BOULDER — The real estate industry can expect 2025 to end as a “bummer” year, the third in a row. But recovery will come in 2026, said Lawrence Yun, the chief economist for the National Association of Realtors, based in Washington, D.C.
Yun was the keynote speaker at the Boulder Valley Real Estate Conference Thursday held at the newly opened Limelight Boulder Hotel. His appearance was his fifth during the 18-year run of the conference, a BizWest event.
Yun, who provided a national real estate forecast, said he expects the industry to see a 14% gain in existing home sales, “assuming mortgage rates go to 6% in the coming year.” Rates declining from 7% to 6% will enable a larger cohort of people to qualify for mortgages, thus expanding the market.
Yun also expects new home sales to increase 5%, compared with a 2% decline in 2025. He said median home prices will rise 4% and that 1.3 million new jobs will be created in the coming year, compared to 400,000 this year.
Before offering his forecast, however, he reviewed how the market got to where it’s at. “Are we due for a recovery? Are we headed for an economic recession?” he asked.
Bemoaning the government shutdown, which blocked access to data that economists use to track the trajectory of the economy, Yun said jobs information, “fresh this morning,” indicates that “we are not in a recession, at least not yet. The labor-market gains are continuing.”
“The stock market was at record highs before last week. Could it be overvalued? Will it correct downward, and is that an early indicator?
“Housing starts are at a record high, and I have no worries that will change. Housing wealth impacts the economy and their (homeowner) wealth is on solid ground,” Yun said.
Despite the signs of positive swings in the economy, “People are not happy with the direction of the economy, and they’re beginning to default on loans,” he said. “Sentiment is lower than it was 15 years ago when we had a recession.”
Yun noted that the runup in the stock market, which began in 2000 and has continued “until the recent wobble,” unfortunately is not based on the 500 largest companies, but on just 10. The 10 largest technology companies and all the capital flowing into these companies are causing the spike in the stock market.
Investors may find that investments into artificial intelligence “might not pan out in terms of rate of return.”
“The AI boom is almost like the railroad boom of 100 years ago. Capital went into railroad companies, but the rate of return wasn’t there, and there was a bubble, and it crashed, yet we still enjoy railroads. Maybe the profit that AI expects won’t be there, but AI will still be with us,” he said. “In America, we’re all optimists. We always believe tomorrow will be better than today. If you look now, people are seeing the future as not as good as today.”
As a result, the nation is seeing more auto-loan delinquencies even as the number of jobs is rising. That means, he said, “a certain segment of society is feeling distress.”
Credit-card delinquency and student debt delinquency are also increasing, but mortgage delinquency is not rising, he noted.
Homeowners and buyers have endured a strange time for the industry, he said. When the Great Recession caused a collapse of the housing market, the Fed dropped its federal funds rate from 4.5% to 0% in order to stimulate borrowing. Lenders then dropped mortgage rates to 3%-4%, creating a frenzied market in which homes for sale were snatched up almost before some buyers could put together an offer.
As inflation became a concern, the Federal Reserve increased rates — “the most aggressive increase in two generations” — and mortgage rates jumped to 7%-8%. “And that changed the calculation for home buyers,” Yun said.
“Then something strange happened. Buyers disappeared because of the rates, but sellers also disappeared because they didn’t want to give up their 3% rates on existing mortgages.
“Now, maybe people are getting accustomed to the 7% and people are getting more interested in buying and selling.”
While the Fed may not cut rates further in December, “I think there will be three more rate cuts before stabilization.”
He said inflation is not too high, but it’s not contained. Still, the Fed continues to cut rates because it has begun to focus more on the labor market than on inflation. While economists may look at the job market and see continued growth in the number of jobs, not a decline, the Fed is looking at month to month changes, and “they’re seeing a decline in the growth of jobs, month to month,” Yun said.
Colorado has seen 6.6% more jobs now than five years ago, pre-COVID. That’s above the national average but below the 10% job growth seen in markets such as Utah, the Carolinas, Florida and Texas.
Boulder itself, Yun said, has doubled the number of jobs in the community between 1990 and now.
While Yun was optimistic about the residential real estate market in the coming year, he was less certain and less optimistic about the commercial real estate market.
Calling it “quite depressing,” he said that while apartment demand is still quite strong, the office sector remains troubled because of hybrid and remote work-from-home trends that haven’t rebounded from the pandemic. “
“The real question with the office sector is, is there a permanent oversupply,” he said. Sellers of office properties are seeing significant declines in prices, he said.
In the retail property sector, vacancy rates are stable and “there’s no overbuilding in this sector,” he said.
And in the warehouse space, the industrial and warehouse sector saw a large runup during the pandemic as companies needed space to stock merchandise that would be delivered to residents. “But now rents are down.”
Yun said the big factor for commercial property owners is in financing. Unlike the 30-year mortgage on the residential side, commercial properties are financed with three- and five-year loans that come up for refinancing. With interest rates where they are, and values declining in some sectors, banks are less willing to refinance on the same terms as previous loans.
“The big banks aren’t into commercial real estate, but local banks are, and local banks don’t want to foreclose. So they’re negotiating, and the bank and landlord are both taking a hit,” he said. Calling these new deals “pretend and extend,” he said banks and commercial property owners may find themselves in “zombie loan situations” unless the Fed cuts interest rates.
This article was first published by BizWest, an independent news organization, and is published under a license agreement. © 2025 BizWest Media LLC.
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