NAR Chief Economist Tells Realtors Not to Expect Recession in 2019, 2020

John Jordan | October 2018

From Left; Richard Haggerty, HGAR CEO; Lawrence Yun, NAR Chief Economist; Barry Kramer, HGAR President

NEW YORK—With a market struggling with low inventory, higher mortgage rates and slower home sales, a packed room of Realtors at the Marriott Marquis hotel in Manhattan collectively sighed relief when NAR Chief Economist Lawrence Yun said he does not expect a national recession next year or in 2020.

In fact, Yun also stated that while he predicts overall home sales will decline this year, he expects sales to increase in 2019 despite some prevailing market headwinds.

Yun, speaking at the “Global Real Estate Summit NYC 2018 co-sponsored by the Staten Island Board of Realtors and the Hudson Gateway Association of Realtors on Monday, said he also expects the US residential sales market to hold its own in 2019, despite recent declines in sales activity and the specter of rising mortgage rates.

“In my view I don’t see a recession occurring in 2019 or even possibly in 2020,” Yun said. “2021 is a bit too far out so one has to see new data coming in, but at least for the next few years we are fine in terms of economic expansion.”

NAR Chief Economist Lawrence Yun

The NAR chief economist told the gathering that a host of positive economic data including eight straight years of job growth, a strong stock market, low unemployment and record high net worth will bolster the residential sales market in 2019.

While lending rates will climb, he said the Federal Reserve is taking a measured approach to raising short-term rates, which will therefore not significantly impact the market. Yun expects the Fed will raise short-term rates at its meeting in December and will raise rates two to three times in 2019.

With the strong economy and still low interest rates, home sales nationwide are not rising as one would expect. Yun blamed the low inventory of moderately-priced homes as a chief reason why home sales are not increasing and home sales prices are rising. The Western region of the US has seen a dramatic decline in pending contracts, which Yun blamed on affordability, noting that a San Jose, CA resident needs to earn $275,000 a year to purchase a median-priced home there.

He says that the inventory issue has frustrated many prospective homebuyers, resulting in a decline in buyer optimism. One way to help alleviate the inventory issue is to increase the rate of new home construction, particularly in the moderately-priced category.

Some of the remedies Yun said could bolster new home construction include:

• provide regulatory relief to community banks;

• remove tariffs on lumber and building materials;

• don’t be too stringent on zoning land use;

• repurpose malls into condominiums and

• provide vocational training for those seeking to enter the construction industry to help relieve the labor shortage in the construction sector.

Yun said that if there is a bubble in the near future, it would be in the commercial real estate sector, noting that commercial prices have risen much faster than residential real estate. He also advised that a possible bubble could occur in the Canadian residential home sales market.

He advised those who represent U.S. commercial real estate owners to be cautious because at present cap rates are very low and in a rising interest rate environment, cap rates will rise.

Yun said commercial real estate owners will be forced to either secure high rents from tenants, which may be difficult, or be forced to reduce the price of the property if that owner wishes to sell the building.

This scenario will lead to what Yun described as a potential standoff between the owner and the buyer, where the owner believes the property is worth a high value due to the strong economy and tenant roster, while the buyer points to higher lending rates and cap rates and refuses to purchase the property at that price.

Yun said if this scenario does indeed take hold, some commercial property owners will find it difficult to trade their properties unless they are willing to be flexible on the sale price.

John Jordan
Editor, Real Estate In-Depth