NAR’s Jessica Lautz on expectations for the spring housing market

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Jessica Lautz, Deputy Chief Economist and Vice President of Research at the National Association of Realtors, about expectations for the spring housing market on home prices, concessions, cash buyers and more.  Related to this epsiode:  Realtor.com Q2 revenue rises 10% as visitor traffic outpaces rivals https://www.housingwire.com/articles/realtor-q2-traffic-revenue-growth/ HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q More info about HousingWire https://lnk.bio/housingwire  To learn more about Trust & Will visit trustandwill.com  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:09Welcome, everyone. My guest today is Jessica Lautz, Deputy Chief Economist and Vice President

00:14of Research at the National Association of Realtors to talk about the spring housing market

00:19as far as home prices, concessions, cash buyers, and more. Before we dive in, I want to thank

00:25our sponsor, Trust in Will, for making this episode possible. Jessica, welcome back to

00:30the podcast. Thank you. I'm really excited to be chatting with you. I'm very excited to

00:35have this conversation. Of course, you were at our Housing Economic Summit, gave an incredible

00:39presentation. You and I got to talk in the green room backstage about some other things,

00:44and so I was like, let's have you on. Let's talk about this. Now, the setting of this conversation,

00:50some things have changed, you know, pretty, pretty significantly on the macro level, you know,

00:56with some some world events, you know, with what happened over the weekend with Iran. But we really

01:01want to focus on the spring housing market, the knowables, what we can talk about, because

01:06that situation could change by the time we get off of this podcast. So let's let's focus on kind of

01:13the trends that you're seeing and what you're thinking about the home buying season and some

01:18other topics if that if that works for you. Yeah, that sounds great. That sounds great.

01:22Yeah, there's always unknowns, right. And I feel like even by the time that I'm done with a sentence,

01:28mortgage interest rates are going to change. So there's always unknowns. What I will say, though,

01:33is is what we have been seeing since I was at the conference, which was wonderful,

01:39is actually a drop in mortgage interest rates. And so if we look at the overall trajectory of mortgage

01:46interest rates, they have actually been declining. And I think that we're looking at an early spring

01:51in some of the markets, which has not been true for the last couple of years.

01:55Boy, that is so true. Like, I really felt like last week, it was, you know, we were we had

02:00several

02:01really good trends pointing to like, this could be a good market now booming, maybe not. But like

02:06compared to the last few years, much better. But I'll let you talk about this. What what trends do you

02:11see that are positive for the spring home buying market? Yeah, so I will say, we just released our

02:17existing home sales data a couple weeks ago. And when we looked at that data, it was rough,

02:22because we know that January was very difficult weather wise in more than 30 states, right. But I

02:29want to pull out some of the silver linings that I actually did see in that data. And I think

02:34it's

02:34always good to look at it holistically to level set with what the data is, but then to also look

02:39at

02:39where people are finding those opportunities. What we're actually seeing is we had a seasonal

02:43uptick in first time homebuyers, it's always better for first time homebuyers in the winter,

02:48but actually was higher than where we were last year at the same time. So that's one good news.

02:52The second good news item that I saw, when we looked at our data was actually waiving contingencies

02:59declined. And so a lot of buyers were having these really competitive offers where they were waiving

03:05appraisal contingencies, they were waiving the inspection contingency, they were

03:09taking on this risk, or they were going in and they're saying, the actual transaction is not

03:14actually based on this contingency. But I know I will have to pay more in upkeep, something may

03:19have to be repaired, I'm going into it with my eyes open. But I'm not gonna stop this home sale

03:25because

03:25of that. We actually saw a drop of this to the lowest level that we've seen in four years, we

03:30only have

03:31data since 2021. So I don't know what the norm is. But what I can say is that buyers are

03:35finding some

03:36silver lining. And when we see a drop in mortgage interest rates, we see that type of motivated

03:41seller that's out there, the type of motivated buyer to get this transaction done. I do think

03:46that that leads to favorable conditions moving forward. Did you see a big difference depending

03:51on geography? Because we know that like when it comes to inventory, we sort of have a tale of two

03:57parts of the country, right? Yeah. So we don't have geographic data on this. What I will say is,

04:01yes, absolutely. And I think there there is a tale of two cities at all kinds of parts of the

04:06housing market, right? So we have these strong all cash buyers, and then we have first time home

04:10buyers struggling. We have motivated sellers who want to sell in the dead of winter, even when they

04:14don't want to shovel their driveway to let someone in. And then you have sellers who are saying, I'll

04:20just wait for spring, I have plenty of housing equity, I don't have to make this move right now.

04:24It's not based on a job change or a family change, which I'm really going to have to make

04:28this move. So right, we see a tale of two cities. And that story can be told

04:32all throughout the housing market right now. Let's talk about home prices. What are you guys

04:37seeing as home prices? Yeah, so for home prices, we are still seeing them climb in the majority of

04:42markets. I think what's really important for that is that 16% of homes are moving more than the asking

04:49price. We're still seeing two offers as an average. But again, it's not every sale, right? So it really

04:55is that select home in those particular markets that are coming onto the market. And people are

05:01saying, that's the home I want. It's in the perfect school district. It's close to the perfect

05:06walkable community, the coffee shop that I always go to. That's the home that I want to buy. And we're

05:11seeing those homes moving more than the asking price. Other homes are staying in the market longer.

05:16So it's truly a mixed market. I think one of the things, you know, we track the number of homes

05:22that

05:22had to take a price cut before they sell. And that is seasonal. But right now, we're down a whole

05:28point, I think 1.25% from this time last year. So even given the seasonality, but that one's really

05:35hard to know what's really happening there. Because you go, are we finally seeing the effects of like

05:40that run up in home prices that people saw their neighbors selling for XYZ two years ago, or three

05:45years ago? Or, you know, like, it's hard to know what exactly is happening when people when we have less

05:51of those? Do you have any insight on that? Right. And I think it is hard. It's hard to know

05:56if it's a

05:56one month trend, or if that's something that you're going to see multiple months of. I will say that

06:02home prices overall are continuing to move up. And so we are continuing to see year over year increases

06:08in home prices. And that's truly just due to supply in demand. And we know that supply is still very

06:15limited, especially at certain price points. And so if you're looking at affordable price points,

06:19there's plenty of buyers, there's plenty of pent up demand. And that inventory is just not there.

06:24It's not matching the incomes that we have right now. What do you say is the big difference biggest

06:28difference between this spring home buying market and last spring's? Well, certainly mortgage interest

06:33rates have shown considerable improvement. So that I think would be the really good thing. And that

06:39doesn't just impact home buyers, that's also going to impact sellers who have been waiting around and

06:45saying, I will sell when it hits this threshold and whatever that is, or I will sell when I have

06:50this much housing equity. And so as they build that housing equity, and as interest rates come down,

06:55I think we're starting to see that people are saying, it's time. It's yeah, I have been waiting.

07:00And now it's time to place my home on the market. I think these are the changing signals that

07:05hopefully we'll continue to see as we move into the true spring market.

07:10You know, you mentioned first time home buyers, and NAR put out a report, a survey report that

07:16talked about how the age of the first time home buyer has moved up, got huge, I mean,

07:22got huge attention, right? Because that age was 40, which is which is higher than it has been in the

07:29past. And I think it, you know, provided a shorthand for like, this is a really tough market

07:34market for first time home buyers. I mean, that survey has also gotten, you know, quite a bit of

07:40pushback. What would you say about that survey? Yeah, I think, you know, it is important when you're

07:46doing any piece of research to really understand the methodology, to understand what goes into creating

07:52that number. And so we feel really solid about our methodology. And I'm happy to to talk about that

07:57and how it differs from other metrics out there. Other metrics are measuring things like mortgage

08:03holders only. Other metrics may be measuring things like home owners who may not have actually

08:12made a transaction in the last year. So we are looking specifically at home buyers who purchased

08:18a primary residence property. So not looking at vacation home buyers or investors. And we're

08:24looking at everyone. So we're looking at folks who both purchased with an all cash transaction and then

08:31also purchased with a mortgage. What's important about that is in the last two years, nearly one

08:36in 10 first time home buyers are actually purchasing with cash. And they're a lot older, they waited

08:42around for a long period of time. And they waited for an inheritance. And so as we watch this trend

08:49happening

08:50in the marketplace, where unfortunately, young adults said, I know that I'm going to get that money at some

08:56point. And so I'm just going to wait for my first transaction. In the home buying market, we can see

09:03that that pushed the age up. And in fact, if we remove all of the folks who were all cash

09:08buyers

09:09and took that inheritance out, what we see is that the age of first time home buyers and our data

09:14is flat

09:14from last year, it's 38. Last year, and it's 38 this year. But if you include the all cash folks,

09:20what you can

09:21see is the median age went up to 40. So really long explanation there. What I would also say about

09:27mortgage data is if you only look at mortgage data, and you say, okay, then we're going to look at

09:31that

09:31age of first time home buyers and that share of first time home buyers. What actually happens is that

09:36if you haven't owned a home in three years, you're now a first time home buyer in that data set.

09:41If you are divorced, you're now a first time home buyer in that data set, and you went on to

09:45purchase

09:46your home by yourself, as opposed to when you were married with your spouse. So we can see differences

09:52in data sets when we really look at the particulars and look at methodology. And that's why methodology

09:56is so important. I really appreciate that explanation. It makes a lot of sense. It also,

10:01when you think about those home buyers who paid in all cash, and they were older, this is something

10:07that we have, we have, as a housing industry have been looking at forever, like, what is the point

10:12at which people are going to either pass that home on to their, you know, on to their relatives,

10:19or they pass away, and it, and it gets older, like that transition. And, and what that looks like

10:26is, is really what we're all wondering when that sort of happens, right? That whole idea of the silver

10:32tsunami that has really never happened. We haven't seen this giant flood of anything. We know that at

10:38some point there, there are large numbers of people who are making those kind of life transitions.

10:43Yeah. And, you know, the silver tsunami is such a good concept, because we can all imagine this huge

10:50baby boomer generation that's more than 64 million baby boomers, I think, currently in this country.

10:56And as we look at that huge generation, they will pass if they have wealth to pass on to the

11:00next

11:00generation. But it's not going to happen all tomorrow, it's going to be a trickle in the economy. And we

11:06are

11:06starting to see that through home ownership, being passed on through inheritances.

11:11So interesting. So I know that you and I were talking about sort of sort of pushing in on this

11:17idea of how older homeowners are home buyers are buying homes. So in the past, you know, like you

11:24wouldn't really buy a home in retirement unless that was a second house, right? Because you don't have

11:29an income coming in, you know, have fixed income. But things are different these days. So maybe tell us a

11:36little bit about what you see there. Yeah, absolutely. So the repeat buyer is older,

11:40too. So in our data set, we're seeing folks who are purchasing a primary residence. So again,

11:45not a vacation home, not an investment property, that their median age is 62. And I think there's

11:51a lot of reasons why that's happening. One is that huge baby boomer generation. And so they are hitting

11:56retirement, or planning for retirement soon. And so they're purchasing a new property to fit those needs.

12:02The other thing that we see happening is the Great Recession has really changed the mindset of

12:08the housing consumer. So people used to stay for a shorter period of time. They used to expect to

12:13stay for a shorter period of time. Once the boom and the bust happened, they said, nope, I'm staying

12:19quick. So this is my home. This is not a quick buck that I'm going to make and flip this

12:23property. I'm

12:24actually going to stay in this home for a longer period of time. So that was one change. And then

12:27the

12:28second one is, of course, the mortgage interest lock in effect. And so as we've watched that,

12:32the tenure in home has increased, which means that the age of the repeat buyer has also increased in

12:37the housing market. I think the other thing there is that I know in Texas, I live in Texas,

12:42they are looking, the lieutenant government has proposed a change in who can qualify for

12:50property tax relief based on their age. It was 62. Now it's 55. Now I don't know if that's going

12:55to go

12:55through, but that is, that makes a home more affordable for someone who's 62 than it does for

13:01someone who's 52. Absolutely. That, that could be a game changer for someone to think about actually

13:06selling their property. And one of the things that NAR is strongly advocating for is raising the capital

13:11gains threshold nationwide, because it hasn't been adjusted since the 1990s. And if that was adjusted,

13:17how many people who are sitting on a tremendous amount of housing equity would actually be willing

13:21to place their home in the market and make a move, perhaps downsize or move close to the grandkids

13:26to the golf course, whatever that motivating factor is, they may actually start considering

13:31that at that point. Interesting, because I think a lot of times when people think about housing supply,

13:36they think about new housing, right, which we know is just a tiny part of the market. And it's hard

13:42to

13:42see how that would ever change. And if it did change, it would, you know, there are some negative

13:46effects there as far as like home equity and people building wealth. But what we don't always

13:51think about is just all those big houses that one or two people are living in, but it just doesn't

13:56make sense to sell. Right. And there's a ton of inventory out there like that, that if you could

14:01figure out how to unlock that, that is huge. Absolutely. And I think the other thing too is that

14:06are these homes that perhaps older individuals are living in, are they actually safe to age in place?

14:12Uh, do they have, uh, low enough countertops in the kitchens or, uh, guard features in the

14:20bathrooms to make sure that if there is a fall, there's no risk there. Um, even thinking about

14:25light switches that are easy enough to turn on, uh, if someone's in a wheelchair or a doorway that's

14:31wide enough for a walker to get through, all of these are considerations as we all are going to age.

14:36And so as we think about this, what happens next? And, um, AARP has actually done a lot of work

14:43on

14:43this and actually has a checklist where you can go through and say, is my home actually prepared to

14:48age in place? And I think they estimate it's two or 3% of us housing stock is actually okay

14:53to do so

14:54in at this point, uh, because our buildings are quite old, uh, when we think about the housing stock

14:59in America and that housing stock is not prepared for, for the wave that is coming. That's the silver

15:05It's really not. So I live in a new build community. And, um, what, what I see is that

15:11they have a certain number of homes that have to be, um, say ACA compliant, whatever that looks like.

15:18But like my house, uh, they, they did, they made a design design decision to bring in the doorways

15:24in this, like, it does look kind of cool, like the doorway, but it makes stories. There's no way

15:29you could get a wheelchair through that. I don't even know if you could get a walker through that.

15:33And so you go, okay, I mean, you know, there are people who live in those homes now that like

15:3710 years or for me, you know, who knows what that timeframe looks like, but, but those, those homes

15:42were, you know, not designed for that, which I think is a real miss because yeah, you know, people,

15:47if you want them to age in place, you can't just be like, well, 2% of the homes that

15:51we build, uh,

15:52you know, are already equipped for that. It's like, okay, well, more than 2% of the people are going

15:56to age in

15:56place. Right. Right. When we look at the expectations of older home buyers who are, uh,

16:02baby boomers, they're planning on living in their home for 15 years. If not, this is my forever

16:07home and I'm never moving from this property. And so what considerations are they making as

16:12they're moving in? And it's not just them as home buyers. It's also thinking about multi-generational

16:17buyers, people who are taking in their aging parents, which is really the leading reason to

16:22purchase a multi-generational house. How many of those home buyers who are perhaps are Gen X or even

16:28older millennials are making these considerations when they're in their forties and fifties. And I,

16:33I think it's probably not likely until they're in a situation where suddenly, yeah, I have an older

16:39relative moving in and this is a real consideration. Let's talk about the home equity that, that people

16:44have, right? Like, um, I think this is one of those questions that, um, in the past, if people had

16:50this

16:50level of home equity and we saw people kind of using their houses as like ATM machines, right. And they're

16:57the great financial crisis. Things are very different today. First of all, um, I think that

17:01people, if you own a home and you have that home equity, you're probably in pretty good shape.

17:05Um, but also I think people are more reticent just in general, after, after that sort of situation,

17:10after seeing that, even if they didn't go through it themselves, but just the whole, um, great financial

17:16crisis has made it less than, I mean, cause we thought that people would be tapping that home equity at

17:21much higher rates than they currently are. Yeah, certainly. And I think a lot of people may be

17:26reticent to do that. Uh, but we do know overall that if we look at the U S over the

17:30last five years,

17:31the typical homeowner has gained 50% housing equity in just five years. That's unheard of

17:37in any other timeframe, right? So we can see just the wealth that has being built, but it's not, uh,

17:43universal. So if we look at Maine, for instance, we're looking at an 80% gain, um, in Montana and

17:49Florida,

17:50you're looking at about 70% gains in housing equity in just five years. So there's some

17:54really strong places that had enormous migration flow, uh, have limited inventory. The inventory

18:01that they have is what they had. When you think about Montana and Maine and people moved there

18:06and they wanted to own a property there and it really built out that housing equity. That being said,

18:12I will say the flip side of all of that is local residents who may have been diligently saving for

18:18a

18:18home. That's brought it so far out of reach. And with the qualifying income, just under a hundred

18:24thousand dollars to purchase a home. Uh, I, we can all imagine a scenario where someone was really

18:30trying to save and get into homeownership and is really struggling to get. So it, you know, it's,

18:35uh, I felt like before the pandemic, there was a lot of conversations about like, um, more like timing

18:40the market or like, is it, is it more expensive to rent or buy or like, should you wait? And

18:45we talked a lot

18:45back then about, you know, it's really hard to outrun the market on your savings. Like if you

18:51don't jump in now, like, how are you going to be saving for that house? That's going to, you know,

18:55be so much more expensive two, three years from, and of course, you know, we couldn't have seen what

19:00would happen in COVID when, when those, uh, when home prices, I mean, in Dallas just rose in a way

19:06that we, we had never seen before here in this area. Sure. I mean, we like to pick on Austin

19:11because it,

19:12it rose 45% year over year. I think it was the worst, uh, the most difficult month, uh,

19:19when we look at home prices, but it is, it's Austin, it's Houston, it's other places in Texas.

19:24There was a huge push for many companies to move there. Uh, and the tax benefits for those companies

19:30certainly attracted the workforce, but it's very hard to imagine, uh, being there and watching that

19:37happen if you were diligently saving and trying to enter into homeownership. Absolutely. Well,

19:41Jessica, thank you so much for being on. Always great to catch up with you. We appreciate you so

19:46much. And, um, we look forward to home buying this spring and, and hopefully having some better

19:52numbers. Absolutely. I, I truly do think that there's a lot of metrics that are on the side

19:58of the home buyer when we think about this spring market. And I think there's a lot of sellers who

20:02are

20:02getting antsy and they may be ready to make that move now. So hopefully we'll see that, uh,

20:07really translate into a better spring housing market. I love it. Thank you so much. Thank you.

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