Real Estate & Construction  March 30, 2022

RE Summit: NAR’s Yun suggests mortgage rates may plateau

LOVELAND — The home-buying market is tough for consumers and real estate agents with home prices and mortgage rates rising rapidly, but the bright spot may be that mortgage interest rate increases may have plateaued with few significant increases yet to come. At least this year, according to Lawrence Yun, chief economist for the National Association of Realtors.

Yun provided the keynote address Wednesday at the annual Northern Colorado Real Estate Summit, a BizWest event held at the Ranch Events Complex in east Loveland.

Yun, who joined the event remotely from his office in the shadow of the U.S. Capitol in Washington, D.C., tracks real estate activity nationwide. He noted that Northern 

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Colorado has one of the hottest markets in the country, “and not just this year but consistently over five years, seven years.”

Yun displayed charts showing the relationship between the Federal Funds Rate and mortgage rates. “The Fed controls the Fed Funds Rate, and can move it rapidly up and down. But mortgage rates don’t necessarily follow.”

He said the Federal Reserve Board has announced that it will increase the Fed Funds Rate seven or eight times this year to combat inflation. In anticipation, mortgage rates have already increased, he said, and are not likely to increase substantially more the remainder of the year. 

“Most of the increases in mortgage rates have already occurred. Any increases beyond this will be much milder,” he said.

But the impact on home buyers is substantial.

He noted that an $800,000 mortgage at 3% means a monthly payment of about $3,373. At 5%, that monthly payment jumps about $1,000 a month to $4,295.

If rates were to rise to 10%, the monthly payment on an $800,000 mortgage would be $7,021. 

“I think the 4.5% rate today may reach 5% by year end. I’m not positive on that,” he said.

Yun did warn about other factors that could dramatically increase interest rates. 

“Russia is acting bad. It’s a very sad situation in Ukraine. But let’s say China decides to help Russia with weapons, and the U.S. puts sanctions on China. China’s economy is much larger than Russia’s. If sanctions are put on, [China] will reciprocate,” Yun said.

China holds a lot of U.S. Treasury notes, and “if it dumps them, mortgage rates could reach 7%, 9%, 10%.”

To avoid depending on countries such as China, the U.S. has to reduce its deficit, which in the past has been financed by other countries, he said.

Yun also said reducing oil prices would also lessen inflationary pressures and have a positive impact on mortgage rates. But he expects oil prices to remain high for a while, because oil companies have not responded to the improved post-pandemic economy with increased drilling. 

Yun said that consumer price increases — 7.9% so far this year — is hampering the housing market, yet he said there’s a silver lining. Rapid home equity growth serves as a hedge against inflation for those who can afford to buy and own.

Job growth — nationwide and in Northern Colorado there are more jobs now than there were prior to the pandemic — has a positive impact on the housing market. In the region, Yun said, the jobs situation has shifted somewhat between 2000 and 2021. At the turn of the century, the Boulder area had about 40,000 more jobs than the Fort Collins area. Now, that gap is about 20,000, he said, because Northern Colorado has grown more rapidly. 

In what he called “an amazing situation in America,” there are more jobs available than there are people seeking jobs. “There is also job market friction; if you’re an architect out of work, you don’t want to work in the restaurant industry” where the job openings might be. 

Yun predicted that the Northern Colorado real estate market would see increased inventory as the year goes on. “By late summer, say August, you’ll see total inventory increase as compared to August last year. There are several reasons for it. First-time home buyers may be squeezed out by the prices, and builders are actively building” and will overcome some of the supply shortages that are delaying completion of new homes. 

He also said that the federal mortgage forbearance programs are coming to an end, meaning people who were unable to make mortgage payments during the pandemic will either face foreclosure or will need to sell. “In your area, they maybe won’t be foreclosed but can sell the home because the market is hot,” he said. If homes are foreclosed, “they won’t linger on the market.”

Finally, with 1 million more deaths in the nation since the arrival of COVID, some property owners may choose to put homes on the market, thus impacting supply. 

“I’m not trying to be insensitive, but this is the reality of the situation.”

LOVELAND — The home-buying market is tough for consumers and real estate agents with home prices and mortgage rates rising rapidly, but the bright spot may be that mortgage interest rate increases may have plateaued with few significant increases yet to come. At least this year, according to Lawrence Yun, chief economist for the National Association of Realtors.

Yun provided the keynote address Wednesday at the annual Northern Colorado Real Estate Summit, a BizWest event held at the Ranch Events Complex in east Loveland.

Yun, who joined the event remotely from his office in the shadow of the U.S. Capitol in Washington,…

Ken Amundson
Ken Amundson is managing editor of BizWest. He has lived in Loveland and reported on issues in the region since 1987. Prior to Colorado, he reported and edited for news organizations in Minnesota and Iowa. He's a parent of two and grandparent of four, all of whom make their homes on the Front Range. A news junkie at heart, he also enjoys competitive sports, especially the Rapids.
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