The Fed has indicated plans for three rate cuts in 2024, but Dr. Lawrence Yun predicts four or five. The Chief Economist of the National Association of REALTORS® shared that thought at his recent Market Outlook event, and “oohs” and applause could be heard from around the room.
The evening, sponsored by Chicago Realtors (CAR) and held at the Marriott Marquis Chicago on January 18th, was opened by Mr. Yun. Hundreds of local agents were in attendance.
In his speech, Yun detailed the growth in apartment construction across the country – the highest growth rate in 40 years, according to data – and said there is currently an oversupply. In other words, as vacancy rates rise, rents begin to fall. “Rent is a major contributor to consumer price inflation. If it goes down, it will prompt the Fed to cut rates,” Yun said.
Still, Yun emphasized that low interest rates in the 3% range are a thing of the past. He said, “If you're younger than me, there's hope, but I can't imagine 3% (recurrence) for the rest of my life.'' “6.5% may become the new normal. It's certainly not great, but it's better than 8%.”
After Yun's presentation, Brandon Svec, National Director of U.S. Retail Analytics at CoStar Group, took to the stage to provide a commercial perspective, but also focused on the rising residential vacancy rate. The national vacancy rate is over 7%, and Subek said that we are currently on the verge of an “oversupply recession.” However, he noted that “Chicago has not participated in the (recent) construction boom.”
Chicago delivered 10,000 units over the course of last year, less than 2% of the city's inventory. So unlike many of the Sun Belt's major markets, which are currently experiencing rent reductions, “Chicago's fundamentals remain balanced,” Svek said.
Mr. Yun then took to the stage with Mr. Svec and participated in a Q&A session moderated by CAR CEO Michelle Mills Clement. During the meeting, Mr. Yun emphasized the need to increase his inventory.
“Further price hikes are unlikely,” Yun said. “It will lead to a permanent division between the haves and the have-nots. Renters who want to become homeowners are basically feeling hopeless about this situation. But he was hopeful, saying he thinks inventories will increase by 30% this year.
Subek also noted a decline in housing stock. Despite low inventory levels, he doesn't expect many offices to convert to residential. “It's expensive and not easy to implement, especially in high-rise buildings in urban areas,” Scev said. Subek added that some of the shares could be sold through public incentives, but ultimately said it could be less than 5% of the office building.
