Get Real Estate Podcast
Get Real Estate Podcast
Current & Future Economic Trends in the Housing Market with Chief Economists Lisa Sturtevant of Bright MLS and Danielle Hale of Realtor.com (2022 Annual Conference Live Recording)
Maryland REALTORS® CEO, Chuck Kasky is joined by Lisa Sturtevant, PhD, Chief Economist at Bright MLS, and Danielle Hale, Chief Economist at Realtor.com, in Ocean City, Maryland at the 2022 Maryland REALTORS® Annual Conference.
In this episode, Danielle and Lisa break down local and national market trends, how REALTORS® can assist consumers in navigating the home buying process, and the multitude of factors contributing to housing demand and inventory.
Listen as they acknowledge and address the complexities of inflation, interest rates, recession, stabilizing housing markets, quantitative tightening, supply and demand, foreclosures, migration patterns, and the role of institutional investors.
This episode was recorded live by King AV.
Welcome to our first live podcast. Coming to You. Wait, wait. Coming to you live from the Maryland Realtor's Annual Conference in Ocean City, Maryland. Hello everyone. Now, today we're going to answer all your questions and address every concern you have about the US and world economies and the impacts on housing in your local market. I'm talking about inflation, supply driven, demand driven inflation, recession, interest rates, monetary policy, quantitative easing, quantitative tightening, supply and demand, including the role of institutional investors. All of it. I wish<laugh>, obviously, this is a extremely complicated world we're living in. The economy is complicated. Your decision making is complicated. And what our guests are gonna help you do today is filter some of this information and give you a really good guideposts to what your buyers and sellers are facing, the questions they might have. And I can tell you just from our conversations today, they have some really good practical tips for you to help enlighten consumers in terms of facing this on certain time. And, and of course, with real estate writ large accounting for almost 20% of gross domestic product. And all of these factors intertwined and interconnected there, there are just so few certainties right now and all that conventional wisdom that we have gathered over the years, it's, it's showing its age, isn't it? And most of it doesn't even apply anymore to the conditions we find ourselves in. So no wonder we're all feeling kind of disconnected, but we're really gonna try to make some sense of that. I promise. And joining me in that effort are to my right, Danielle Hale, Chief economist@realtor.com, where she's responsible for developing and translating real estate trend data into consumer and industry insights. She also leads realtor dot com's team of some of the industry's top analysts and economists with the goal of providing deeper and broader housing insights to people throughout the home journey industry professionals and thought leaders. Welcome Danielle. Thank
Speaker 2:You.
Speaker 1:Also with us is Lisa Sturdivan. Dr. Sturdivant has been involved in research on economic, demographic and housing market issues for more than 20 years. She currently serves as chief economist with bright mls. I first met Lisa when she was with the Virginia Realtors, which serves, as you all know, over a hundred thousand subscribers across six states in the District of Columbia. In her role, she leads research and forecast activities for Bright serving as a thought leader on the housing market. Lisa, thanks for being here.
Speaker 3:Thanks for having me.
Speaker 1:So where do you wanna start? Oh, I don't know. The Fed gave us a little surprise yesterday. Right? So let's start with interest rates, which are now all of a sudden today over 6%. Yes. And more to come, right? So that's where we're gonna start and we'll branch out into some other topics, but after the last 75 basis point hike in rates, wanna dive a little bit deeper into the Fed's thinking. If you read Chairman Powell's remarks, Lisa, let's start with you. This concept that we talked about a little bit, it's not enough to just talk about inflation, right? Cuz that's what they're doing. But inflation itself, we have to slice and dice it. So there's demand inflation, supply inflation, which are, if there is one the Fed's focusing more on, and what are the implications moving forward and where might interest rates go through the rest of the year and into 2023?
Speaker 3:Well, yeah, Chuck, I think it's very clear that the Federal Reserve is committed to bringing inflation down. I mean, if we needed any sort of convincing chairman, Powell has been very clear about that, that the Federal Reserve is gonna do everything it can to bring inflation down to that target of 2% level. We are at 8.3% right now. So there's a long way to go. I think it hit home for me in particular when Chairman Powell talked about there being some pain in the future, right? So I think if there's anybody out there who thinks that maybe the Federal Reserve is gonna pull back on this aggressive rate hiking, I think it's very clear that gonna see additional rate hikes in the future to bring the, that inflation down. Now, some of the telegraphing that the Federal Reserve has done has actually been a benefit to all of us because in some cases, mortgage rates, for example, have already baked in, right? Some of these rate hikes that have been being undertaken by the Federal Reserve, these haven't been surprises to the market. Now, as you mentioned, mortgage rates did jump up today according to, to Freddie Mac hitting 6.29%. And it's, it's likely we'll see mortgage rates rise, uh, further. But we can have no doubt that the Federal Reserve is, is gonna continue to raise that short term rate in an effort to target inflation.
Speaker 1:Yeah. So Danielle, what about this issue, uh, of supply versus demand inflation? What are the differences? What is the Fed looking at? Is one more? I I remember at the beginning of this they said inflation could be transient. Well, it's not, obviously. Is that a function of the underlying causes of the inflation, whether it's on the supply side or the demand side, given like the cash flushness of people and the unemployment rate, which is still very low and we're not gonna get into that. But obviously to cool the economy, you're gonna increase unemployment. And that's just the trade off that we have. So you could talk a little bit about demand inflation versus supply inflation and what that might mean going forward.
Speaker 4:Yeah, so the reason the Fed said that they expected inflation to be be transitory was they thought it was due to all of these supply chain disruptions that we all experienced during the pandemic. You couldn't get toilet paper, you couldn't get the things that you normally could in the, in the grocery store shelves. So there was a lot of disruption during the pandemic. As businesses had to find new ways of operating, all of the, the usual supply chain processes were interrupted. And so some of the early inflation that we saw the Fed thought was due to that supply chain disruption that would be temporary as we work things out that inflation would go away. But we haven't seen inflation go away. As Lisa mentioned, it's up at 8.3% still. Um, that's well above the 2% target the Fed is aiming for. And we're starting to think, well, what could be driving this ongoing inflation that would be demand inflation? So people have a lot of money thanks to the stimulus programs that helped tie them over during the academic disruption we experienced during the pandemic, the savings that they built up while they were staying at home and not spending on the things that we normally do spend on. And so there's a, and you know, unemployment being close to record lows, wages not rising on a real basis because inflation is up, but on a nominal basis, wages are still going up, right? Um, at the higher end of what we would consider a normal range. Um, so there's a lot of capacity for households to buy stuff and there's a lot of desire to buy stuff. I still think we're seeing a lot of makeup consumption, um, from things that people didn't do over the past couple years that is demand driven inflation, all of this money chasing the supply of goods. It's still and services, it's still relatively limited. The suppliers are having a hard time, um, you know, hiring people to deliver services. I can't tell you the number of now hiring signs I saw on the drive out here today. Yeah. Um, so it's a, it's a real phenomenon that causes the market to push prices up to try to balance supply and demand. And that's what we're seeing on demand inflation. Now, that's the one thing that the Fed's tools are better equipped to address, is they raise rates, it gets more expensive to borrow money that tends to have economic ramifications. And we're seeing that the Fed is expecting this. They, um, in addition to the meeting yesterday and raising rates, they also released an updated summary of their economic projections. This is, you know, their forecast of what they think is gonna happen. They lowered their expectations for GDP growth, right? They raised their expectations for the employ unemployment rate. Not really all that much, I think considering how much they lower their GDP growth estimates. Hmm. Um, but they also raise their expectations for the Fed funds rate. So it's not just about what they're doing now, but it's about what they're expected to do. I would say going into that meeting, the bar set relatively high because the Fed had had a relatively hawkish tone in their public comments leading up to that meeting. And despite that relatively high bar that was said, I think Chap Powell exceeded it. So I think he has done a fair job of convincing everyone he means what he says, and they are going to raise rates until they bring inflation back under control.
Speaker 1:Do we dare put a number on how high mortgage rates are gonna go? Dare we, I will abs observe you of any responsibility right now for being wrong, but, Well, I mean, cuz our members here and the ones who will be listening and we'll talk about this a little bit about being locked in the lock in effect, you know, but Lisa, what, what's that gonna mean? I'll say it. You know what, we're gonna see 8% mortgage. I mean, I don't really know. And, and how do our members have that conversation with consumers, buyers or sellers? Cuz sellers, you know, are gonna be buyers again. Sure. Buyers coming into the market. Some people are getting out now because they know it's gonna be worse. So what kind of, what kind of conversations can our members have with buyers and sellers about the future? And without making predictions, we're gonna hold you to, I'm gonna write down you numbers envelope here in six months and, and see how right you were. Yeah, yeah. But what, you know, what kind of conversations can we have with consumers? This is complicated stuff, right? And, and how do we make it understandable to them and convince them that even though it looks bad relative to 18 months ago, or<laugh> two months ago, that maybe now is not the time to sit on the sidelines?
Speaker 3:Yeah, It's so interesting, right? So the, as as Danielle laid out, the whole goal of the Federal Reserve raising rates is to ease economic activity to bring inflation down, right? The Federal Reserve is trying to help us with bringing the cost of living down, bringing inflation down, but it's actually raising the cost of the most important part of our household budget for many people, people who are looking to buy or build a home. And that is the cost of housing. So it is affecting mortgage rate check, as you mentioned. It's also affecting the cost, um, that builders are facing when they're going out to try and build new homes. And so that's causing builders to pull back, which is shrinking that new home inventory, which is putting upward pressure on prices. And so I think just sort of as, as a, I find it just very interesting that we're trying to, we're talking about bringing prices down, but we're actually having this reverse effect on, on the cost of housing. And I think we will see mortgage rates probably tick up a little bit more. I'm gonna go on record and say, I don't think we're gonna get near 8%. So you can, That's
Speaker 1:Fine. I just wanted to scare everybody. That's
Speaker 3:Okay. But I think there's a lot of factors that affect, that affect the inflation rate above and beyond what the Federal Reserve does. Activity abroad is gonna have an impact. The overall health of the economy where we start to see improvements in the economy will have effect on rates. And as we look, let's say back past the last 30 years, does anybody remember when rates were 18?
Speaker 1:A lot of us
Speaker 3:Back in the early eighties. Yeah. Right. Do you guys remember what rates were back in oh 4, 0 5, 0 6 when the market was going crazy? They were six and a half percent. Right? And so when you look back, if you're working with buyers and sellers whose only experienced with the housing market has been the last two years, this is such a great opportunity to provide education Yeah. And resources to them. I mean, that is, in fact, I would argue that now is more important than ever over the last few years too, that the realtors can really showcase your expertise and your value you bring to the transaction. Because it's really important for folks to know where the market is over the longer term. Right. And the last thing I'll, I'll say check on this, is there's a lot of concerns that as rates go higher, we're seeing buyers pull back. Right. And will the markets start to like just implode? The fact of the matter is rates are one factor in a home buyer's or seller's decision. And sometimes it's, a lot of times it's not the only factor, and I'll use my own example. Yeah. Chief economist, your MLS supposed to think very clearly about these things, right? What did my husband and I decide last Thursday night? We were gonna do, We're gonna buy a house, we're gonna move. And so we know, I know where rates are. I know that we're have a 2.7% 30 year fixed rate mortgage right now in our existing home, but we're gonna make this move anyway. And I know I'm not the only one. And so I just give that init to as a way that if it is the right time for you buyer to buy a home to live in, if it is the time that you sell or need to move your home because of your life situation, uh, here's the facts that you realtor are gonna share with them to help them feel comfortable that they can make the decision that's right for them.
Speaker 1:That's great advice. Danielle, anything else on
Speaker 4:That? Yeah, as far as where mortgages will go, I also don't think they'll get to 8%. You know, the 7% question has come up quite a few times.<laugh>, we are, you know, between six and seven, we're already a quarter of the way there, almost a third of the way there. So, you know, before yesterday's fed meeting would've said, I still don't think that's super likely, but the Fed did up their expectations for where they need to go with short term rates. And I, I do think that raises the odds of higher mortgage rates. You know, it's not the only factor. It's not just short term rates. You know, what happens with the overall economic outlook. And I will say investors aren't totally decided on how they should react to the feds. Meaning either initially tenure treasuries, which is a longer term rate that tend to track mortgage rates more closely, or that mortgage rates more closely tracked, initially dipped in response to the fed's actions. Almost saying, we don't really totally believe you Mr. Powell, but I don't know why they would do that. I think he's very, very believable right now,<laugh>. But if you look today, they've kind of done an about phase, so they're climbing again. So it, it's hard to give any sort of precision on a forecast right now because if you haven't been
Speaker 3:Humbled
Speaker 4:As a forecaster over the last couple years, for sure, I don't know when it's gonna happen. But I, I do think the pressures that I see right now in the economy suggest to me that mortgage rates are more likely to go higher than they are to go lower over the next six months or so.
Speaker 1:I'm a big Sherlock Holmes fan, so 7% has a different meaning to me, but that's okay. Two three, that's okay. That's okay.<laugh>. So the whole point of this and the soft landing quote unquote, is to stifle growth just enough without causing a recession. The more I read giving, not, not in a larger sense, but housing recession<laugh>, are we in a housing recession? First of all, what does that mean to you, Danielle? Start with you and are we in one as far as housing goes?
Speaker 4:Yeah, so there's a relatively accepted terminology about an overall recession. I don't know that we have one for a housing recession. Okay. But I would say if you look at home sales activity, that's one in, so a recession is a broad pullback in growth. A lot of people think two quarters of negative GDP growth, that's not precise. So it does get you there, 90% or so at the time. Um, but a broad pullback and economic activity. So if we're talking about housing a broad pullback and housing activity, we have seen home sales decline about 20% now for a couple months in a row. New home sales are also moving lower. There's clearly less activity in housing market. But remember we're also comparing to a very, very high baseline of what we experienced in 2021. I, I hope most of you have been in, in real estate long enough that you didn't think what was happening in 2021 was normal for the
Speaker 1:Real estate
Speaker 4:Market. Ok. Yes, I think some people did. And you know, if your, if your time horizon is short enough, that's fine. But that was not a normal housing market. We're now, you know, back to activity that's a little bit on the low end, maybe a little bit below a normal housing market activity if you, if you're just focused on that change, okay, yes. That, you know, that definitely is a recession. We've had a pullback in activity. Um, but if you look at where the level is, it's a little low, but it's not as dire I think because you're comparing from that really high base. I, you know, I think the other thing people are focused on is share poll in the press conference yesterday made the comment about a housing correction. What does that mean? So it's in stock and financial terms, a correction is a 10 to 20% adjustment in prices. So stock market drops 10 to 20%, they call that correction territory more than 20% is bear market territory. So I, I don't know if he was implying that we'll need to see home prices drop 10 to 20%, but I do think he is one of a growing course of economists who are looking at home prices and saying, Hmm, especially given where mortgage rates are, it raises the cost of borrowers trying to finance a home purchase. It's hard to see home prices stay at this level, even though, as we know, we've got some long term fundamentals where we, we don't have enough homes relative to households. So we d we've had this long term supply demand and balance, but because demand is really kind of being hit on the head with a hammer right now from these higher mortgage rates, that imbalance is balancing very quickly. And it may mean that we see home prices, especially in some markets where they rose really sharply over the last couple of years. Hold back a bit. And so I think that's kind of what he was talking about when he said housing correction.
Speaker 1:Yeah, I, we'll talk about that on the next card<laugh>. But Lisa, same question, but also from Bright or from your perspective, let's make it a little more local. So what, what can are Maryland realtors expect from these changing conditions?
Speaker 3:Yeah, I think I agree a hundred percent about what Danielle said about this housing recession being a term that hasn't really been well defined and but it's also a term that your buyers and sellers are seeing in the, in the headlines. Yeah. Right. They're coming to you, they're saying, I see there's a housing recession coming I shouldn't buy now because recession sounds scary. I don't know, recession sounds scary. Right? And so I think that the way that I think about it is instead of a housing recession, we're really talking about a housing resetting, right? And that the conditions that we've had over the last couple of years were just unsustainable from almost every level. I mean, you guys weren't getting any sleepy, like it was just too go, go go all the time at the same time you were having prices rising at 10, 12, 15, 18% year over year. And you're saying, well that sounds great if you're a seller, but not really. Right? We really do want home price growth to come back to more typical year over year price games, which in Maryland, in most parts of Maryland would be around three or 4% annual price growth. And the reason why you want that three or 4% annual price growth is because that provides a good return for your existing homeowner. Right? A good sort of return on their investment. But importantly, it also means there are people to buy your home, right? If prices continue to rise at 10, 12, 14, 16%, there's going to be nobody<laugh> back here, Right. Who can come in and be an eligible buyer for your home. And so ideally we would like home prices to rise about the same pace that incomes do for a healthy housing market. And so when I think about a housing, that question of housing recession, I think, uh, you can see it maybe in the home building side where so much of their activity has slowed and then that, you know, results in a decrease in economic activity. When it comes to the sort of for sale side, I do see it more of a, a housing resetting. And my expectation is when we sort of get through this transition period, can, if you imagine a line starting in 20 18, 20 19, and then it was like this, right? 20 20, 21, see I need a PowerPoint, right? Right. And then we're back here in 2023, maybe it'll be like, it's kind of like smooths out, right? So that we sort of end up resetting so that the longer term cycle looks a lot more like it would've been had we not gone through this very fast period. And what that would mean then Chuck is a decline in in sales activity and some isolated, I do think there will be isolated time, uh, markets where prices this year are lower than last year. I, I think we're sitting in one of those markets right here, right? Mm-hmm.<affirmative>. So imagine markets where demand during the pandemic was fueled by second home and vacation home buyers by Zoom town people looking for those zoom towns where they were working and, and learning from home where they were wanting to move further out from metropolitan areas. So our second home coastal communities, our mountain exurban fringe communities, I think those are the places here in Maryland where we're most likely to see year over year price drops. And then in, in the Baltimore metro, uh, DC Metro, I'm expecting that we'll sort of reset back into our two, three, 4% annual year over year price growth as we head into next year.
Speaker 1:Yeah. Great. So sticking with you for a moment, Lisa, what's good, perfect segue to the whole concept of supply and demand, but also it's what we talked about last week when we first spoke, and I'm, I'm still kind of struggling<laugh> with how to articulate this, but I'm seeing kind of competing concepts and, and talking points and, and even we built an industry on different kinds of concepts and, and we're now involved in, in our advocacy efforts, as you all know, that we are working on increasing supply, right? I mean, everybody agrees we were in a housing shortage, major shortage, 80,000 units short in the next several years just in Maryland alone. And on the other hand, we are talking about your home as one of your most significant investments that you can make than a way to generate wealth, to create wealth, to create generational wealth, if we can pass on. And so this acceleration in home values has a positive net in effect on wealth generation for those homeowners. The downside of course is a lot of people getting priced out and people getting frozen in. So I'm looking for a way to harmonize those two concepts cuz they almost seem that they're at odds. And I don't know if they're mutually exclusive mm-hmm.<affirmative>, but they, that they, there's a tension there between those two notions of affordability and accessibility and the notion of our home as one of our most significant investments of our lifetime. And so we're on the one hand cheering this rapid increase in value and then the other hand lamenting and trying to develop public policy initiatives to increase supply, which would of course have a downward in effect on values and prices. So help me harmonize and reconcile those two things. Start with Lisa Yeah. And then hear from Danielle.
Speaker 3:Yeah, I'll take a crack of that. Cause I think about that a lot too actually. And I think there's three things to think about when you think about this tension you're suggesting, and I think I alluded to one just a minute ago. Yeah. Right? Is that in order for you to gain, to realize that equity in your home, you need a buyer<laugh> to come behind you. Right? And so for a healthy housing market, it really makes a lot more sense for us to have steady price growth because housing equity is the primary way in which Americans gain wealth. And we have a lot of institutional factors that sort of support that, that gaining wealth that way. And so we, we want buyers to be able to come in behind us. So there's a good reason for us to want steady sort of robust long term growth in home prices. The second thing I would, I would argue is that if you think about quality of life more generally, right? And so look, we can think about this from our hearts, right? Our heads or our pocketbook, I think about this a lot, right? From our hearts, it's just like, oh, you know, we want everyone, everyone to have access to housing they can afford, right? And then the head, as you can sort of intellectualize it, Let me make the pocketbook argument to you though, right? So if you live in a place where it gets harder and harder for folks to be able to afford to live, all of a sudden it's harder for you to find a Starbucks, to find a restaurant that's open to be able to send your kids to school with sufficient number of teachers. Because folks like that are the ones that are getting priced out of neighborhoods. And so it is hard sometimes to take that bigger picture. But from a quality of life standpoint, having homes that are affordable to people all along the income spectrum in every part of the economy ends up being good for you. And I'm, I'm not pointing at you, you, but for all of us, right? And I think that's one case that as, as the realtors advocate for broader supply of housing, that it's not about quote unquote affordable housing, right? It's housing for our community, it's housing for us to live in this place that we call home where we want a high quality of life. So that's the second reason. And then the third reason, I mean, not to put two fine a point on it, but we have, I read I think recently a third of 25 to 34 year olds are living with their parents. Yeah. Do you want them out of your basements?<laugh> then we need more homes because they are going to get married, they're going to have children, and they are indeed looking to purchase a home. And so without a sufficient supply of housing, we're gonna have a really hard time allowing our children to flourish
Speaker 1:<laugh>. Great. Danielle, I know you have a lot of thoughts on this, those issues as well.
Speaker 4:Yeah. So I would say a lot of people think of housing as a way to build wealth and it is, but it's not something that should happen overnight. Yeah. It's not a get rich quick scheme, it's a get rich slow scheme. And home ownership I think is a really great thing when, when households are ready for it. When you can commit to being in a place for a long time. Cuz you essentially become your own landlord. There are a lot, I mean there are a lot of people in the US who don't have any sort of experience being an entrepreneur or a small business owner, but we are a nation of entrepreneurs and small business owners. If you think about every homeowner has their own landlord. And so they have a stake in what happens in their community. They get to pay themselves first by paying their mortgage and paying down that princip, that principle balance and building up equity for themselves. That's how that wealth filling happens from home ownership. It's not just about price appreciation, it's about the forced savings plan that is paying your mortgage. And there's a lot in behavioral economics about how, you know, the different conditions that people face will cause them to make better decisions or maybe worse decisions because the, the situation matters. And in, I think that's what we see in housing and home ownership. So that makes home ownership a good thing for people who can commit to being in one area for a longer period of time. That's why we see the wealth building that we see for homeowners as opposed to renters. And if we don't give people the opportunity to participate, then you know, it essentially locks them out of this, this great thing that we call the American dream. And so I think the more that we can make housing available and affordable to more people, the more we're going to see them participate in that wealth building. It doesn't mean home ownership is right for everyone at every stage of their life. I mean, when I was in my twenties, I think there was a period of time where I moved every year,<laugh>, you can't own a home and move every year. That just doesn't work. But when you get to that stage, and for most people it happens in their late twenties, early thirties. So those millennials are getting there. Mm-hmm.<affirmative>, a lot of them are, are already there and more are getting there. You know, that's when I think it makes sense for people to commit to being in one place and to start building that wealth slowly over time so that they have that nest egg to rely on
Speaker 1:Almost like we planned it rent or buy
Speaker 4:<laugh> rent or buy. So, you know, it depends. It really, it's gonna be different.
Speaker 1:But that's the lawyer's answer. Wait, the economist are that you can still money
Speaker 3:On the one hand,
Speaker 4:It really depends on where you are in your life situation, how long you could commit to being in one place. I mean the, the interesting thing, and I think perhaps maybe not good for how people think about housing in the long run is that over the past couple years, didn't matter how long you were in your house, right. Prices were going up. So that's the point sharply,
Speaker 1:Right?
Speaker 4:You almost couldn't lose as a home buyer. But that's not the normal state of things. Normally you need to live in your home for five to seven years in order for buying a home to make a sense to make sense. So I, I think it really depends. You'll, you'll see this if you're gonna hear my talk later, but you know, the number one thing, you know, if you want me to pick a person off the street and say, is that a homeowner or a renter? Well, the one thing I wanna know is how old are they without, you know, being discriminatory about it. We do see in the data that the older you get, the more likely you are to own a home. And that's because it takes time to build up some savings to make that home purchase, to make that down payment. And, and we also see incomes grow over time and we also see more stability. People tend not to move as much as they age. And so for all of those reasons, it really depends the older people get, the more likely it they are to fall into that camp where buying is likely to be the better answer.
Speaker 1:Yeah. Lisa, do we call'em rental list? Is that what we're calling them now? Rental list. Rental list. People
Speaker 3:Who are
Speaker 1:<laugh>,
Speaker 3:Pro rent, pro
Speaker 1:Renters that Yeah, I think so. Any anything to add to? No,
Speaker 3:I said I agree with that. I think, you know, one of the things that I think about is, you know, people say, Oh, the cost of home ownership is rising so quickly and it has, we have to live somewhere, right? And so when you take a look for example at the rental market, uh, there have not been bargains on the rental side either, right? We've been seeing rents,
Speaker 1:Right? That's where I'm going with this. Yeah.
Speaker 3:Really quickly. Yeah. So I'm not to, I don't mean
Speaker 1:No, that's okay. No. What are rents are increasing double digits across the country, right? So Yeah. Yeah,
Speaker 3:Yeah. And so I do think, I do think there's this challenge of housing shortage across the housing ladder, right? And as realtors who work on the for sale side, we still care about the rental market very intently. Sure. Because your future home buyer is paying rent. Sure. Right? And the extent to which rent eats into the ability to save for a down payment is of course critical. And so I think that there'll always be a life stage for renting and owning. I think that as you're having conversations with prospective buyers who may be worried about buying at this point, I think, uh, you know, Daniel's words are right on. It says, Look, if you are, if you are looking to move to live somewhere in a primary home and, and life happens, you never know. Right? But if your plan is to stay somewhere for five or seven years, then this seems like a reasonable like thing for you to be exploring, right? This is this, I'm not gonna use the words, it's a good time to buy, but I think what I'm, what I do wanna say is if this is a planning to live somewhere, then, then there shouldn't be any hesitation really on the part of the buyer to work with a realtor to find, to find the situation that's best for them.
Speaker 1:You guys are agreeing too much. I was, Oh,
Speaker 3:Okay. Let's, sorry. Let's get,
Speaker 1:Let's get going here cause let's get real<laugh> estate. So we try to No, I'm kidding. So actually let's talk a little bit because one of the things that we are dealing with, and even on the public policy level that has an impact on housing supply and specifically rentals are, is the wave of institutional investors coming in, buying up hundreds of thousands of properties around the country, converting what was a single family home for sale and now converting it to a rental. What kind of impact is that gonna have short term, long term? Is that a public policy issue? We're gonna see at legislation, the Maryland General Assembly in 23, what that looks like. Nobody knows, some cities around the country have tried to limit the number of homes any entity can own. I don't think that's workable either. So how do we, That's a tough nut to crack, isn't it? Yeah. What do you have thoughts on that?
Speaker 3:Yeah, so just a couple of things. So the, the first thing I'll say is just from a data side is we hear a lot about institutional investors in the market, and while they are big parts of some markets, it is not our challenge here as much as in other places. Okay. So what I mean by that is, uh, the Washington Post had a great article that came out a few months ago that showed the share of institutional investors by metro area DC was the lowest share of any metro area of country in terms of the number investors. Baltimore was higher. Yeah. But we're not talking about the Miami's, the Orlandos, the Phoenix's, the place Charlotte Atlanta, where there was huge swath of, is that right? So just putting that out there. The second thing I'll say is when we talk about a builders building homes to rent Yeah. And sometimes there's a negative connotation of that, but we just got done saying that there's not enough homes of any kind. Right. Right, right. And so if you are building a home for my adult child to rent like that, that doesn't bother me, I guess is what I'm getting at. The, the the thing that I also think is important to keep in mind is that when you think about, and particularly as legislation comes here in Maryland, when you think about who the primary owners of rental, single family rental homes, they're not the institutional investors, they're the mom and pops. Yeah. Right? The ones who owe 1, 2, 5, maybe 10 properties, those are
Speaker 1:People here, I'm sure people
Speaker 3:You all represent.
Speaker 1:Right? Or you Exactly.
Speaker 3:Or you yourself. Right. And so I think we need to be careful of painting two broader brush of what an institutional investor is or what rent single family rental housing is and how it, I think it's, it needs to be balanced and be considered as part of the entire housing ladder. And, and thinking about how these, these smaller property owners, these smaller landlords are really kind of a key part of the single family, uh, rental landscape.
Speaker 1:That's a good perspective, Danielle.
Speaker 4:Yeah. Just to put some numbers on it. Yeah. So homeowner vacancy rate under 1%, it's at a record low. So there aren't enough homes relative to what we would typically see as far as vacancies. Think about vacancies as a little bit of slack in the market. They're homes that are not being occupied right now. The rental side of things, the vacancy rate is higher. It's roughly just under 6%, but that's still very close to a long term low. I think you have to go back to the late seventies, early eighties to get to a vacancy rate that's at low. So, Huh. There just isn't a lot of slack in either side of the housing market where they're talking about for, you know, for rent or to own. And it's true, institutional investors are not a huge part of the landscape. They have been active buyers in recent years, but if you look at how much they own, it's still relatively small in comparison to other types of investors. Generally small individuals. The other thing is it's really difficult to define institutional investors. So even, you know, when you're, I think about this from a data perspective, we do track the number of investor buyers and there's all sorts of caveats that we have to put in the methodology to explain, you know, we're capturing these types of investors, but we can't really distinguish between these types of investors. And so I can only imagine how you try to codify that in legislation, you know, so that you're going after the right people if you will. But I think we, you know, we need people to have options when it comes to how they live. Not everyone is going to own a home and that's okay. And so I think we just have to approach it carefully.
Speaker 1:Yeah. I think we just wanna hate hedge funds, that's all. Is there foreclosure increased numbers of foreclosures anytime soon in your crystal ball?
Speaker 4:So I've got some questions. So the data shows that, you know, we are seeing an uptick in foreclosures. Yeah. Again, the base matters, you're going from nothing Yeah. To more than nothing<laugh>, but we are still low relative to where we were before the pandemic. We might see foreclosures tick a little bit higher because we do have, you know, people who might have had financial trouble during the pandemic and haven't yet gotten back on their feet. So I would not be alarmed if I saw that. If you look at the housing market right now, because prices are so high, homeowners are hitting on a record level of home equity. Right. And it's not just a record level of home equity. If you compare the equity that they have relative to their mortgage debt, you're looking at 70% equity on aggregate in the household, in the really homeowner market. And that's the highest that we've seen since, I believe it's the early nineties. Put another way, even if home prices were, and I don't expect this to happen, but even if home prices were to decline 10 or 20%, homeowners would still have more equity in their houses right now than they did before the 2007 eight housing bust. So there's a lot more equity in houses today that protects existing owners, especially those who've owned their home for a little while. It's, you know, new buyers, especially those putting down very low down payments are a little bit less protected. So I, I do worry a little bit more about them and I, I, in my advice or talking points for buyers lately, think now is not the time to stretch your budget. Yeah. We know that we're in a period of economic uncertainty. It's always a good idea to make sure your housing budget is comfortable. I would say it's especially true now, but I'm not worried about a huge way of, of foreclosures. There's just too much value already in the housing market. That's
Speaker 3:A good point. Yeah. Totally agree. And the other thing I would add too, that, that makes this situation of course, much different than where we were 15 years ago, which might again be another question that your clients are coming to you, right? It's like, are we set for another huge, like decline? Right. Right, right. And back then the foreclosure landscape was very different and, and uh, Danielle mentioned a couple reasons. Another reason is anyone who could refinance basically the last couple years did. And so by setting yourself up for a lower payment, you actually got yourself in a little bit better situation. The equity issue, of course is a big one. And so I think that we will probably see foreclosures continue to increase because there are always foreclosures in the market. Yeah. Right. If we, again, we have to reset our expectations about where we've been. When there was a foreclosure moratorium, we didn't have any foreclosures coming on. Right Now, we start to see those numbers take up to 0.1% of loans, 0.2% of loans. Right. That's doubling by the way. So when the paper, when you're, when you see foreclosure rate doubles 1.1 to 0.2, that's doubling. Right. And that's still lower than where we were prior to the pandemic. Right. That's
Speaker 1:Those pesky numbers. Those
Speaker 3:Pesky numbers. Right. It's back to, So, so I would, I would say that we're still, we probably will get back to a level about where we've been, this whole resetting of the housing market. Foreclosures are not gonna solve the inventory problem. Some people ask that as well, should I wait till the foreclosures come flooding on the market so that we can, No, it's not gonna happen as much as we really ache for some additional inventory, it's not gonna come by way of foreclosures.
Speaker 1:Another thing that you mentioned in our initial conversations was migration patterns, Uhhuh. So talk a little bit about what that looks like in Maryland especially.
Speaker 3:Yeah, so I think, you know, during the pandemic we saw, I think I, I referenced that we had a lot of folks, maybe people you worked with who decided to move further out out of the DC area, out of the Baltimore area, out to places where they could work for work remotely. Places where, where it was, uh, smaller town, smaller communities, but really good wifi. Those are the places, Right. That got a, a surge of activity. Those are the places now that people are starting to return to the office and they are returned to the office. My husband drives from Alexandria to College Park every day and every day he comes home and he's like, It's getting worse.
Speaker 1:It's worse getting
Speaker 3:Worse. And so people are returning to the office and it may only be two or three days a week, but it's really hard to live in Cumberland and commute to DC Yeah. You know, a couple days a week. Right. So even if you're only coming in a couple days a week, there's going to be a return of demand for places closer in again, resetting to those same expectations of commute times and quality of schools and quality of neighborhood. And some of those places that saw a surge of out migration from some of the urban areas, I think are gonna see a lot of pullback and home prices out there are going to have to again, reset to kind of match the incomes of the existing residents out there. And so, again, I keep coming back to this word resetting and I think that's one of the impacts of the migration. Sort of shifting back to coming closer in.
Speaker 1:Yeah. I can tell you the Wednesday after Labor Day was like pandemic never happened.<laugh> on I 97 from Baltimore right. To Annapolis. It was, I was back 2019. I'm sorry again, sorry. No, it sucked. I terrible<laugh>. Did I say that out loud? I'm sorry.<laugh>. Danielle translate what at Lisa said to the, uh, more broadly or,
Speaker 4:Yeah, I mean I think that's right. That people are going back to cities. We do see in our, one of the months that we did our rental report, we looked at rents in urban areas versus suburban areas. And for the first time since the pandemic started, rents are growing faster in urban areas. And you see trends like that reflect reflected in rents sooner because rents are a little bit more, more mobile. And so you have more turnover there. So there's that piece. The other thing that we are still seeing, at least in the data that started with the pandemic is more interstate mobility. Mm-hmm.<affirmative>. Okay. And so it's not just, you know, suburban or exurban back to the cities, but also across states, you know, when people are looking to move across states, they're looking for affordability mm-hmm.<affirmative> and in today's environment, I like to call it their personal inflation fighting plans. Mm-hmm.<affirmative> because Oh, interesting. You can move from a high cost housing area to a low cost housing area, may still be in a city, but you know, housing is the biggest portion of the budget for most people. Right. Around 25 to 30%. If you can knock a couple percentage points off of that, that's some real savings. Yeah. And one way of dealing with inflation, and at least in our data, we're still seeing people have that higher level of interstate mobility. Yeah,
Speaker 1:That's interesting. I haven't heard, you know, our members ask a lot of questions about that, but speaking of questions, if you have anything of it and the mic runners are getting ready, so we're just about ready to take some questions. Lisa, you wanna wrap that up? Can
Speaker 3:For us, can an idea of migration too, just to sort of hit on that as we're sort of getting queued up, I think that one of the things that I'm really interested in is whether this interstate migration pattern and working from home is a longer Yeah. Pattern. And then the second thing I think is really important to keep in mind, and it's part of this larger trend that the pandemic really highlighted a lot of the dispar economic disparities in different groups, right? The folks who have the opportunity to work from home, from whatever state they are a small set of the overall population. There is a large group of people who have to be in a shop, in a hospital, in a school, in at their place of work who don't have that luxury. Right? That's, and so I I almost wonder from an equity standpoint, if we're gonna see a little bit more division in this sort of have and have nots and, and by have and have nots, I just mean have uh, choices. Right. And don't have choices.
Speaker 1:Yes.<laugh> the answer is as
Speaker 3:What do you think Chuck
Speaker 1:Is as a ceo? I can tell you that is the, the hardest conversation within everybody's job is different. Yeah. And you're right, some people's jobs are amenable to that and some people just aren't. And that is a difficult conversation, especially if there's a mismatch between the person's desires and expectations and the reality of their actual job and, and the estimation of the employer as to where that person needs to be. It's a very complicated calculus. There's no question
Speaker 4:About that. I do wonder if like the HOV lane creates opportunities even for those who are non hov, that maybe the fact that some people can spread out might create opportunities for others even if they do have to be a person
Speaker 3:Potentially. Yeah. Yeah. Yeah. Like analogy, analogy,
Speaker 1:Analogy questions.
Speaker 5:Hi, thank you so much for this wonderful presentation. I've learned a lot, taking a lot of notes. Great. Uh, I'm curious though, cuz you guys mentioned that the current inflation rate is eight 8.3 and the goal is to get back down to 2%. Can you talk about what else is the economy or what else is being worked on aside from raising the interest rates? Because right now it's obvious that the cost of living is going up. We're talking about new construction, uh, yet I know a lot of builders that are sort of holding off because certain materials are either higher in value and or taken longer to, to take in. So can you tell me what else, aside from interest rates is sort of being impacted to help the economy get back to normal?
Speaker 1:Danielle, why don't you start this one
Speaker 4:Off? That's a good question. So the Fed has a limited set of policy tools. They've got interest rates, that's, and they've also got the things that they did during quantitative easing the asset purchases. They're not touching those tools in a big way yet. So their one tool is, is raising interest rates. So that's what they're trying to do. Now, Congress passed the Inflation reduction Act. I will admit that I am, I'm not a policy expert, so I'm, I'm not gonna try to tell you everything that's in that bill, but there are investments that are being made in infrastructure that are designed to lower costs in the long run. But really when we think about inflation, I mean, I guess it depends on your philosophy on how you think about inflation, but generally people think about inflation as being a monetary phenomenon. And what that means is too much money chasing too few goods. The the best way to combat that is to cut back on the money supply, which the Fed does by raising rates. So there aren't a lot of other tools that economists have traditionally thought about as inflation fighting tools. Yeah.
Speaker 3:And I think that the challenge has been even harder during this period of inflation when so much of the drivers really have been, like we talked about on the supply side. Right. And, you know, uh, President Biden can't make the tanker ships come faster from China right there. Right. Uh, when there are entire cities in China that lock down when there is a Covid case, and because so mu many of our goods come from China, that that is a, that is outside of the realm, not only of monetary policy, but of any fiscal, any policy that the United States. So I don't mean to be a, a downer, but there are very few tools and in fact, um, uh, it's always risky to start talking about politics, isn't it? A little bit, but so I'm
Speaker 1:Gonna, we can speak more broadly. Sure. Careful.
Speaker 3:Um, there are also, um, you know, some things that, that, uh, we wanna do that are good for individuals and families that could actually put upward pressure on inflation. So for example, when the student loan bill came up, Right. And so if folks are now not having to pay on student loans, they have additional money. Right. And then that is more money in the economy and, and there's estimates that the impact on inflation is very, very small. Yeah. Sorry. For sure. Yeah. Um, but there are a set of other programs that are intended to put more money in people's pockets, which again, you have this dual sort of complicated economy in society. Yeah. So it makes it harder to find the ways to target inflation. And it, it really is, I think it's gonna take a lot longer than anybody expecting.
Speaker 1:That's, that's a good point. Yeah. Very good question. Thank you.
Speaker 4:I can sort of piggyback on that inflation too. A big component of inflation is the cost of shelter and that's right. Homes that people live in and the rents that they pay for renting homes. And so to the extent that we can, that we see rents come back down, if we can address the supply and demand in housing, then we will see, um, at at least that part of inflation's a good point. Pull off. It's been one of the, one of the fastest growing aspects of inflation recently.
Speaker 1:Yeah. Good point. Yeah. Question? Yes. Yep. Hey, Chuck. Hey, I'm in the camp that we haven't even seen the impact of the, uh, unraveling of the Fed's asset purchases yet, Um, strongly in that opinion. Okay. What's your opinion to the two ladies?
Speaker 3:Yeah, so do you wanna start? You can start with that one.
Speaker 4:Yeah, that's true. I mean, they, they've stopped adding Right. The balance sheet. Right. But they haven't really begun the pullback yet. And I think they're waiting until, you know, rates get a little bit higher. They wanna see how the economy does as they finish, um, bringing rates to that terminal point. Um, it will I'm sure we'll notice it<laugh>.
Speaker 1:Yeah. I,
Speaker 3:My point Yeah, yeah,
Speaker 1:Yeah.
Speaker 3:For sure. I, I mean, and you think about it, we're in this unprecedented situation where the Federal Reserve has been buying these trillions and trillions of dollars of mortgage backed securities and other bonds. So that sort of was unheard of 20 years ago, right. We weren't doing this right. And so it almost is like, is this the new normal? Like what are we coming back down to? Right? Right. And so if we're going to, if we're going to revert back to where we were prior to, let's say, you know, 2008, then this is gonna be a very, very different, uh, resetting, I think, uh, in the bond market when, when this happens. And I, I tend to agree with you, I think it's gonna matter how slowly or quickly this pullback happens. Um, because I think there is a potential for there to be pretty significant impacts if this happens too fast.
Speaker 6:Great. Yes. Hi. Oh, okay. Hi, can you hear me? Yes. So this is a little bit of a different subject, but I just last week was in a webinar, um, for John Hopkins on Long Covid. Um, and just wondering if anybody's looking at the health impact right now in the country, there are 5.4 million people with long covid syndrome and we have no idea where it's all gonna end. Yeah. With, especially with the surge of Aron. And so that I would think would eventually play into housing, especially some of the comments about foreclosure. Yeah. And, um, loss of income, that type of thing. Any thoughts as far as the health impact of a virus that we still don't have a lot of answers about? Good question. Yeah.
Speaker 3:That is a, that is such a good question and I think, uh, it raises the, the really important point that we have been through this unprecedented ended three years, but we are nowhere near the end of sort of figuring out what it all means. And I think that the impact, the relationship between long covid and foreclosure is, frankly I hadn't, when I hadn't really thought about, but I think it's important to, to think about that because, um, unexpected, uh, health expenses is the primary driver of foreclosure activity prior to the mortgage sort of meltdown. And so the extent to which people are still dealing with long covid, I think it's also, um, true that, uh, that particular long form of covid is hitting, um, older folks harder. Uh, and as that population is getting older and older, we still don't know kind of what the overall impacts are gonna be or what kind of their housing needs are gonna be. So I think I, you know, I think that there's still so many unknowns that it, it, we shouldn't count out the fact that we need to keep, keep paying attention to what's going on with not only the variance, but what we keep learning about, uh, but what the long term implications are. Um, so I really appreciate that question. I, I just, I just, Yeah. I can't even wrap my head around Right. What we still need to learn. Right?
Speaker 4:Yeah. Yeah. I think, I mean, if you look at, um, the unemployment data or the employment data in the US and in Maryland, um, the unemployment rates are back to where they were before the pandemic. Mm-hmm.<affirmative>, um, and the us the number of jobs in the economy has returned to normal, but it hasn't yet in the Maryland data. And it's interesting to have the unemployment rate back to where it was before, but not have the same number of jobs that tells you that fewer people are in the labor force. Right. And I was thinking about what could be the causes of that, and I'm sure it's not the only cause, but I imagine the impacts of covid is an important cause.
Speaker 3:Yeah, sure.
Speaker 6:You have, Betty has the mic choice. I just want I just said programs to help those people. Oh, yeah, yeah. That they're unemployed because of Yeah. Covid or
Speaker 1:Non covid. Yeah. Great. We have time for one more question. Yes.
Speaker 7:Um, uh, two part question. Uh,
Speaker 1:One we have need that mic on though.
Speaker 8:Is this on? It
Speaker 1:Is now. Yeah.
Speaker 8:Okay, great. Uh, two part question. One, and it's in regards to financing, um, your data, what are you seeing as far as arms, uh, percentage wise? Mm-hmm.<affirmative> and two, you kind of brought up, you know, back in seventies, eighties, you know, interest rates were super high, but at that point, the norm was a 20 year loan and then it went to a 30 year loan. Mm-hmm.<affirmative>. Um, so that helped incentivize during the pandemic modifications came out where people were getting 40 year, 40
Speaker 1:Years Yeah.
Speaker 8:Terms. Yeah. Do you see that coming back around to screw on financing? That's a
Speaker 1:Very good question. Danielle, you wanna track? She, she grimes, so let's at least,
Speaker 4:Yeah. I don't know on the 40 year lens. So I, I, we don't track the numbers of people getting arms versus fixed rate mortgages. I, you know, the rational thing an economist might tell you to do right now is potentially to get an arm, your arms are generally fixed for five, five or seven 10 years. Yeah. Um, so it's a fixed rate for a long period of time. It might be the entire time that you live in your home, given that the typical 10 year in a home is in that five to 10 year range. Mm-hmm.<affirmative> at the same time. So that's the rational economist way to think about it. If it helps you sleep better at night to know what your monthly payment is going to be from now until forever. Right. Get a fixed rate mortgage, there's nothing wrong with that. It's gonna cost you a little bit up front, but if you sleep better at night, that is valuable too.<laugh>. Right. Um, you know, as far as the 40 year loans, I don't know. That's a, that's an interesting question. I don't know what the appetite is. I have not seen anything from Fannie or Freddy about their willingness to do that. Um, you know, people are living longer, so I, I think that's an interesting, interesting question. Yeah.
Speaker 3:Yeah. And so we saw this morning, the five one arm was five 4.79, so 4.79 versus 6.29. That's a pretty big gap, so, Wow. Interesting. I think that there'll be more people who are gonna be going into that. So again, getting back to, uh, the realtor profession and the realtor community here in Maryland, this is your opportunity to be a resource to people who may be exploring options that they don't fully understand. Because we've been in this world where a 30 year fixed rate mortgage was 2.8%, so why would I look anywhere else? And so the other thing I'll, I'll say is, um, what we're seeing as rates have been rising is we've actually been seeing, and, and maybe you guys have seen this, we've been seeing more variability in rates in terms across lenders. So if you're, if your buyer is thinking, I only need to go apply for preapproval with one lender, this is the time to go and speak with a couple of different lenders, because there's fewer buyers. Lenders are competing for those more limited number of buyers. And so you're seeing a little bit more flexibility across lenders. The 40 year term. I, you know, I think that I could definitely see somebody coming out with, with a product that's a 40 year term. As we begin having conversations about the difficulty, uh, some groups are having, getting into home ownership and what are the potential solutions. And we know the potential solutions are to build more housing, but for some reason people don't wanna do that. Mm-hmm.<affirmative>. So they might instead say, Hey, well let's create a 40 year mortgage product instead. And Interesting. I would argue it's better to create more housing than to create a longer term, uh, commitment on a, on a loan. Okay.
Speaker 1:Well, this was terrific. And to our live guests and our listeners, uh, thank you for the privilege of your time. This is Get Real Estate, the Maryland Realtors podcast. I'm Chuck Caskey, Maryland Realtors ceo, thanks to King Audio Visual for the onsite audio and recording. Then we'll ship that off to our esteemed producer, Joshua Woodson. Everybody here, if you haven't already, please subscribe wherever you get your podcasts. Like us, share us, give us five stars if we've earned them, and more importantly, give us feedback, including guests you'd like us to invite or topics to explore. So please be kind, stay safe. I usually sign off with a quote, and this one has been variously attributed to the Dai Lama, Haruki Mora, or m Kathleen Casey. It doesn't matter who said it, but grasp this. Um, a little nugget here from a simple refrain. Pain is inevitable, suffering is optional. Thank you.
