NAR Economist Said Feds Raising Rates Is a “Disappointment”
By Kim Shindle | May 16, 2023 | 3 min. read
NAR’s Chief Economist Dr. Lawrence Yun called the Federal Reserve raising interests again a “big disappointment” at a presentation during the Realtors® Legislative Meetings in Washington, D.C. last week.
Yun said, “In my view, they should not have done it. Inflation is moving in the right direction and is calming down.” He noted that inflation is not down to 2%, but is moving in the right direction at 5%, which is better than last summer. He noted that inflation is at a 40-year high and the Fed believes it can solve all problems.
And while inflation is calming down, rental prices are continuing to accelerate. Yun said, “There is robust apartment construction at a 40-year high and many empty units will be coming onto the market.”
Looking at home sales, existing home inventory is down 40%. “Weaker home sales are almost to the level of lockdown conditions of COVID,” Yun said. New home sales are back to pre-COVID levels. In many markets, multiple offers are still frequent. And markets that saw large price gains, between 60 to 70%, are seeing price declines, while about 70% of markets are seeing price gains.
Yun said 28% of both starter homes and homes in affordable regions are getting multiple offers. Sixty percent of these homes are selling in one month. Median days on market is 29 days.
He said there are minimal distressed properties on the market adding, “this is something you don’t have to worry about.”
“Capital gains tax deters many older homeowners from selling their homes,” Yun said.
Demographic drivers are leading to increased home demand, noting that 4.4 million consumers turned 30 in 2022. He said other life changes in 2022 affecting home sales include a population gain of 1 million, 3.7 million births and 2 million marriages.
Yun said the wealth gap between renters and homeowners continues to increase. In 2022, the average renters’ wealth was $8,000, compared to homeowners’ wealth of $320,000.
“We need to ensure that all obstacles for qualified people are not obstructing homeownership,” Yun said. “We want more Americans to participate… so more can transition to homeownership.”
Dr. Robert Dietz, chief economist for the National Association of Home Builders, said a number of factors are affecting new home construction. He said material costs accelerated rapidly, but are coming back down. He said that at the high point, high lumber costs added between $50,000 to $75,000 to the cost of new home construction.
He said labor shortages continue to be an issue. “We have a 400,000-worker shortage and the long-term shortage is going to remain with us,” he said. “The kind of work that isn’t going away with AI is construction, nursing and services.”
Dietz said regulatory costs have made it more expensive to build new homes. “Regulatory costs are about one quarter of the cost to build a new home, ranging from $100,000 to $200,000 in costs.” He said there needs to be more zoning reform and speeding up the overall process to lower costs.
He also noted that remodeling is up, with the average age of housing stock at 41 years.
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