Still, rents are expected to calm down due to active apartment construction,” Yun said. “That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6 percent.”
The Reality: Rent did calm down. Mortgage rates did not. The price of rent has long been falling and in some markets reversed, after a period of rapid supply growth. Still, mortgage rates haven’t been below 6 percent since September 2022.
April 12, 2023
After nearly a year of positive inflation data, Yun forecasted that rates would fall near the end of 2023.
The Prediction: “Mortgage rates slipping down to under 6 percent looks very likely towards the year’s end,” Yun said.
The Reality: Mortgage rates finished 2023 at 6.61 percent and have been higher nearly every week since then, according to Freddie Mac data.
June 13, 2023
After yet another month of positive inflation news, Yun again pointed out the discrepancy between the 10-year Treasury and historical mortgage rates.
The Prediction: “The yield on the 10-year Treasury is responding positively with a rate decline to 3.7 percent. That normally means the 30-year mortgage rate is around 5.5 percent to 5.7 percent. Of course, we know the mortgage rates have been near 7 percent recently, but the potential for a decline is real as we progress through the year.”
The Reality: Economists could once rely on 10-year Treasury yields to forecast 30-year fixed mortgage rates, Gardner said. That is no longer the case.
Nov. 3, 2023
After a jobs report showed weak growth in October, Yun foresaw that rates would fall to close out the year.
The Prediction: “The key benchmark 10-year Treasury yield slid down to 4.55 percent and is below a recent high of 5 percent. That means mortgage rates will be coming down. The 30-year fixed rate will stick in the 7 percent range for this year but looks to move down into the 6 percent range by the spring of next year.”
The Reality: Indeed, rates closed out around 6.61 percent at the end of December, though they didn’t stay there or fall closer to 6 percent. Instead, they rose to 7.22 percent in March and have stayed close to 7 percent ever since, according to Freddie Mac.
Feb. 13, 2024
By early 2024, many economists and investors believed that sustained good news on inflation meant the Federal Reserve would soon cut lending rates multiple times in 2024.
The Prediction: As a result, Yun said, “mortgage rates will be bouncy week-to-week but will most likely settle towards 6 percent by the year end.”
The Reality: The Fed has resisted calls to cut interest rates, noting that inflation remains about one percentage point above its 2 percent annual target. Investors now believe the Fed won’t make its first rate cut until September at the earliest, according to a rolling survey conducted by CME Group.
March 12, 2024
Inflation readings near the spring of this year began to reveal that inflation was far lower than at its peak in June 2022, but still stubbornly above the Fed’s 2 percent target.
The Prediction: That, paired with ongoing rates of government borrowing, Yun said, meant that mortgage rates should settle around 6 percent. “They will be hard-pressed to go down further,” he said.
The Reality: Unclear
June 7, 2024
Last month, a jobs report showed the country’s unemployment rate ticked up to 4 percent, and four-year wage growth remained below inflation during the same period.
As a result, investors largely believed the Fed would be pressured to delay any rate cuts, which would likely keep mortgage rates around 7 percent.
The Prediction: “The mortgage rate looks to be stuck at near 7 percent average for at least another month,” Yun said.
The Reality: Interest rates are a shade below 7 percent as of last week, according to Freddie Mac, and would have to fall a full percentage point to approach what Yun now expects to be the “new normal.”
