NAR Chief Economist: ‘Market Activity is Doing Better Than One Year Ago’

As the U.S. economy continues to recover from spring’s shutdowns, many are wondering if one of the busiest summers of real estate on record is just a sign of a real estate bubble about to pop.

But according to Dr. Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), today’s market looks very different than that of 2008. Agents can expect the demand of the past few months to continue into the fall, he says, citing indicators of continued buyer interest.

“Pending contracts are still very high – up about 10% from one year ago,” Yun said. “I think this will continue for the rest of the year and into 2021.”

During Tuesday’s episode of “Good Morning RE/MAX,” Yun said he expected home sales in 2020 to exceed 2019, and even rise 8% by 2021. Yun spoke with host Nick Bailey, RE/MAX Chief Customer Officer, about the impact of the pandemic on the current market, where he’s seeing the highest demand, and his concern that low inventory will increase affordability issues.

Here are three big takeaways.

2020 is not even close to 2008

Despite signs of a slowing economy, Yun pointed to equity as an important indicator that the housing market is not heading for the same crash it experienced in 2008.

“I don’t think we will have any resemblance of what happened in 2007-2008 of massive foreclosures and prices plunging,” Yun said. “Some foreclosures will occur but there will be ready buyers to quickly absorb those properties.”

Unlike the years leading up to 2008, Yun says homeowners have been more discerning with how they use the equity in their homes. Before the housing crisis, many owners were taking equity out of their home for expensive cars or other big purchases. That left them underwater on their mortgage when the economy crashed.

Today’s homeowners have, for the most part, left their equity untouched.  

“Anyone who purchased their home in the past five years I think will have that cushion equity in most markets,” Yun said. That means homeowners who can no longer make housing payments may still be able to sell their home and walk away with cash.

Low mortgage rates are fueling demand that the supply can’t keep up with

The unemployment rate may be in double digits, which Yun acknowledged is “concerning,” but many jobs were able to seamlessly shift to a work-from-home environment. Those lucky enough to still have a steady income could be motivated by current market conditions.

“We’re seeing just a tremendous amount of buyer activity. Low mortgage rates are naturally drawing buyers into the market,” Yun said. “Unfortunately, homebuilders have not adequately built over the past 10 years. The cumulative effect of underproduction is we simply don’t have enough inventory.”

A recent uptick in building permits could be a sign that more inventory is on the way. As more homes are constructed, Yun expects the market could be more balanced starting in mid-2021. Until then, bidding wars are likely to remain the norm, driving home prices up in many areas.

“I don’t want to see home prices spike too much because that means affordability challenges – you will squeeze out the potential first-time buyers,” Yun said. “We want people going into homeownership in a successful way – not through subprime mortgages, but people staying within budget.”

Remote work has employees taking permanent vacations from the office

According to Yun, nearly a quarter of the workforce is now operating remotely, up from 5% prior to the pandemic. As companies continue to discover that employees are just as productive from home, Yun said he expects some work-from-home flexibility to remain even after a vaccine for coronavirus is developed.

“That means commuting becomes less important,” Yun said. “That’s why we are seeing that demand for homes in the suburbs being much stronger.”

Workers are also discovering the travel perks of a work-from-home lifestyle.

“When I say work from home, it’s not only your home, but your vacation home. We are seeing tremendous growth in the second-home market in vacation areas,” Yun said.  

What about the offices left behind? Yun said it’s time for developers to start rethinking how those spaces are used.

“That’s where creative commercial developers can think about how to repurpose [office space] into condominiums or fulfillment centers for online shopping.”

Watch Yun’s full “Good Morning RE/MAX” interview below.