According to the US Census Bureau, while February new home sales came in lower than expected month over month, they are up almost 6% from a year ago. In an interview with Yahoo Finance, Federal Reserve Bank of Chicago President Austan Goolsbee claims that housing inflation is the biggest pain point for the Fed.
National Association of Realtors Chief Economist Lawrence Yun joins Yahoo Finance to discuss the housing market, housing inflation, and the increase in home sales.
Yun finds real estate markets and homebuyers settling into the idea of elevated mortgage rates in the near term: "I think there is a sizable pent-up seller, delay sellers who have been postponing and postponing, and the mortgage rate, the new normal appears to be between 6 and 7%. We are not going to see 5%. Three and 4%, out of the question. Therefore, I think more people are adjusting to the new normal in the mortgage rates, and they will begin to list the property and more listing is good for the market."
JENNIFER SCHONBERGER: Well, we're going to move on because February new home sales coming in slightly lower than the revised January report, but up 5.9% from a year ago. This comes as existing home sales surged 9.5% in February. That was the largest monthly increase in a year. Joining us now to discuss is Lawrence Yun, National Association of Realtors Chief Economist. Lawrence, thank you for being here.
Austan Goolsbee told Yahoo Finance exclusively this morning that housing inflation is still the biggest headache for the Fed when it comes to the inflation picture. Did today's numbers support or refute that claim, or just kind of meh.
LAWRENCE YUN: Oh, well, we saw the new home sales, newly constructed home sales, reaching the third best since the 2008 foreclosure crisis last year. And this year, it's still moving above last year, so that is implying that the builders are ramping up construction. We need more supply. More supply, more supply will tame down the housing inflation. We need to have more multifamily construction in order to stabilize the rent.
I mean, we are seeing rents actually decline in places like Atlanta, Austin because of massive construction. You know rent control. Every economist know rent control is terrible policy. Where you get the rent down is through more construction. And on single family side, there is still multiple offers happening, so we need more supply to satisfy the demand.
SEANA SMITH: Lawrence, when it comes to new home sales making up or accounting for overall sales, we certainly did see more of an uptick when you compare it to numbers that we have seen historically speaking. Is that going to be the case once again this year? And, I guess, how big of a part of that pie do you see home builders playing in this housing recovery?
LAWRENCE YUN: I think the existing home sales market, which generally comprise 90% of total transactions-- I mean, it has diminished somewhat because of the lack of inventory, but there are so many home owners who are stuck in the wrong house. That is to say that in the past two years, we have not seen listings pop out for the reason that we know-- people love their low interest rate.
But life moved on. People have additional child in the family. They need larger size home. They need to trade up. We have some retirees who wants to trade down job switches, which require different commuting patterns. So, I think there is a sizable pent-up seller, delay sellers who have been postponing and postponing, and the mortgage rate, the new normal appears to be between 6 and 7%. We are not going to see 5%. 3% and 4%, out of the question.
So, therefore, I think more people are adjusting to the new normal in the mortgage rates, and they will begin to list the property. And more listing is good for the market.
JENNIFER SCHONBERGER: Does that mean that the second the Fed chooses to cut rates, we're going to see this insane groundswell of activity?
LAWRENCE YUN: We will see increased activity. I'm not sure if it will be a huge bursting, but, again, supply is needed because we know that more buyers will be coming onto the market when the rates are lower. But if we have more supply, that will tame down the housing inflation component.
SEANA SMITH: Lawrence, I'm curious to get your perspective on this. NAR settlement, National Association of Realtors settlement-- clearly you're very familiar with it. Just in terms of how much that is going to shift or really shake up the home buying and selling process. What you think-- what do you think the ultimate impact of that ruling or that settlement, excuse me, is going to be?
LAWRENCE YUN: You know, realtors are a small business owner. They are highly entrepreneurial. They will adjust to the circumstance, so I have no worries about that. The worry is about first time homebuyers, first generation homebuyers, who are barely scraping for the down payment, and now they may have to come up with additional amount to get the professional representation, so it's an awful news for potential first generation buyers.
You know, they don't have the cash. Their parents are not able to help out because they are first generation homebuyers. And the other group is veterans. There is an explicit mortgage rule that says veterans cannot pay buyer agents. So, that essentially saying to the veterans, you have to do it by yourself, which means they may be taken advantage by the home sellers, or they have to come out of pocket to pay the agents.
So, Realtor will adjust to the situation. I am very concerned with some of the buyers out there, especially first generation buyers, veteran buyers who may have to struggle through the process. But the market, I'm sure, they will adjust. But it's clearly a win for trial lawyers. Oof, god, I don't know how they were able to get the class action lawsuit, but the Realtor will adjust. Bad news for first generation and veteran buyers.
JENNIFER SCHONBERGER: All right. We're going to have to leave it there, Lawrence. Thank you so much for joining us. That was Lawrence Yun, National Association of Realtors chief economist.