Has the Economy Locked in US Housing Market Price Stagnation? | Part 2

Molly Boesel:

So the months of supply dipped down to about one.

Maiclaire Bolton Smith:

Wow.

MB:

A little over one month of supply.

MBS:

Wow.

MB:

It's up now.

MBS:

Nationally?

MB:

Yes. It's up now to two and a half.

Erika Stanley:

Welcome back to Part 2 of our mini-series where we take a look at the state of our economy today. If you missed Part 1, I do recommend going back and catching up on last week’s episode. To recap, we introduced our guest Molly Boesel and talked about how climbing interest rates and lack of inventory have – perhaps improbably – led to a surge in first-time homebuyers.

Remember, if you want to know more about what is going on in the property market, be sure to follow us on social media using the handle @CoreLogic on Facebook and LinkedIn or @CoreLogic Inc on Twitter and Instagram. You can also leave us questions and comments about the podcast on Apple Podcasts. Let's jump into it.

MBS:

I think of where we are currently in our state of the world and with the recent collapse of Silicon Valley Bank, we are seeing that the interest rates are starting to decrease and we're starting to see a little bit better rates than we did even a couple of weeks ago, a month ago for sure. Is that now changing the number of homebuyers that we're seeing? Are there more people jumping... Are people tracking it that closely that they're like, "Oh, rates are down now. Let me jump in and try and find a house now."?

MB:

Yeah. I think people are tracking it that closely. So that's just so recent. We haven't been able to observe any pickup yet in that. But when we look over periods of time, even in the last six months, where rates have dipped just a little bit, you do see activity pick up a little bit. So you have... I think what I could call this is buyers kind of standing on the sidelines, just waiting for rates to drop a little bit and then they could lock them in. They've been searching for a home for a while and they're just wanting to get their rate locked in. They're going to find something to buy and then go for it. You do have a lot of buyers waiting for those lower rates.

MBS:

Wow. Earlier you mentioned first-time homebuyers and how we were seeing a lot of first-time homebuyers jumping into the market now. Are we seeing a difference between those first-time homebuyers versus repeat homebuyers? Is it that first-time homebuyers really don't know any differently? They don't know what it's like to have a 2.5% mortgage rate on their mortgage, so they're just jumping in. Do you have thoughts on that?

MB:

Oh. Well, there's a lot going on there with first-time buyers. So one thing, if you're a first-time buyer, you don't have to sell a house. Once you-

MBS:

Good point.

MB:

Got your down payment, you find your home, you get your loan secured, you can move pretty quickly. So yeah, they can move quickly. They are somewhat attractive to sellers because they don't have any contingencies like that. So that's one thing with first-time homebuyers. Another thing is, well, I talked about the share of first-time homebuyers going up, but that's a share of a smaller set of home sales. So you think about the first-time buyers, like I said, it's a little lower. It's not easier, but it's a simplified process, I guess you could say. Not an easy process, but less complicated for them. So they're participating in the market while repeat buyers are backing out a little bit.

MBS:

Sure. Yeah.

MB:

t. So I've been in here since: 1999

MBS:

Wow. Yeah.

MB:

And then they quickly fell to 6%. And then they fell to 5%. And then a few years ago they fell to whatever. So I think I'm one of those who didn't refi in this last wave because I don't think it could get much lower, but you do have the first-time buyers who know rates are going to fall in a few years and, "I'll just eat it now. I'll suck it up, make my payment now, and then I'll refinance later." And they'll probably have more equity. At least maybe prices won't have increased by a lot, but they'll have the principal that they've paid in, so they'll have some equity built up. And it'll be much easier for them to refinance that loan. So they're looking at all those things.

MBS:

Yeah. Yeah. Absolutely. And I think you're probably very common to most people who've been in their homes two decades, that they refi and have a number of mortgages on their house. It's funny because when we started looking for a new house, I had that exact same perspective, mostly because I talk to you and those in your office who told me like, "No, no, no. Just get in and you could always refi. Just eat it for the first couple of years, and then it can always change." So I feel like I went in to purchase a new home quite confidently, even at a relatively high interest rate, because I knew it wasn't locked in forever and there was the option to change. So I do feel like I had a bit of the upper hand because I had you guiding me on that thought process. But others-

MB:

And if they're lucky enough, maybe mortgage lenders will be running some kind of low-cost refi program at some point. I know-

MBS:

Yeah. Definitely. Yep.

MB:

That was one of my refis was kind of free. I don't know how I lucked into that.

MBS:

Ours was too. Yeah. Yeah. Yeah.

MB:

But a lot of times the lenders will just to keep a borrower, they'll make a refinance very low cost.

MBS:

Yeah. I'm glad you said that because that was something that I didn't anticipate. And in the last wave of refi, we were an early refi-er, because they offered us something free because I think they saw that this was going to decrease and that there were going to be a lot of options out there and they wanted us to stay with them. So we refinanced fairly early in the wave because they did it for free and there was no charge at us to do it. So there was really nothing to lose other than we're going to save a lot of money on our mortgage.

So you talked a little bit about inventory as well, and this is something the previous couple times you've been here, we've always talked about inventory, but as someone who's searching to purchase a home right now, there are fewer homes on the market. That's just an option. We sold our house in a matter of seconds because there were very few homes on the market and we had a very nice-looking home in a good neighborhood and there weren't a lot of those available. So boom, our house sold in 24 hours. But yeah. Can you just talk a little bit about the number of homes on the market? Is there a regional? Are we seeing anything? What do we know about this lack of inventory?

MB:

Yeah. So that's really been the problem plaguing the housing market for years. So going into prior to the pandemic inventory was incredibly low. We kind of like to look at it as a measure called months of supply.

MBS:

Okay.

MB:

So if you had all the supply out there, how many months would it take to sell?

MBS:

Oh, okay.

MB:

So a good number where it's maybe balanced, I guess, would be maybe between four and seven months supply, around there. So going into the pandemic, there was less than four months supply, so it was already tight. And then you hit the pandemic. And then sellers don't want people in their homes, so they take them off the market. So there's less inventory there. So the inventory's crunched even more. And then you had this buying boom or a housing boom, I guess you could say, when mortgage rates were really low and everybody's trying to grab onto that mortgage rate and a lot of first-time homebuyers getting their first home and then on a limited supply, so they're sucking up the supply. So, they're taking it off the market. So we had supply or the months of supply dipped down to about one.

MBS:

Wow.

MB:

A little over one month of supply.

MBS:

Wow. Nationally?

MB:

It's up now. Yes. It's up now to two and a half. So we're slowly getting back up there. But the problem with the months of supply now is that we haven't seen a lot of new listings come on the market. But things are still selling really, really fast, like you said. You sold yours in less than a day. On average, nationally, it's less than a month on average before a home sale.

MBS:

Wow. Yeah. That's quick. How does new construction fit into this as well too with the inventory? I know you and I talked... I think it was the first time you were on this podcast. We talked about the impact of... Because of inflation and the cost of labor and lumber supplies, how there was fewer new construction as well. How does the new construction fit into that number of months of inventory?

MB:

Exactly. Yes. So new builds are very important to the inventory situation, and there really hasn't been enough of it. Like we said the last time we talked, it was cost of supplies, cost of labor.

ES:

Speaking of construction material costs, according to CoreLogic's March Construction Cost Update, nearly three-quarters of the tracked U.S. construction material costs are up on a year-over-year basis, and the annual average increase in material costs is 4.7%. In Canada, 93% of materials have seen price increases year over year, and the annual average increase in material costs is 9.4%.

MB:

But even if all that eases, land is very expensive. So what ends up happening is-

MBS:

Sure. And hard to come by.

MB:

Hard to come by. So what ends up happening is when you have new builds, they're kind of like... I'm not going to say luxury, but they're at the higher end because it takes so much. The land costs a lot and then the labor and all the supplies and everything. So by the time for the builder to make much money off of that new build, and new builds have more regulations, safety, fire prevention -

MBS:

Sure. Yeah. Building codes are stronger. Yeah.

MB:

Building codes, all of that. So that's expensive as well. I mean, for good reason you have these regulations.

MBS:

Absolutely.

MB:

But it does add to the cost. So they do end up being the higher end of the market. So what ends up happening is you get more inventory at the higher end and you're not getting a lot at the middle and the entry-level part of the market.

MBS:

Got you. Yeah.

MB:

We're lacking supply all around, but we're really lacking on the entry level.

MBS:

Sure. And the other thing I'd kind of add to that is in my experience, many of these new builds are not in the best neighborhoods because there already are homes in the best neighborhoods. So you end up paying a premium for these high-quality or brand -ew homes that are in not the most desirable neighborhood. So then that's hard too to justify, yeah, yeah, the cost.

MB:

Or further away from...

MBS:

Further away.

MB:

I don't know, does anybody go to the office anymore? I'm not sure, but say somebody needs to go to an office or they want to be close to a city center for the amenities and all that-

MBS:

Yeah. Walkable. Walkable to amenities. Walkable to town. Yeah. Yeah.

MB:

Exactly. So it's going to be further from that. It's going to be a drive. And then that adds to the expense. Hey, gas prices are high. That adds a lot for where you're able to build the new homes. Exactly.

MBS:

Yeah. Definitely.

ES:

Markets aren't the only thing that have been volatile this spring. So too has natural disaster activity. Spring is usually a busy time for natural catastrophes. Storms abound as winter changes to summer and insurers are gearing up for hurricane and wildfire season. Most notably, this spring saw a slew of hail and tornadoes hitting the central U.S., putting billions of dollars worth of properties at risk of damage, which the CoreLogic Hazard HQ Command Central team reported on. And storms weren't just confined to the middle of North America. If you missed our podcast on the California floods, go back and listen to episodes 56 and 57. What Was it Really Like to Live Through the California Floods? Our Team Spills.

Not quite weather related, but also noteworthy were the two devastating earthquakes that caused widespread destruction in southern Turkey and northern Syria this past February. However, while the damage was significant, only a fraction of the buildings in the area were insured. And the team did an analysis of what that means for the insurance industry on hazardhq.com.

And that's the Natural Disaster Digest.

MBS:

Okay. Molly, last question would be if you had to pull out that crystal ball, anything else that we should keep our eye on that might be on the horizon for the next couple of months or even year in the housing market?

MB:

e prices are kind of flat for: 2023

MBS:

Sure. Okay.

MB:

Because I think once we hit that floor in prices, you'll probably get buyers more comfortable with coming back into the market. Or some buyers are already here, but you get more buyers comfortable coming into the market because they've seen we've hit that floor. And then you'll have sellers saying, "Hey. I know now we've hit the floor. We're not going to necessarily keep going down from here. So I'll be more comfortable selling my home." So I think look for that. And once we can see that, I think that's when we'll see this kind of transition. I gave a talk last week when I said, "It's a transition year," and they want to know a transition to what, and I said, "Something better." So more sales. So once we kind of see things bottom out, then we can start to see the market improve a bit.

MBS:

Well, as somebody that's currently trying to buy a new home, I'm ready for the transition to something better. So...

MB:

Exactly.

MBS:

Thank you, Molly. Thanks so much for joining me again. And we will definitely have you back here on Core Conversations: A CoreLogic Podcast.

MB:

Great. Thank you.

MBS:

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.

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