At the latest Federal Open Market Committee meeting, the Central Bank hinted at a pause in rate hikes as soon as June but still increased the benchmark rate by a quarter-point. Lawrence Yun, chief economist at the National Association of Realtors, found that puzzling.
During the “Residential Economic Issues & Trends Forum” at NAR’s 2023 REALTORS Legislative Meeting, he called the increase unnecessary and stressed further increases harm the housing market and the economy at large.
Inventory, not interest rates, is the driving force behind the current housing market. Stock remains down 40% compared to 2019, while demand keeps growing.
“We have to stop the bleeding before improvement takes place,” Yun said. “We need to get more inventory, and the long-term solution is more home building.”
Yun expects that the Fed won’t hike rates again and asserted that the housing market is heading toward a price correction as inventory naturally increases.
“Rent growth will decrease because apartment construction – entry units coming on the market – is already in the pipeline,” Yun said. “We are already moving in the right direction towards consumer price inflation.”
While a pause may be the right move in Yun’s mind, it’s no sure thing. The consumer price and producer price indices, released this week, showed inflation cooling more than expected. But prices are still rising, the job market remains robust, and another bank failure has hit the news, all of which could tip the Fed’s decision if May’s number don’t show serious results.
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