Macro

NAR Rule May Spike Home Prices, Bond Yields Amid Inflation

NAR settlement to reshape real estate, potentially driving up home prices and bond yields amid inflation concerns.

By Athena Xu

4/3, 20:17 EDT
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Key Takeaway

  • NAR's new home sales rule could increase home prices and bond yields by changing commission structures, potentially leaving more money with sellers.
  • This change risks undermining the Fed's efforts to control inflation, especially as housing costs have been a significant inflation driver.
  • Despite potential for lower transaction costs to make homes more affordable, the current sellers' market may delay any disinflationary effects on housing.

NAR Settlement Shakes Up Real Estate

Last month's settlement agreement by the National Association of Realtors (NAR) is poised to reshape the US real estate landscape significantly. The agreement, which ends the requirement for a seller’s agent to offer commissions to a buyer’s agent, could save homeowners billions of dollars in transaction costs. This change is expected to increase home prices as sellers retain more from sales and buyers, empowered by online tools and potential savings, may have additional funds to invest in new homes. This dynamic could contribute to sustained inflation and influence US bond yields.

Housing Market's Inflationary Pressure

The housing sector has been a critical factor in US inflation, particularly in the shelter category, which significantly contributed to the overall monthly CPI advance in February. With the NAR ruling expected to take effect in mid-July, there's concern that lower real estate commission costs could further drive up housing prices. This scenario risks undermining the Federal Reserve's efforts to achieve its 2% inflation target, potentially leading to higher bond yields as the market adjusts to these changes.

Builders and Markets Respond

Despite the potential for increased costs due to the NAR settlement, the housing market remains robust, with homebuilder confidence at its highest since July. Companies like Home Depot and DoorDash are making strategic moves to capitalize on the professional home market, indicating a strong belief in the sector's continued growth. Additionally, the surge in new home listings and sales, despite high mortgage rates, underscores the resilience and adaptability of the market. Builders are responding to high borrowing costs by offering incentives and focusing on more affordable housing options, keeping demand for new homes strong.