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Housing economist: ‘There is a rental housing shortage’ driving up rent prices

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Lawrence Yun, chief economist at the National Association of Realtors, joins Yahoo Finance Live to discuss Fed Chair Powell's comments on the housing market, supply and demand, mortgage rates, and rental prices.

Video transcript

DAVE BRIGGS: OK, increasing signs of a cooling housing market and questions concerning another potential crash. Fed Chair Jerome Powell spoke several times today in what he's seeing in the housing data.

JEROME POWELL: What we hope is we can get demand, that part of the economy, to slow to a more sustainable pace. And get the housing market back on a more sustainable path where there's a better balance between supply and demand.

DAVE BRIGGS: Lawrence Yun is the National Association of Realtors' chief economist. He joins us now. So do those comments from the Fed Chair get us back on a sustainable path and a better balance between supply and demand? Do you think that's what we will see in the next six months to a year?

LAWRENCE YUN: Certainly, we are moving towards that way. We have seen the home sales come down five straight months. And it will continue to decline because mortgage rate continues to rise. So when mortgage rate rise, home sales decline.

But I would have to disagree with Chairman Powell on one thing. To get a balanced housing market, it would have been much preferable to increase supply of homes. So rather than choking up demand, just increase the supply of home. And that will tame down the price growth. So some comment on the supply would have been very productive, I think, in the current environment.

SEANA SMITH: Well, Lawrence, I guess, one, how feasible is that in terms of increasing supply because that's been an issue we've been battling for years? And when do you see that supply/demand balance here? Are we talking a couple of months or a couple of years?

LAWRENCE YUN: Well, supply always takes some more time. And it's not only a housing shortage to buy. But there is a rental housing shortage, which is causing rents to rise. So whether it is for apartment buildings, whether it is for single-family rentals, everything has to be done at the local level in terms of some of the zoning law changes.

Some of the regulatory burden, I mean, those need to be re-examined and possibly removed so the builders can get more active. And also trying to train our younger generation who are not college-bound to say, look, there are some trade skills. Construction job pays very well. So I think all that message needs to be out there.

RACHELLE AKUFFO: And in terms of one potential bright spot, you're saying that those buyers who can still qualify for a mortgage, even as they're going up, or are cash buyers will have less buyer competition. Obviously, a lot of people put off by what they're seeing with the mortgage rates. But is that going to keep prices higher?

LAWRENCE YUN: So the rising mortgage rate is certainly shrinking the buyer pool. And consequently, if one has the all cash, they're in a better position. Fewer buyer competition out there. But we are still facing some degree of residual housing shortage even as the demand is coming down, which is the reason why home prices keep hitting new highs after new high.

But I think the price appreciation will certainly begin to slow down with the sales declining. Homes may sit on the market little longer. And by December, it could only be, say, 5% price gain compared to the year prior.

DAVE BRIGGS: And there are you agree with Jerome Powell. He reiterated several times today, he doesn't think the prices are going to come down dramatically. But the increase in the prices will at least slow down.

Interesting data out today that mortgage applications, Lawrence, were up 4% from one week earlier. But at the same time, you open "The Economist," and the headline blares, will we see another housing crash similar to 2008? How different are these two housing markets at the moment?

LAWRENCE YUN: Two very important difference. One is building activity. Back then, builders overproduced, over 2 million housing starts in a given year. And consequently, we had an oversupply. This time around, we have had multiple years of underproduction, which is the reason why we are facing this housing shortage. So that's one big difference.

And the second one is the mortgage credit quality. Back then, funny numbers, funny mortgage products, interest only. So you really messed things up. Today, people who are taking out a mortgage, it is of a strict underwriting standard, very high quality. And consequently, even as the economy is facing some recession possibility, the foreclosure rate could remain very low. Only those people who lose jobs may not be able to pay mortgages. But the mortgage product itself is of sound quality.

SEANA SMITH: Lawrence, we talk about home price appreciation. Right now as we have home prices at record highs, it's pricing a lot of people out of the market. I know you're expecting home prices to come down a bit. But what do you think the market will look like by the end of the year when it comes to prices?

LAWRENCE YUN: So moving somewhat towards a more balanced market because demand is being held back. I mean, I would prefer a balanced market with increased supply. But with the demand coming back from rising rates, the price appreciation, those easy gains of 20% from one year before, which many markets have experienced, those days are past.

Consequently, home sellers need to be very realistic about the market. They cannot simply jack the price by 20% compared to last year and expect to find a buyer. It will only be in the single digit price appreciation.

RACHELLE AKUFFO: And Lawrence, I want to ask you about the commercial market because we did see some of these warehouses start to gain traction, a lot of investors buying those. What are you seeing in the commercial space that perhaps is different from what we're seeing in the private or residential?

LAWRENCE YUN: The commercial market, the apartment sector, very strong. The industrial, warehouse sector remaining very strong. Even the hotel industry beginning to show a rebound along with retail. But one area where it's still wobbly is the office sector. The work-from-home hybrid model, that is leading to many skylines, whether Chicago, New York, San Francisco, buildings remaining half-empty or even more. And consequently, there will be some readjustment related to the office sector.

SEANA SMITH: Lawrence Yun, the National Association of Realtors' chief economist, Thanks so much for joining us today.

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