A look at the news lately can make people jittery. The Federal Reserve is ratcheting up interest rates, inflation is rampant and, as a result, mortgage payments have skyrocketed. However, these realities do not necessarily spell doom and gloom for the U.S. housing market. In fact, these trends may just indicate a light at the end of the tunnel.

In this episode, host Maiclaire Bolton Smith sits down with CoreLogic Principal Economist Molly Boesel to talk about today’s economic trends in the housing market and how tracking them has revealed that perhaps things are not as dire as they might seem.

Keep pace with the changing economy by following CoreLogic analysis at corelogic.com/intelligence.

Maiclaire Bolton Smith:

Welcome back to Core Conversations: A CoreLogic Podcast, where we dive into the heart of what makes the property market tick. I'm Maiclaire Bolton Smith, your host and curious observer of all things related to property — from affordable housing to market trends and the impacts of natural disasters to climate change — I want to converse about it all.

For many, home is where the heart is. But while houses can elicit a strong emotional attachment from those who live in them, it's also worth remembering that property is an enormous asset class that props up the U.S. economy.

In spite of the continued strength of the U.S. housing market, there are rumblings that an economic slowdown is on the horizon to puncture the so-called "housing bubble." However, as with life, things can be unfair, and not all markets are rated to be affected equally. So where are those markets with the highest risk of price decline? Where are the places that are likely to continue to see home price growth?

Joining us today for a tour of the country's property market and some insights into how price growth is evolving, we are once again joined by CoreLogic Principal Economist, Molly Boesel. Molly, welcome back to Core Conversations!

Molly Boesel:

Hi, Maiclaire. It's really great to be here again.

MBS:

Well, I'm so excited to talk to you again. You were just here a few months ago for, honestly, one of my favorite episodes talking about myths in the housing market. That's Episode 33 if our listeners want to check it out. But, as a reminder to those who haven't maybe heard that, or maybe don't know much about you, can you tell us a little bit about your background and your role here at CoreLogic? And I guess, while you're at it, can you talk about your involvement with the monthly Home Price Index, or the HPI as we call it?

MB:

Yeah, sure. I'm in the Office of the Chief Economist at CoreLogic, and I'm a principal economist. And in addition to talking about the myths of the housing market, I follow just, basically, trends in the housing market, so anywhere from home sales, like you said, home prices. And then also we talk about rents and what's happening with the rental market as well. So just covering a lot of different trends in the market and trying to see where it's taking us.

MBS:

And what about the HPI specifically? Can you tell just a little bit about what the Home Price Index report is?

MB:

Sure. We put out the Home Price Index every month. It covers the nation, states, metros and even down to the county level. And we look at price changes, mostly from a year ago. We look at it by property type. We look at it by price tier. And then we also in there every month, we put our forecast for 12 months out.

MBS:

Okay.

MB:

So you can see what our home price forecast is saying as well. And in addition to that, we list some metros that are at risk of price declines.

MBS:

Okay.

MB:

And we also have, I believe, 10 metros we cover every month, where we list also what their forecast is a year out, and then if they're considered to be undervalued, or overvalued or at value.

MBS:

Okay. Okay.

MB:

So just to give you a really broad view of what's going on with home prices and then also a sneak peek into what our forecast is.

MBS:

Something that many people are paying attention to is the effect of rising interest rates on home price growth. This is all over the news and everyone's talking about it. The HPI, which CoreLogic released, which reviews data from May, CoreLogic is projecting that year over year appreciation will drop to 4.3%.

MB:

Exactly, yeah.

MBS:

What does this mean for the average homeowner? And I guess, also not just homeowners, but investors, what does this mean?

MB:

Yeah. I mean, you alluded to interest rates going up. So, as everyone knows, mortgage rates, or, specifically, the 30-year mortgage rate is about three percentage points higher than it was at its bottom last year.

MBS:

It's crazy how fast that happened.

MB:

It really happened fast.

MBS:

Yeah.

MB:

MBS:

Yeah.

MB:

Just in the beginning of the year, they were in the 3% range, and now they're above 5%.

MBS:

Yeah.

MB:

So what that has done is it's made monthly payments much higher for your average borrower. So, we have this metric we like to look at, which is the typical mortgage payment. And see what's the monthly payment a borrower would pay on a median-priced home at the going 30-year rate.

MBS:

Yeah.

MB:

So let's say they put down 20%. Well, that's increased by 50% from where it was a year ago.

MBS:

That's crazy.

MB:

So you think about these mortgage rates going up, and then you talked about home prices also reaching that high a couple of months ago. And the borrowers are just being priced out of the market. Things are becoming really unaffordable.

MBS:

Wow.

MB:

That's really what's starting to slow down the prices.

MBS:

Wow.

MB:

Prices are slowing a bit, but they're still going up. So you said we hit a high of around 20% in May, and then prices have eased a little bit, but they're still going up around 18%.

MBS:

Wow, that's high.

MB:

We're still near that record high and that's on top of the 16% increase from a year ago.

MBS:

Wow.

MB:

You can just see how borrowers are getting priced out of the market, which that's going to just take a little air out of things.

MBS:

Yeah, absolutely. Is that across the board, across the nation, or are there markets with a particularly high risk of price decline? And if so, why these markets, in particular?

MB:

Well, like you mentioned, that is a national average. Some parts of the country or some metros are going up even faster. In our recent Home Price Index release, we had Miami up about 25% from a year ago.

MBS:

Wow.

MB:

So that's about the highest for the whole country. Well, Phoenix was up 26%.

MBS:

Yeah.

MB:

Some parts of the country just going up much higher. Even the lowest areas are still going up by about 10% from a year ago.

MBS:

Wow.

MB:

So up across the board, definitely.

MBS:

Yeah. Out of curiosity, those ones that are going up so much, why? What makes those so desirable to make them go up so high?

MB:

Well, that's a great question actually. One thing that pushes up home prices, well, a couple of things. There's demand and then the lack of supply.

MBS:

Sure.

MB:

Some areas have very, very low supply, and they have a lot of demand. And that demand is coming from people moving to those areas. So a lot of people are moving to Florida. A lot of people are moving to Arizona, so prices just keep going up.

MBS:

Wow.

MB:

But you did ask me about the risk of price declines.

MBS:

Right, yeah.

MB:

And when we have prices continuing to increase at these near-20% rates and then, like I said, 25, 26% some other places, you do start to worry about the risk of a price decline. A lot of our listeners have got the great recession, the housing crash, in mind.

MBS:

Yeah.

MB:

We're asked about that all the time. Are we going to have something like that? Well, probably not. But it's in our memory.

MBS:

Yeah.

MB:

And when we have prices go up so quickly, that does make us start to see risks of price declines in some areas. We're not seeing it across the nation though.

MBS:

Okay.

MB:

MBS:

Okay.

MB:

And then also a little bit in the Northeast. But in the Northwest, we've just seen prices go up, incomes haven't kept up, and with this increase in mortgage rates, that's starting to price some buyers out of the market. That's slowing home sales and that's then just starting to slow prices a little bit, and then the risk of price declines go up. Now, I'm still talking about a risk of a price decline.

MBS:

Sure, yeah.

MB:

We haven't seen prices decline anywhere yet, but that's just... things are getting a little riskier.

MBS:

Wow. Well, it's super interesting. And one thing I do want to circle back on is this whole topic of inventory that you mentioned in the supply and demand. And this is something that you and I talked about last time when we were talking about housing myths. And one of the things is that there has not been sufficient construction to keep up with the demand. The demand is much higher and that's really shot housing prices up, especially in these metro areas where people are moving to — flocking to in some instances. And there just aren't the properties for them to purchase. And that's just shooting the values up.

Is this still the case? Are we still in a shortage of available properties, especially new construction-type properties? Or and if we had more new construction and additional properties on the market, would that help with some of these pricing increases that we're seeing?

MB:

Well, I wish I had better news for you on inventories. They're still very low. They are starting to build a little bit and they're building because sales are slowing.

MBS:

Okay.

MB:

MBS:

Wow.

MB:

But like I said, it is starting to build a little bit. Now, we're also seeing that home builders are pulling back as well. So we're not... Well, they are building less than they were a year ago. So we are seeing builders pull back a bit. A lot of that has to do with mortgage rates, not necessarily maybe, mortgage rates for the builders, but the cost of borrowing, in general.

MBS:

Sure.

MB:

It's more expensive for them. And then new homes are typically more expensive than resales. So, borrowers who are starting to get priced out because of price increases and mortgage rate increases may not be as interested in buying new construction.

MBS:

Right.

MB:

So you have a lot working against the builders. The National Association of Home Builders has a Home Builder Sentiment Index.

MBS:

Okay.

MB:

And they're showing that builders are not feeling that great about the market right now. So then when they are not feeling good about the market, they start to pull back.

MBS:

Sure, yeah.

MB:

We're still seeing building, but it's just less than it was.

MBS:

Yeah. And you may not know this, Molly, but I know last time when we talked about this too, some of that was also, in part too, the cost of construction materials. Is that still...

MB:

Yeah, that's a great point. That's still a...

MBS:

That's probably something still that's driving.

MB:

Yeah, exactly. Yeah.

MBS:

Yeah.

MB:

That hasn't eased as well, so great point about costs. Costs are up across the board for everyone.

MBS:

Yeah.

MB:

So builders are feeling that as well.

MBS:

Yeah. And I think that's what we even alluded to off the top is just, in general, everything is more expensive and that we're seeing it, the crunch, everywhere. I want to talk a little bit about the Mortgage Bankers Association, the MBA. They found, in June, that despite higher interest rates, mortgage application payments and homebuyer affordability stabilized for the first time in several months. And this is actually really interesting given the fact that interest rates are so high. How do these findings interplay with the research that we've done here at CoreLogic demonstrating a little bit of a cooling off of the housing market? What have we seen with trends?

MB:

Yeah, no, that's a great point. I referred to earlier this metric we look at called the typical mortgage payment. This metric from the Mortgage Bankers is very similar. When I said that payments went up by 50%, I was talking about compared to a year ago. It is really interesting to see are we at a turning point now?

MBS:

Yeah.

MB:

The Mortgage Bankers are looking at where we are now compared to last month, maybe the month before, and they're seeing things level off. And that's a great point that prices are still going up, but they're not going up by as much, so that's starting to cool a tiny bit. And then mortgage rates are leveling off. They shot up in April of this year, but then they have bounced around between five and a quarter, five and a half percent, around there. And that's really what everyone expects them... Economists expect mortgage rates to stay roughly in the 5% to 6% range.

MBS:

Okay.

MB:

So you're not going to see, when we look at next year, you're not going to see the payment shot up another 50%.

MBS:

Got you, okay.

MB:

Payments maybe actually we will maybe even be a little lower when we get to next year.

MBS:

Okay.

MB:

But yeah, we are starting to see what we might think about as a tipping point in the market.

MBS:

Maybe a little bit of good news for somebody that's looking to purchase a new home in the next year or so.

MB:

Well, especially if they feel comfortable that mortgage rates aren't going to spike again.

MBS:

Sure, yeah. Yeah. And I guess...

MB:

And I think that's where you get into where the Federal Reserve has been very vocal and open about what they plan to do with raising rates. When they are open with that and they let everyone know that's what their plan is, it does help stabilize things.

MBS:

I'm glad you mentioned that because that's a really important part about this too. And I think there were a lot of unknowns last year, and I feel maybe we're less unknown this year because of the transparency that the Fed has given with what their intentions are.

MB:

Exactly, exactly. And they really need to tackle this inflation problem. And once they tackle that, then they'll stop raising rates, but we aren't there yet. Inflation is still up close to 40-year highs, even though it's eased just a tiny bit in the last couple of months.

MBS:

It's crazy. Wow. It's so crazy. If we go back to the Home Price Index report that you released recently. One of the big things that you calculate is how home prices change over time. But one thing I want to talk a little bit about is prices are vastly different across the country. I live in the Silicon Valley in California. I talk about this a lot where home prices are just insane. You live in a very expensive metro, as well too, over on the East Coast. It's very different in the middle of the country in some parts. How do you control for price variations for different markets?

MB:

With our Home Price Index, it's a repeat pairing index. One thing we do is we look at the same property. Where the same property, how it sells in different points of time, and we calculate out the increase or if there's a decrease that way. Our index also is by state. We look at it by county, metro, sometimes even down to the zip code.

MBS:

Wow.

MB:

If we were researching a specific part of the country, we would probably go down to state maybe, metro definitely, maybe down to the county level. So it's a pretty deep index.

MBS:

That's good to know, and that's really interesting just because it is so variable across the country. It also leads me to then think about rentals and rent prices. Are we seeing similar trends in rent prices? I mean, we've talked on the podcast earlier in the year too, about how some rents are just skyrocketing as well. And we've seen so many changes in the rental market.

MB:

Yeah. We're seeing definitely similar trends with rents as we are with home prices.

MBS:

Okay.

MB:

Just as prices are up across the board or across the country with home prices, they're up across the country with rents. We look at single-family rents, so that's probably the closest you get to something somebody might buy. And we had in, I think, it was May, our Single-Family Rent Index was up almost 14% over the year before.

MBS:

Wow.

MB:

That means rents increased 14%

MBS:

Wow, nationwide?

MB:

That's nationwide.

MBS:

The national... Yeah. Wow.

MB:

Yes. Now, that's national, ok? The place that's increasing the fastest is Miami. They increased about 35% from a year ago.

MBS:

Oh my goodness, wow.

MB:

Yeah. Someone signing a new lease in Miami is paying 35% more for that same property.

MBS:

Wow.

MB:

Rents are going up, and so...

MBS:

Do we know what's so desirable about Miami to trigger that?

MB:

You have a lot of people moving to Miami who are going down there for jobs that pay really well. The new entrants to the metro have really high salaries, so they're just paying these higher rents.

MBS:

Wow.

MB:

You have renters facing really high prices, and that actually, even though some people are getting bid, or priced out of the home buying market, that could also, because rents are so high, keep people still interested in buying a home.

MBS:

Sure.

MB:

Because when they buy a home, they aren't faced with that 14% nationwide increase in their payments, so that helps them keep their payments stable. That's why we still see buyers. They're not just automatically flipping to the rental market. They are still interested in purchasing.

MBS:

Wow, so interesting. Okay. So just to finish off today, Molly. Sometimes in these episodes, I like to pretend to look into a crystal ball and see what the future holds. And I love the fact that you've alluded to what we projected might happen at the end of the year, for this year, in terms of interest rates. If we had to think what the future would look like with home prices up 18%, 18.3% again this year, but you are predicting, or expecting, potentially, a slowdown. What does this mean for those that are currently looking to either buy or sell their home? Is it now going to be now or never? Is it a good time? Is it a bad time? What do you think if we had to look into our crystal ball and think about what's going to happen?

MB:

Well, things are slowing down, so you are seeing inventories build. That could be good for some shoppers who are looking if they're seeing inventories build a bit. If they've got the income to support the prices that we have.

MBS:

Sure.

MB:

But prices, we say prices are going to slow to about a 5% increase next year. I don't know that urgency is out there right now to get in before prices shoot up another 20% if they're slowing a bit. It could just be still a good time to look and buy but maybe take their time a little more.

MBS:

Sure, wow. Thank you, Molly. This has been so great. It's always a joy to have you on the podcast and look forward to having you back again and thanks for joining us today on Core Conversations: A CoreLogic Podcast.

MB:

It's always a pleasure, Maiclaire.

MBS:

All right. Well thank you for listening. I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life: producer, Jessi Devenyns, editor and sound engineer, Romie Aromin, and social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.