NAR chief economist offers ‘best guess’ about Fed rate cuts 

What's the current state of the U.S. economy? It's complicated, according to Lawrence Yun, chief economist at the National Association of Realtors.

The S&P 500 recently hit a record high — "clearly implying that there is some optimism" — and unemployment is well below 5%, Yun noted during a recent appearance on the Real Estate Insiders Unfiltered podcast. But few jobs have been added to the economy over the past 12 months, people are worried about how AI will impact the labor market, and consumer sentiment has plummeted to a record low.

"The economy is not terrific, but we're not in a recession; we don't have a foreclosure crisis," Yun said. So why is consumer confidence so low? The "K-shaped economy" may be to blame, he suggested, but so might America's divisive political climate. "Maybe people are just pausing to say, 'You know, I'm not sure.'"

What will happen with mortgage rates? Last fall, NAR predicted the 30-year mortgage rate would average around 6% this year. But the association revised its numbers after the war in Iran sent energy prices skyward, with rates now expected to average 6.5%.

Rates could climb higher, Yun noted, but they won't get anywhere near the record-high mortgage rates that followed the 1970s energy crisis — in part because the U.S. is more energy efficient now than it was then.

"I don't foresee 18% mortgage rates or even 10% mortgage rates," Yun said. "Maybe it could go up to 7% mortgage rates. But the longer the oil prices remain elevated, that is bad news for real estate."

A 'disappointing' start for the year: NAR also made a significant downward revision to its home sales forecast, lowering an initial 14% year-over-year bump to just 4%.

"January and February home sales figures actually did not climb at all. It was somewhat disappointing from my perspective," Yun said. While he "thought there was sizable pent-up demand ready to be released," the brief dip rates made below 6% in February didn't last long enough for that demand to be unleashed.

Yun isn't expecting a year-over-year decline in home sales, but he issued a reminder to take statistical models like the one NAR uses for its economic forecasts "with a grain of salt."

"Statistical models spit out some number, but we know that the real world adds human nature to it."

What will the Fed do next? The Federal Open Market Committee (FOMC) hasn't acted as quickly as President Donald Trump would have liked on lowering short-term interest rates. But with Fed Chair Jerome Powell's term slated to end next month and nominee Kevin Warsh now likely to be confirmed as his successor, will the central bank change its tune?

Warsh, a former Fed governor who has faced tough questions about his loyalty to Trump, "probably indicated that we can lower interest rates" despite the FOMC's concerns about inflation, Yun said, though he is "not sure when that would occur."

But Warsh leaned hawkish when he served as a Fed governor years ago. Yun's "best guess" is that Warsh "will try to persuade the FOMC to cut interest rates" to avoid disappointing Trump, with a single 50-basis-point cut possible this summer.

Ultimately, the war will likely impact how the Fed chooses to proceed. "If the oil prices retreat, that makes it much easier. If oil prices increase, I think that's going to delay that decision for some time."