Ever wondered why the U.S. mortgage market offers 30-year, fixed-rate mortgages and what impact this unique loan offering has on housing prices? This is a question that host Maiclaire Bolton Smith and CoreLogic Professional Economist Thom Malone dive into during part two of this episode on the differences between the U.S. and international housing markets.

From the surprising benefits of the U.S. system for homeowners to the potential hazards in concentrating mortgage risk, this conversation explores the effects of inflation on housing prices, drawing connections to global trends. Stay tuned until the end for insights into if and where property markets will experience shifts in the upcoming months.

To continue the conversation and connect the dots between interest rates, inflation and housing prices, make sure to tune into Episode 60 as well.

In This Episode

• 1:04 – What are the advantages/disadvantages of the U.S.’s 30-year, fixed-rate mortgage system?
• 2:56 – How do interest rate increases affect housing prices in other countries?
• 5:46 – Are there specific U.S. markets where we’re seeing the potential for people to default on their mortgages?
• 8:20 – How does the national cycle of housing price change express itself? (Hint: like a waterfall)
• 10:50 – Are international markets seeing similar home price trends to the U.S.?
• 12:11 – Erika Stanley reviews natural catastrophes and extreme weather events across the globe.
• 13:51 – What can we expect to see from home prices in the next few months?

Links:

• Read CoreLogic Intelligence
• Register for INTRCONNECT 2024
• Hazard HQ Command CentralTM natural disaster coverage
• More First-Time Homebuyers Reside in Midwestern and High-Tech Coastal Metros
• Thom Malone author page

Up Next: Why US Property Retains Its Value Compared to Other Global Markets

Find full episodes with all our guests in our podcast archive here: https://clgx.co/3zqhBZt

Thom Malone:

I don't know about you with your family or friends back in Canada, but their minds are blown, people back home, when I explain that the mortgage system here and that-

Maiclaire Bolton Smith:

Absolutely.

TM:

Oh no, my interest rate isn't going to change. That's it.

MBS:

Yeah.

TM:

Yeah, knowing and I can pay it off whenever I want and I won't have to pay any fees, or anything like that.

Erika Stanley:

Welcome back to part two of our mini-series about the state of the international housing market in investor activity. To recap, we welcomed CoreLogic economist Thom Malone, and discussed why the U.S. mortgage market's 30-year, fixed-rate offerings are so unique and talked about how investors have influenced housing prices. Let's jump into it.

TM:

MBS:

Yeah.

TM:

Potentially, you could say advantage is to the mortgage brokers as well, like them giving out mortgages is a much lower risk industry here. You buy it, you sell it on to someone else, like the GSEs, as opposed to bearing the risk yourself.

MBS:

Yeah. Yeah.

TM:

MBS:

Sure. Yeah.

TM:

But furthermore, to bring it to current events, it potentially blunts the effects of monetary policy as well. Like the inflation is high.

The Fed is raising interest rates to try and get inflation down, but that increase in interest rates is only going to be felt on the consumer side, at least, not considering businesses and things like that here by people who are buying a new home. It doesn't get absorbed by people who are in an existing home.

MBS:

Oh, interesting. Okay.

TM:

Their rate's going to say the same, but in a different country, or if they have an ARM, rates are going to go up, your home payment's going to go up as well if you're a current owner.

MBS:

Sure, yeah.

TM:

That means you've got to spend more on your payment, on your home payment, which means you're going to spend less on other things.

MBS:

On other things, yeah.

TM:

If I had to pay more on my mortgage, I wouldn't buy a new TV or something like that. Right?

MBS:

Yeah, no, absolutely. Yeah. I want to change to one other thought that's related to this as well too, is we've talked a lot on this podcast with Molly, and others, and your colleagues about how inflation impacts housing prices here in the U.S.

So if we look outside of the US to some of these other countries where their mortgages work differently too, does it work the same? Is inflation kind of linked to housing price growth and decline?

TM:

It definitely is in many of the same ways because all the factors are still at play. There's just a segment of the population that's kind of shielded from it that aren't shielded in other countries.

ES:

Learn more about how the lock-in effect has an outsized influence on the current state of the U.S. property market in episode 60 that aired this season on May 3. It's called "Has the Economy Locked in US Housing Market Price Stagnation?" You can find it wherever you get your podcasts.

MBS:

So, as we mentioned, the U.S., really sensitive to inflation. We haven't seen steep declines. Inflation's at an all-time high right now. We haven't seen steep declines for reasons that we've talked about. Do you think that we'll start to see that in the U.S.?

TM:

I can't predict the future with certainty, but probably not, or at least, there's not really a good reason to think that we would see a big decline.

MBS:

Okay. Oh, interesting. Okay.

TM:

There's only been one really big house price crash since we've been recording house prices really reliably, and that was in the-

MBS:

That was in the Great Recession?

TM:

Yeah, that was a Great Recession. And in that case, there were a lot of foreclosures, and a lot of people defaulting on their mortgages, and forcing a lot of sales.

But in this circumstance, most people can afford their mortgage and are pretty comfortable in their home, and there's no factor that's forcing a bunch of sales.

MBS:

Right.

TM:

And without that, there's not much of a reason to think that there's going to be a steep decline. So it could happen, but you need to identify kind of a source for that to happen, and it's hard to see exactly what that source is right now where lending standards have been improved, people are pretty able to afford their homes.

MBS:

Sure, yeah. Yeah. Is there any specific markets where we're seeing any trends, whether it be increases, or big declines, or potential areas where people are defaulting on their mortgages?

Are there cities? I know specifically, I think of the Bay Area. I recently moved out of the Bay Area. That's a market that's always had skyrocketed house prices. It still does, but some areas have seen a little bit of a decline. For those that live there, it doesn't feel like a decline because it's still really high, but yeah. Are there areas that we're seeing specifically?

TM:

Yeah. Well, it's kind of interesting. We've seen some declines in some of the big pandemic increase areas. The Mountain West cities, like Boise for instance. That was one that got a lot of press for booming during the pandemic, prices have declined there quite a bit.

Prices have declined in Phoenix quite a bit. Prices have declined on the West Coast. It's interesting because it's a bit of a waterfall effect actually. Prices started to decrease a bit in January.

MBS:

TM:

MBS:

Mm-hmm. I bought one of those houses.

TM:

Where did you move from, by the way?

MBS:

Yeah, I moved from the San Francisco Bay Area to the San Diego area.

TM:

Oh, okay.

MBS:

Yeah. The house we ended up buying, we saw this house months before and it was significantly more expensive than it was listed at because it was still on the market when we bought it. So yeah, we took advantage of that price decline that happened.

ES:

While many people did leave high-tech hubs during the pandemic, the calls for employees to go back into the office are growing. The result is that high paying tech job centers keep attracting first-time homebuyers.

Research from CoreLogic showed that the share of first-time homebuyers is much higher in high cost metros where there are high-tech job opportunities. At the same time, the additional buying power found in affordable Midwestern markets continues to attract this population. A link to the research is in the show notes.

TM:

Kind of to the effect, prices start declining in places like San Diego or San Francisco, like expensive West Coast markets. But eventually, this kind of brings the price down to such a point that suddenly the difference between it and other areas of the country is not as big anymore, and that kind of reorients demand back to those areas.

Demand starts moving back to those areas, that means it's moving away from the cheaper areas, and then we start to see prices slow down, or go down in the cheaper areas. That's why at the start of the year, we were seeing declines on the West Coast, and increases in places like the Southeast. And as a couple of months ago, it had started to float, we're starting to see increases. We saw some increases on the West Coast, and prices starting to slow down in the Florida kind of areas.

MBS:

Interesting. Is that seasonal or is it a fact of people moving out of high-tech centers, moving to more affordable locations because they now are working remote, or is it just... it ebbs and flows? Is there a reason behind that?

TM:

Yeah, it's kind of like the national cycle expressing itself with different timing across the country. So, let's say interest rates are a national factor because as we mentioned before, your mortgage is going to get bought by the same GSEs (government-sponsored entities) no matter where you buy in the country.

MBS:

Right. Yeah.

TM:

So, let's say interest rates go down, demand goes up. This kind of shifts it to the most expensive places first because they're the places where people most want to be. So, that moves demand to a place like San Francisco, or the West coast more generally, that bids up prices there.

The price difference between that and the second most expensive place gets enough that eventually demand reorients itself to the second place, prices get better up there, it reorients itself to the third-most expensive place, et cetera, et cetera, et cetera.

MBS:

Sure. Yeah.

TM:

Price increases kind of work their way down in a bit of a waterfall fashion, and same deal with price declines.

MBS:

Yeah.

TM:

Yeah. So there's going to be kind of an ebb and flow between the cities, I think, as prices start to recover and increase beyond their previous peak.

MBS:

Yeah. Is it similar to when we think of outside of the U.S., some other global metros like Auckland and others, are we seeing kind of a similar sort of trend?

TM:

MBS:

Kind of the peak. Yeah.

TM:

Yeah. The person who bought that home had a mortgage. That mortgage was really low at the time of buying. That mortgage is probably not so low now. I'm assuming they picked two years as their period, it's probably gone up a few percent in terms of the payment. In a lot of cases, that means that people might not be able to make their payments anymore and they have to sell, prices decline in turn.

MBS:

Sure. Yeah. Right, right. Yeah. Interesting.

TM:

And that dynamic hasn't really stopped in Auckland yet.

ES:

Before we finish this episode, let's take a break and talk about what's happening with natural disasters. CoreLogic's Hazard HQ Command Central reports on natural catastrophes and extreme weather events across the world. A link to their coverage is in the show notes.

Hurricane season continued strong through the end of October, particularly in the Pacific. On Oct. 5, typhoon Koinu, Typhoon Jenny in the Philippines made landfall over southern Taiwan.

During the storm, a historic wind gust of 213 mph, or 342 kph swept over Orchid Island, nearly 50 miles east of southern Taiwan.

On the U.S. side of the Pacific, Hurricane Otis made landfall in the greater Acapulco area in Mexico. The intensification of the storm surprised meteorologists.

In a 24-hour period, it increased to a Category 5 hurricane, becoming the strongest tropical cyclone on record to affect the Mexican state of Guerrero.

Before we finish our episode though, we wanted our listeners to know about an upcoming event in January where they can meet some of our experts, including Maiclaire, in person.

Garrett Gray:

So come on down to Austin, make sure you have a seat at the table because we need your voice. There's not one group or company that can tackle these problems alone. It's all of us coming together to focus on the lives beyond the buildings. Register today, and I'll see you in Austin.

MBS:

Okay. I know you don't have a crystal ball, and you can't make any predictions, Thom, but anything the U.S., globally that we may know, or what we can expect to see from home prices in the next few months? Is it going to continue just as it is, or are we going to see anything dramatically change in the next few months?

TM:

Probably a lot of nothing in the next few months, prices will probably keep going up a bit.

MBS:

Okay.

TM:

It seems a pretty reasonable assumption that interest rates are going to stay really high for quite a while.

MBS:

Where they're for quite a while. Yeah.

TM:

Yeah. As long as that's the case, there's not going to be that much demand. There's going to be people still trying to stay in their home.

There's going to be a disincentive for people to move out of their homes because they'll have to give up their low interest rate.

And that means fewer buyers, but in turn also fewer sellers, and that means that it's harder for a buyer to find that match with fewer homes on the market.

MBS:

Yeah.

TM:

Then that results in decreased inventory, higher prices at end the day. So higher prices, not many sales.

MBS:

Yeah. Interesting. Well, Thom, this has been so great. Thank you for joining me today on Core Conversations: A CoreLogic Podcast.

TM:

Thanks for having me.

MBS:

All right, and 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; our Facts Guru, Erika Stanley; and social media duo Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.

ES:

You still there? Well, thanks for sticking around. Are you curious to know a little bit more about our guest today? Well, Thom Malone is an economist in the Office of the Chief Economist at CoreLogic. He is responsible for analyzing housing markets and home price trends with a particular focus on investors.

He has an extensive background in urban and real estate economics and applied econometrics. You can read more of his analysis at corelogic.com/intelligence. The link is in the show notes.