00:00Right now, all three are trending in the right direction, which is why we believe,
00:05you know, this will continue to see some affordability improvements in the months
00:09to come if those trends continue. I'm Alison LaForgia, Managing Editor of HousingWire's
00:21Content Studio. And today on 10 Minute Talks, my guest is Odetta Cushy. Odetta, welcome.
00:26Thank you so much. It's great to be here. Odetta serves as First American's Vice President,
00:33Deputy Chief Economist. And today we're going to talk about something that's top of mind,
00:38probably all over your LinkedIn and social media feeds. We're going to talk about what's going on
00:43with the housing market. And we're going to start with tomorrow's Federal Open Market Committee
00:48meeting and what the impact of that meeting is. So if the Federal Reserve does move forward with
00:57those expected rate cuts that we're hoping that we see, what does that mean for housing?
01:03That's a great question. All eyes are on that meeting tomorrow. And I think that
01:07it's important to point out that the Fed's actions have already been priced into mortgage rates. In fact,
01:13the market's priced in three rate cuts through the remainder of the year. And that's in part why we've
01:19seen this rate benefit. Mortgage rates are down to 6.3%, I believe it is, the lowest mortgage rates in
01:27about 11 months. So a lot of the Fed action has been priced in. I think if Powell signals more easing to
01:34come, we might get additional benefits to that mortgage rate. But I think if he's a little bit more
01:41cautious, continues to reaffirm that they'll take this data-driven stance and be watching for
01:48incoming inflation reports or potential tariff impacts, we might not get any additional rate
01:54benefits. So, you know, as I always like to remind people, that 30-year fixed-rate mortgage is not
01:59benchmarked to the Fed funds rate or what the Fed does. It's loosely benchmarked to the 10-year treasury
02:05yield. And that 10-year treasury moves around for all sorts of reasons, inflation, inflation
02:10expectations, you know, geopolitical conflict, all sorts of factors. So it's very possible to get a
02:17situation where, you know, the mortgage rate could even rise after the Fed cuts rates. We saw that last
02:23year. So it's unclear exactly what will happen to mortgage rates after the Fed meeting, but we've
02:29certainly received a rate benefit in anticipation of that meeting. So you just mentioned that we've
02:35seen mortgage rates tipping to the lowest rates since October of last year, right? And we've seen
02:41some modest sales improvement. What are your expectations for the housing market through the
02:46end of the year as best as we can predict it with everything that's going on right now?
02:52Yeah, there's a lot of moving pieces. I think my general expectation is not a boom, not a bust,
02:57but sort of continued recalibration to this higher interest rate environment that we find ourselves
03:03in. We see some demand pick up from those, the rates moving lower. We saw that in the mortgage
03:10applications data from last week that buyers are responding to lower rates. I expect that if rates
03:17fall further, closer to 6%, we'll get more activity in the housing market. That said, I'm not expecting
03:23sales activity to boom or even get back to normal levels or pre-pandemic levels. And there's a lot
03:30of different factors at play there. Of course, that lock-in effect is still a headwind to the housing
03:36market. And I think there's just a lot of general sort of macroeconomic uncertainty this year. The labor
03:41market seems to be slowing down, which is a contributing factor. So I'm not expecting normalcy, but I do expect
03:48some improvement. One of the factors that I feel like we talk about a lot is inventory. And in August,
03:54we saw an inventory decline. How do you think that impacts the fall market? Or is this typical
04:01seasonality? Yeah, that's a great question. You can't buy what's not for sale, right? So inventory is
04:08key to unlocking the housing market. And to your point, we've sort of seen a plateauing of inventory.
04:14And I think that that is sort of slowing the housing market momentum. It remains to be seen
04:22if maybe lower interest rates can encourage some potential sellers off the sidelines. We know that
04:28the withdrawal rate has been a little bit elevated too. So sellers are kind of looking around and
04:34pulling back their listings because maybe they don't think they can get the price that they want,
04:40or potentially they can't find a better home to buy. And so maybe lower rates can entice some of
04:45those sellers back into the market. But certainly, we don't want inventory to trend in the wrong
04:51direction if we want the housing market to start to pick up. I feel like I'm always reminding myself
04:56that sellers are also buyers. That's right. Housing is very unique in that way.
05:02It's very unique in that way. And you mentioned the dual lock-in effect. And I know that this is
05:07something that you talk about on your podcast with Mark Fleming, where homeowners with low mortgage
05:13rates stay put while potential buyers hesitate to enter the market. How do you think this dynamic
05:19is shaping some of the activity that we're seeing today and inventory levels?
05:26Yeah. So the dual lock-in effect, we're talking about the very well-known rate lock-in effect. So
05:31that's your first. And obviously, that's the golden handcuffs of low interest rates. We know that 81%
05:37of existing homeowners are sitting on rates below 6%. So they don't have that financial incentive to jump
05:43into the market. So that's a factor that's been holding back market potential for some time. It is
05:48easing, but nevertheless, is certainly holding back the market. That second lock-in effect is the weaker
05:55labor market. The hires rate right now is at about 2013-2014 levels, which is when the unemployment
06:02rate was 7%. So we're not really hiring in the economy. And we know that a job change is a driver
06:10of sales activity. And so we're calling this the second lock-in effect is this sort of stagnant labor
06:17market where we're not seeing companies hire. A little bit of a pivot, but want to make sure that we,
06:23in this 10 minutes, which is not a lot of time, get to talk a little bit about affordability.
06:28Can you talk to me a little bit about which affordability factors are currently easing
06:33and where we see that pressure remaining? So this is a modest, bright spot, I think,
06:40in the housing market right now, or at least something that's trending in the right direction.
06:44We're seeing affordability improve, and it's for key factors. So mortgage rates are moderating.
06:52We just talked about that. Income growth is actually outpacing house price growth as house
06:59price growth continues to moderate. So we track nominal house price changes through the First
07:06American Data and Analytics House Price Index. And that index is showing us that house price growth,
07:11annual house price growth, is actually in the single digits. It's at about the slowest rate since 2012.
07:17And so that allows buyers a little bit of breathing room, right? It's not what we saw over the pandemic
07:23with double digit house price growth, and it's allowing incomes to catch up. So actually, when we talk
07:29about what matters for affordability, it's income, interest rates, and house prices. And right now, all three
07:35are trending in the right direction, which is why we believe, you know, this will continue to see some
07:41affordability improvements in the months to come. If those trends continue, affordability will still
07:47be limited from a historical perspective. We calculated that affordability is over 30% lower
07:54than it was in early 2022, just before the Fed started to increase interest rates. So it will still
08:01be a challenging affordability environment, but progress, not perfection, right?
08:06Progress is all we're looking for at this point, right? Yeah. So to wrap up today's conversation,
08:15as we see inventory patterns shift and thought and behavior continue, what should the industry be
08:23paying attention to in the coming months? So I think there's a lot of factors, but I just keep coming
08:31back to the labor market, because I think that the labor market is so central to not just the Federal Reserve
08:39and the monetary policy decisions that they'll be making through the end of the year. Certainly, if we see
08:45the labor markets start to slow substantially, you know, that could mean that we're going to get some more
08:52rate cuts. But I think the labor market is also key to buyer and seller behavior. This is potentially the
08:59biggest financial purchase that a potential buyer will make in their life. And that's really predicated
09:05on them feeling confident in their job prospects. And so I think labor market conditions will impact
09:11buyer behavior, and it'll impact seller behavior. I mean, one thing we didn't get to talk about at length
09:16in this episode is that if the labor market slows, if people potentially lose their jobs, that could
09:24actually contribute to some forced selling, some sellers having to sell their homes because they
09:30don't have a job anymore. So I'm watching the labor market just to see how it'll impact buyers and
09:37sellers, and of course, the broader macroeconomic environment. Well, we'll have to keep an eye on the
09:42labor market. It's a good factor for us all to continue to watch, it sounds like. And we'll see what
09:48comes out of this FLMC meeting tomorrow. That's right. Odetta, thank you so much for joining me for
09:56this episode of 10 Minute Talks. And to our audience, that wraps up today's episode. We'll be back soon
10:03with more quick hitting insights from across the housing industry. Until then, stay connected with us
10:09and housingwire.com.
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