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The chief economist of the National Association of Realtors predicted Tuesday that mortgage rates will become the “new normal” around 6% and advised consumers to buy now to avoid a buying spree if rates fall further.
NAR Chief Economist Lawrence Yun warned on CNBC on Tuesday that with 30-year mortgage rates hovering around 7% on average for much of 2024, consumers should not expect rates to drop significantly anytime soon.
“Mortgage rates are not going to drop to 3%, 4% or even 5%,” Yun said in a CNBC appearance. “The new normal will be around 6%.”
It’s the latest in a series of predictions from the nation’s most prominent real estate economist over a challenging two years, revealing just how difficult it is to accurately control the slippery housing market in uncertain times.
Time and again, conventional wisdom and market performance have shown housing economists across the United States that one thing is going to happen, only for the opposite to happen.
“Overall, we have a very unique situation,” Seattle real estate economist Matthew Gardner told Inman on Wednesday. “There’s no book to refer to. Things should happen the way we expect them to, but they don’t. Rules are broken, and broken in a thousand different ways.
As a real estate economist and respected agent on the U.S. real estate market, Cloud has lived through one of the most unpredictable moments in U.S. history, but the job occasionally goes wrong.
Inman’s review of Yin’s public statements and forecasts since the summer of 2022, when the pandemic was still at high levels globally, reveals how the cross-currents of distorted market fundamentals and polarized Fed strategy have intertwined. Together, this creates a truly unpredictable economy. Read below to see what economists are predicting over the past 24 months.
June 10, 2022
When 30-year mortgage rates average around 5.25% (from about 3.1% at the beginning of the year), rates may be nearing their peak, Yun said.
predict: “High inflation means the Fed will raise interest rates further. The mortgage market may have already priced this in, so most of the increase in mortgage rates may have already occurred, with only minor changes in the coming months,” Yun said at the time express.
Reality: At the end of 2022, the average interest rate on a 30-year mortgage rose by more than 1 percentage point, reaching 6.42%.
July 8, 2022
Cloud expects mortgage rates to rise after another report of strong job and wage growth. At that time, the interest rate on a 30-year fixed-rate mortgage was about 5.3%.
predict: “Mortgage rates took a breather in the past week as the Fed’s interest rate hikes are likely to be muted in the coming months,” Yun said. “However, mortgage rates will move higher next week as the job market continues to expand.”
Reality: The rate actually rose the following week before falling during late July and August. Then they soar in the fall.
July 20, 2022
Like other economists, Yun predicts that mortgage rates will fall once the market shows signs of stalling inflation, which will begin in the summer of 2022.
predict: “If consumer price inflation continues to rise, then mortgage rates will go higher,” Yun said. “Interest rates will only stabilize if there are signs of peak inflation. If inflation is brought under control, then mortgage rates may even fall.
Reality: In fact, inflation peaked at 9.1% in June 2022 and fell over the next 12 months, to 3% in June 2023. Meanwhile, mortgage rates continue to surge, rising from 5.09% in June 2022 to 6.79% in June 2023.
July 27, 2022
Yun again said mortgage rates may have peaked and home sales “should” rise in early 2023.
predict: “There are signs that mortgage rates may be at or very close to cyclical highs in July. If so, pending contracts should also start to stabilize,” Yun said. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should begin to pick up in early 2023.”
Reality: Instead, interest rates climbed significantly by the end of the year, from 5.3% the next day to a year-high 7.08% in November.
Existing home sales declined throughout the rest of 2022, then rose sharply in February 2023, then fell nearly every month for the rest of last year.
September 28, 2022
predict: “Yun expects the economy to remain sluggish for the rest of the year, with mortgage rates rising to nearly 7 percent in the coming months,” NAR said in a late-September pending home sales report.
Reality: That’s exactly what happened, with mortgage rates soaring to 7.08% in November.
October 28, 2022
Yin predicted a “new normal” for interest rates as China stubbornly wakes up to the reality that mortgage rates have reached their highest levels in more than two decades.
predict: “The new normal for mortgage rates is likely to remain around 7% for the time being,” Yun added.
Reality: Soon after, market fundamentals began to deceive economists, as historically reliable sources of information used to predict mortgage rates became unreliable.
November 10, 2022
In early November, when mortgage rates were hovering around 7%, Yun found that rates weren’t reacting the way they typically would based on the federal funds rate and the 10-year Treasury rate.
predict: “Returning to a normal spread between government borrowing rates and home purchase borrowing rates will bring the 30-year mortgage rate down to about 6%,” Yun said.
Reality: Instead, mortgage rates will climb in the coming year.
December 13, 2022
Based on the market’s historical fundamentals, Cloud again expects mortgage rates to fall.
predict: “He expects the 30-year fixed mortgage rate to stabilize at 5.7% as the Fed slows its pace of rate hikes to control inflation,” NAR wrote of Yun’s forecast.
Reality: The Fed will continue to raise interest rates until mid-summer 2023 but refuses to provide the relief economists say is needed to lower mortgage rates.
January 12, 2023
As inflation continues to fall rapidly and most countries expect the Federal Reserve to stop raising interest rates, Yin once again predicted that interest rates will fall.
predict: “Inflation has been going down. So, mortgage rates have been going down,” Yun said.
Reality: Even as inflation fell, mortgage rates surged for much of the year, rising to nearly 8% in the fall.
February 3, 2023
Responding to the strong February 2023 jobs report, Yun outlined what he believed would have to happen to get rates below 6% from the midpoint of 6%.
predict: “Just when mortgage rates are trending down to 6%, there may be a temporary rise. Still, rents are expected to calm down due to active apartment construction. “This will help reduce broader consumer price inflation, And stop the Fed from raising interest rates before the summer, mortgage rates may fall below 6%.
Reality: Rentals have definitely calmed down. Mortgage rates do not. Rental prices have long been declining and are reversing in some markets after a period of rapid supply growth. Despite this, mortgage rates have not dropped below 6% since September 2022.
April 12, 2023
After nearly a year of positive inflation data, Yun predicts interest rates will fall around the end of 2023.
predict: “Mortgage rates are likely to fall below 6 percent by the end of the year,” Yun said.
Reality: According to Freddie Mac, mortgage rates are at 6.61% in 2023 and have been rising almost every week since.
June 13, 2023
After another month of positive inflation news, Cloud once again pointed to the difference between the ten-year Treasury rate and historical mortgage rates.
predict: “The 10-year Treasury yield reacted positively, with rates falling to 3.7%. That typically means a 30-year mortgage rate is about 5.5% to 5.7%. Of course, we know mortgage rates have been approaching 7% recently, but As the year progresses, the potential for decline is real.
Reality: Gardner said economists once could rely on the 10-year Treasury yield to predict 30-year fixed mortgage rates. This is no longer the case.
November 3, 2023
Yun expects interest rates to fall by the end of the year after a jobs report showed weak growth in October.
predict: “The main benchmark 10-year Treasury yield fell to 4.55%, below the recent high of 5%. This means mortgage rates will fall. The 30-year fixed rate will remain in the 7% range this year, but is expected to It will drop to the 6% range by next spring.
Reality: In fact, interest rates closed at around 6.61% at the end of December, but did not stay there or fall closer to 6%. Instead, it rose to 7.22% in March and has stayed near 7% since, according to Freddie Mac.
February 13, 2024
By early 2024, many economists and investors believed that continued good news about inflation meant that the Federal Reserve would soon cut lending rates multiple times in 2024.
predict: As a result, Yun said, “mortgage rates will rise every week, but will likely stabilize around 6% by the end of the year.”
Reality: The Fed rejected calls for a rate cut, noting that inflation remains about 1 percentage point above its annual target of 2 percent. Investors now believe the Fed will not cut interest rates for the first time until September at the earliest, according to a rolling survey conducted by CME Group.
March 12, 2024
Inflation data around the spring began to show that inflation was well below its peak in June 2022, but still stubbornly above the Fed’s 2% target.
predict: That, combined with continued government borrowing rates, means mortgage rates should hold steady around 6%, Yun said. “They will have a hard time falling further,” he said.
Reality: Not sure
June 7, 2024
Last month’s jobs report showed the country’s unemployment rate rose to 4%, with four years of wage growth remaining below inflation.
As a result, investors generally believe the Fed will be under pressure to delay a rate cut, which could keep mortgage rates around 7%.
predict: “Mortgage rates look set to stay close to the 7% average for at least another month,” Yun said.
Reality: As of last week, rates were just under 7%, according to Freddie Mac, and would have to drop a full percentage point to get anywhere near what Yun now envisions as the “new normal.”
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