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Elevated mortgage rates, high home prices and limited housing inventory are making the dream of homeownership difficult for Americans, National Association of REALTORS® Chief Economist Lawrence Yun told REALTORS® attending the “2023 NAR NXT The REALTOR® Experience” conference and expo in Anaheim last week.

Yun analyzed the current state of the U.S. residential real estate market and shared his 2024 outlook during the Residential Economic Issues and Trends Forum. He explained that high mortgage rates and low inventory have dominated 2023, and as a result, he predicts home sales will likely decline by 18% this year.

The housing shortage continues to be what’s edging up home prices, said Yun. “Lack of inventory is providing the support for high prices, but it’s also making it super difficult for first-time buyers to enter the housing market.”

First-time buyers face steep challenges. High rent, student and credit card debt, car loans, and childcare costs for those with children have made it difficult for many to save for a down payment.

High interest rates have had a great impact on the U.S. overall economic performance, said Yun. While the latest GDP figure of 4.9% shows growth, he warned there are some worrying signs in the economy. Business spending is essentially flat. Goods inventory is rising, which means products are being produced but they are not getting sold.

“We cannot keep adding to the shelves,” said Yun. “Just like in housing, businesses have to borrow money, and business spending is down because it’s more expensive to borrow.”

Yun said the jobs data is still positive, but each passing month shows diminishing strength. Based on the trendline, employment could become negative, which makes the upcoming GDP number looks to “worrisome.”

Yun noted that currently, the consumer price index (CPI) is much calmer, and with community banks suffering from high interest rates, the Fed should adjust its monetary tightening posture. In fact, the bond market appears to be reacting as if the Fed will be cutting interest rates next year.

“I believe we’ve already reached the peak in terms of interest rates,” Yun said. “The question is when are rates going to come down?”

Yun projects mortgage rates will head towards 7% in a few months and into the 6% range by the spring of 2024. He also anticipates that more sellers will enter the market.

“Builders are back on their feet, up 5% in newly constructed home sales year to date,” said Yun. “Builders can simply create inventory. In a housing shortage environment, builders are really benefiting.”

Other numerous trends point to possible pent-up seller activity that could trigger much-needed inventory due to life changes. This would include growing families, couples marrying or divorcing and seniors. There are seven million newborn babies, three million marriages, and 1.5 million divorces. Seven million people will turn 65 years old and will be looking to downsize or relocate to live closer to their children and grandchildren. Additionally, four million deaths, four million net new jobs, 50 million job switches, are all reasons sellers will need to sell sooner than later. Yun added that international buyers have declined, but once they return to the market, there will be a boost in buying.

“Pent-up sellers cannot wait any longer. People will begin to say, ‘life goes on,'” said Yun. “Listings will steadily show up, and new home sales will continue to do well. Existing home sales will rise by 15% next year.”

Nearly 12,000 NAR members and industry stakeholders from all 50 states, several U.S. territories and 40 countries attended last week’s NAR conference and expo. Representing the Silicon Valley Association of REALTORS® at the event were President Jim Hamilton and SILVAR NAR director Denise Welsh.