NAR economists offer dire warnings about inventory, rates 

At this year's NAR NXT, the annual gathering of the association's member agents, Chief Economist Lawrence Yun and Deputy Chief Economist and VP of Research Jessica Lautz provided agents with insights on the economy and housing market during their keynote — but the two also sounded the alarm about the state of inventory and nixed the chances of a return to ultra-low mortgage rates. 

Strong price growth 'cannot simply continue'

During Yun's address, he warned the industry of a future where sustained price growth continues unabated. The problem, he said, is that it only further locks out prospective first-time homebuyers and contributes to the growing wealth inequality we have witnessed in the country  over recent years. 

"These strong price increases that have been happening simply cannot continue for the next five years," he said to a packed room with thousands of agents. "If it happens, America will be completely divided. America will become something like the Bay Area housing market where few are getting tremendous wealth and the large majority of renters are never able to enter the market."

Yun offered a few approaches to fixing the problem of high housing costs, but ultimately, he said, we simply "have to have more supply." Yun said that restrictive zoning — particularly in high-demand markets like San Francisco — limits building, and he predicted that an upcoming Trump administration may take a position of less regulation to make it easier for builders to construct more housing. 

'The silver tsunami is not coming'

NAR economists discussed the correlation between the typical American's overall wealth and homeownership, and they argued that the earlier a person can buy a home, the more equity they will build. But the latest stats on homebuyers and sellers show that both segments are only getting older. Inventory constraints were again identified as a major hurdle, this time by Lautz.

"There is a large amount of young adults who are putting pressure on the housing market and on the rental market," she said to the audience. "They are desperately trying to enter into the market. We need to build more housing for these young adults, because the silver tsunami is not coming — the idea that the silver tsunami will give all of this real estate to young adults, we have to let go of that and we have to just build more homes." Data from other sources has also found that older homeowners are in no rush to downsize and sell.

Lautz noted that the share of cash buyers is "at the highest level we've ever seen" while Yun highlighted the fact that 35 million homeowners have no mortgages. Sellers and repeat buyers are able to roll their equity into the next property, but first-time buyers either have to save for much longer or be wealthier than in the past. 

"Teachers and first responders in your local communities are really being priced out of being able to purchase a home," Lautz said, while "the select few first-time homebuyers" entering the market are "richer."

4% interest rates are a thing of the past

While the stock market has rallied since Trump's election victory, don't expect borrowing rates to go back to the "good old days" of 3-4% interest rates, warned Yun.

"Are we going to go back to 4% mortgage rates? Well, my forecast, unfortunately, is no," he said. "Mortgage rates in the second Trump presidency would be something closer to 6%. I would not exclude the probability that 5% mortgage rates could happen, but I think it's a smaller chance. I think the new normal will be a 6% mortgage rate."

The reason why rates likely won't go back down to the historic lows seen during the pandemic are due to the country's massive budget deficit, Yun said, and he expects that Trump's next term will continue with an inflationary policy. 

"We have a massive budget deficit at a time where economically we are not in a recession," Yun said. "The only way to close the gap is either to raise taxes or bring the government spending down, and clearly President Trump will not reverse his past tax cuts. He will extend it or even expand them."

However, Yun added that if Trump's administration could produce "a credible plan on how to reduce the budget deficit over time," then "the bond market will react positively and mortgage rates could go down quite quickly."