\n<\/p>\n
Another housing market<\/strong><\/a> \u201cfrenzy\u201d<\/strong> is much more likely than many of us thought. With the traditionally slow fall\/winter season upon us and housing inventory gradually inching up, home buyers could get a much-deserved break. But this won\u2019t last for long. The long-term outlook on the housing market isn\u2019t looking good<\/strong> for buyers, and many Americans will be forced to rent as a result.<\/p>\n So, what could cause the next home buying \u201cfrenzy\u201d?<\/strong> We\u2019ve got Clayton Collins<\/strong>, HousingWire CEO<\/strong>, on the show to give his take. HousingWire has been acquiring data and research companies as fast as possible, trying to build the most perfect picture of the housing market available. And right now, it looks great for sellers but not buyers.<\/p>\n With inventory still in the gutter<\/strong> and mortgage rates at a twenty-year high, homeowners will only consider selling once rates have dropped. But won\u2019t lower rates flood the market with eager home buyers<\/strong> all over again? We\u2019ll get Clayton\u2019s opinion on what could fix the inventory shortage, when mortgage rates could drop<\/strong>, real estate markets with the best chances of price cuts, and what to watch out for in 2024.<\/p>\n Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: Clayton: Dave: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Hey, everyone. Welcome to On The Market. This is Dave, your host. Today, we are going to be joined by one of the OG data and market media people in this entire industry. His name is Clayton Collins. He is the CEO of HousingWire Media. If you\u2019re not familiar with HousingWire, they\u2019re one of the biggest housing market media companies in the industry. They don\u2019t focus really on investors like we do here at BiggerPockets. They focus on the broader marketplace, so mortgage lenders, real estate agents, a lot of those types of things. But Clayton and his team, they have been acquiring data companies actually over the last couple of years, and so they have some of the most cutting-edge data of any of the sources out there.
So, today, I\u2019m having Clayton on to talk to him about some recent changes that we\u2019ve been seeing in the market. So, inventory, as you all know, is a really big issue this year, and they have some of the most up-to-date information about that, so I\u2019m eager to talk to him about if there\u2019s a shift going on as we go into the winter because I\u2019m starting to feel one or sense one, and I\u2019m curious to see what he\u2019s seeing. We\u2019re also going to talk about Clayton\u2019s predictions for mortgage rates, and I know this is something people really want to know, so I\u2019m going to talk to Clayton and get his opinion about where mortgage rates are going to go and why.
I know we all like to prognosticate, but there are some really important macroeconomic trends and technicalities that go on behind the scenes that Clayton knows a lot about and is going to help share with us today. So that\u2019s what we got for you today. It\u2019s going to be an awesome show. It\u2019s a lot of fun. Clayton is really great at explaining some really important topics in the housing market. So we\u2019re going to bring him on in just a minute here. But first, we\u2019re going to take a quick break.
Clayton Collins, welcome to On The Market. Thanks for being here.<\/p>\n
Dave, it\u2019s my pleasure. Thrilled to be your guest today.<\/p>\n
Well, yeah, this is going to be a lot of fun. For people who don\u2019t yet listen to the HousingWire Podcast, can you tell us a little bit about yourself and your work at HousingWire?<\/p>\n
Yeah, happy to. So I\u2019m the CEO at HW Media where I have the pleasure of leading our HousingWire team. At HousingWire, we\u2019re focused on providing housing professionals from real estate brokerage, and agents to loan originators, and mortgage capital markets leaders, loan servicers with the full picture of the housing economy. So we have a team of editors and reporters that cover everything that happens in housing from housing market and interest rate news to the movement of people, and companies, and M&A, and innovation. Everything that happens in housing.
I came into this venture, and I\u2019ll tell you more about my background, Dave, more as a banker type, but somehow I got sucked into hosting a podcast. Now, I\u2019m the host of the Housing News Podcast. So, each week, I interview different executives in the housing industry from mortgage bank CEOs to economists about what\u2019s happening in their world. We keep it like a board level conversation and talk about some of the tougher topics that they don\u2019t always get to talk about, and I try to pull out some of that juicy knowledge in this really fun format that I think you and I have both grown to love.<\/p>\n
Oh, for sure. Yeah, and it\u2019s a great show. I do listen often, and you do get excellent guests, so I definitely recommend it.<\/p>\n
I appreciate it.<\/p>\n
One of the other things you didn\u2019t even touch on, and I\u2019ve been following HousingWire for many years, is that recently, you acquired Altos Research, and we have had their founder, Mike Simonsen, on the show. He and I are friendly as well. Now, you guys are tracking some of the most up-to-date housing market data, honestly, there is that I see. Can you just tell us a little bit more about what you all are looking at?<\/p>\n
Yeah. So, Dave, I appreciate you asking about that. Altos is an important part of that phrase I use, \u201cThe full picture.\u201d So we believe that business news and business content is on a constant evolutionary cycle that\u2019s leaning more and more toward data-enriched content, and research, and proprietary information, and narrative-driven journalism and storytelling is an incredibly important part of a data-rich ecosystem. It\u2019s how professionals consume information. But we know for us to achieve what we want to achieve at HousingWire by being the full picture, we need experts like Mike and data like we get from Altos to really color that picture.
Altos tracks 100% of active listings in the country. So we like to think of Altos as the most real-time source of data for what\u2019s happening in the active real estate market. So we\u2019re watching every active listing, every price change, every pending, all the data that drives market intelligence, and our users, which are primarily real estate agents, title professionals, and loan originators, use that information to better inform their home buyers, and sellers, and referral partners.
So we take all this active market data, and decipher it down, and cleanse it, and make it understandable so professionals at the local level can be the expert in their market and know exactly what\u2019s happening in their zip code, or their city, or their neighborhood. We have some really cool visualizations of data and the health of the market we call Market Action Index, and we bring all these tools directly to the professionals that are working with home buyers and sellers every day, and make it easy for them to understand what\u2019s happening in housing.<\/p>\n
Yeah. Great. I mean, I totally agree with the value proposition. It\u2019s the whole idea behind the show as well, that we need more narrative data-driven information in today\u2019s world, and you guys are doing a great job at it. Just for anyone listening, you can check it out. A lot of it is just available on HousingWire. You can go check it out right there, but tell us, Clayton. What are you seeing right now because inventory has really been the story of the year? It\u2019s the word of the year in real estate, I guess, but things are starting to look a little different as we\u2019re heading into Q4. What are you seeing?<\/p>\n
Yeah. I mean, it\u2019s been an incredibly\u2026 I don\u2019t want to use the trite term of challenging market. It\u2019s been a complicated market, Dave. So, over the last year and a half, we\u2019ve seen interest rates, mortgage interest rates grow at a faster pace than we\u2019ve seen at nearly any time in history, and we\u2019re at a point right now where interest rates are at 20-year highs, and that creates some really challenging dynamics in the market. In most environments where interest rates expand this quickly and reach multi-decade highs, you\u2019d start to see some serious pain in the underlying asset, and you\u2019d start to see home prices decline. But there\u2019s this other dynamic, and it\u2019s that word that you just mentioned, \u201cinventory,\u201d that\u2019s made this challenging market more so of a complicated or complex market.
So, depending on the research you follow and the analysts that you trust, there\u2019s a view that we\u2019ve been underbuilding in the US for at least 13 years, and household formation has far outpaced new inventory coming to market. So we have this demographic push of first-time home buyers and people that are forming households that are creating demand in the US housing economy, and we just haven\u2019t kept up. That undersupply has created an inventory constraint, and despite the pressure with mortgage interest rates, we\u2019ve seen home prices hold up. In most markets, home price appreciation has continued, and it creates this really unhealthy dynamic where first-time home buyers, repeat buyers all face affordability challenges finding the home that they want, and it creates a pretty funky scenario in the residential housing ecosystem.<\/p>\n
Yeah. Definitely. I mean, I think we\u2019re all getting used to this low inventory situation.<\/p>\n
Yeah.<\/p>\n
Do you see anything in your data or just in your own opinion that would increase supply? We talk a lot on the show about demand because that seems more variable, but I\u2019m having a hard time. I\u2019ve been asking a lot of guests this. Do you think anything will change the supply picture through the end of this year maybe into 2024?<\/p>\n
Do you want me to hunt for silver linings or-<\/p>\n
Sure. Do whatever you want to do.<\/p>\n
No. I think the reality is I do not see a dynamic that changes the inventory or supply situation drastically in the foreseeable future. I think we\u2019re looking forward at a multi-year, potentially multi-decade market where we operate in a lower inventory, lower supply, supply-constrained market. Now, we know coming out of COVID in a market that moved incredibly quickly to the upside in terms of volume, and then now this interest rate increase that year-over-year metrics are hard to track, and there\u2019s going to be noise in every measure where we\u2019re looking at month-over-month, year-over-year even normalizing for COVID. There\u2019s a lot of noise in year-over-year metrics.
So, today, as we sit in fall of 2023, we\u2019re watching the Altos Research data, and we\u2019re seeing that inventory today is still 5% lower than inventory of last year despite the fact that we\u2019ve been watching inventory increase each week for the last several months. So we start to see this trend where more inventory is coming available, and that\u2019s coming available because days on market is extending. So homes are not moving as quickly as interest rates approach this 7.5%, 8% range. So homes are sitting longer, so inventory is building. Now, the easy headline there, the housing bear, the bubble boy persona, our analyst, Logan Mohtashami, would-<\/p>\n
Yeah, we\u2019re big fans of Logan.<\/p>\n
Yeah.<\/p>\n
I love Logan. His terminology is hilarious.<\/p>\n
Yeah. He\u2019s a genius when it comes to colorful terminology. Some of the players in this housing ecosystem that we operate in. So, the bubble boy mentality. It\u2019d be like, \u201cOh gosh, we\u2019re looking at multi-months where every single week, inventory is climbing. This is a problem brewing.\u201d But we\u2019re still sitting at a place with 5% fewer homes than last year, and I\u2019m not armed with the data as we come into this conversation, Dave, but we\u2019re significantly lower than we were at almost every point pre-COVID in terms of what normal housing inventory levels look like.<\/p>\n
Oh, yeah.<\/p>\n
So I\u2019m going to warn you right now. Someone is going to write a headline and saying like, \u201cInventory is climbing. Home prices are getting slashed. We\u2019re heading into a bubble, a turbulent market. It\u2019s all going to blow up.\u201d Our data does not show that. We show that we are climbing, but we\u2019re climbing back toward a slightly healthier place, slightly healthier, but we are still in a savagely unhealthy housing market, and that unhealthiness is fueled by low inventory and affordability challenges that are complicated by mortgage rates and home prices.<\/p>\n
Yeah. I think it\u2019s super important for people to pay attention to not just the percent change, but the absolute numbers when they\u2019re looking at some of this data because there is something\u2026 As we\u2019ve gone over on this show a little bit is that there\u2019s something called the base effect. When you\u2019re comparing this year to an anomalous year like last year, then data looks a little bit crazy. But if you zoom out a little bit and look over 5 years or 10 years, you can see that historically, inventory was much higher than it was even today even though it has started to increase.
Now, this is a good segue to one of the things I wanted to ask you because in certain markets, we are starting to see inventory approach or even exceed pre-pandemic levels. These are some of the COVID boom towns like Boise and Austin, I think Vegas and Reno, or those profile, but some of those markets have actually steady\u2026 been okay over the last few months even though they were previously in a correction. Do you see any change in demand or any downward pressure on prices in those markets?<\/p>\n
Yeah. So we published some research based off of data from CoreLogic on some of the markets that are most likely to see a price decline, Dave. What we\u2019re seeing in that data is that there\u2019s different drivers in all of those markets. So there\u2019s markets, like in Ohio and Pennsylvania, that are being driven by lack of population growth and lack of job growth, and then there\u2019s markets in Florida or as we think back to the phrases of the last crisis, the Sand States just saw rapid appreciation in prices, and it\u2019s more so of a normalization than a\u2026 but a normalization that will still sit significantly higher than the base rate of pre-COVID.
So there\u2019s different drivers on what we\u2019re seeing in each market. I think we saw a lot of exuberance and over-ask offers in certain markets that were really popular during COVID, particularly in states that had a better lifestyle, more lax enforcement of some of the COVID restrictions, no state income taxes, the things that attracted people over the last couple years. Some of those states are going to see a slowdown in home price appreciation, and certain markets may even see some declines in prices, but I think it\u2019s very much\u2026 It\u2019s hard to quantify those as bubble markets or crisis areas. It\u2019s just a volatile pricing ecosystem that saw a fast run-up and is trying to find the equilibrium point.<\/p>\n
Yeah. It\u2019s weird because it feels like there was this correction, at least a modest correction on a national scale. It was more pronounced in these types of markets. About a year ago in Q4 of 2022, maybe into Q1, and then things got better at least from a price perspective if you\u2019re someone who wants high prices. I think certain investors of our investors don\u2019t want high prices.<\/p>\n
No.<\/p>\n
Now, it feels like\u2026 and things got better, and I think a lot of people are starting to think, \u201cAll right. We found a bottom.\u201d To your point, there\u2019s this pricing exercise that\u2019s going on like, \u201cWhat is real? What was COVID exuberance or this massive change in migratory patterns?\u201d But now, it feels like we\u2019re going\u2026 To me at least, it feels like we\u2019re going back into the pricing exercise because rates just won\u2019t slow down, and now we\u2019re accepting\u2026 I feel like in the last two or three months, there\u2019s finally market-wide acceptance that the Fed is not bluffing and that they are going to keep rates higher for longer, and we need to all deal with this. Now, there\u2019s going to be this second pricing exercise that goes on.<\/p>\n
Let\u2019s not even call it a pricing exercise. Let\u2019s call it the way markets are supposed to operate.<\/p>\n
That\u2019s true. Yeah. That\u2019s literally a market.<\/p>\n
When cost to capital goes up, there\u2019s pressure on asset prices.<\/p>\n
Yeah.<\/p>\n
So we primarily look at the housing economy through the lens of the residential homeowner, and I know the BiggerPockets audience inclines much more toward the investor category. So it\u2019s a different lens, and there\u2019s a little bit of different analysis that goes into the right time to buy or sell when you\u2019re looking for a roof over your head or an asset that produces yield. But the secret on the investor side is understanding the national headlines and that over the last 12 months, on a national level, we still saw close to 4% national home price appreciation. Over the next 12 months, we expect 3% to 3.4% home price appreciation, but where are the deviations from that?
The article that you spotlighted and asked me about, where home prices are supposed to fall, that volatility, I think, is where opportunity will be found, and this interest rate environment definitely puts pressure on pricing standards. I think that does create an opportunity for home buyers and investors alike. I\u2019m not sure we\u2019re going to\u2026 We\u2019re not going to preach the \u201cmarry the house, date the rate\u201d thesis, but you do have to think about winter market environments, when it\u2019s a good time to buy winter market environments, when it\u2019s a good time to hold, and high cost of capital markets often create downward pressure on asset prices which is something I\u2019m paying attention to.<\/p>\n
Yeah, yeah. Absolutely. That\u2019s a very good point, and I\u2019m curious. You said what? 3% to 4% growth over the next 12 months, is that right?<\/p>\n
Yeah. I mean, we\u2019re talking about this, the CoreLogic home price article, so I\u2019m hinging on their estimates.<\/p>\n
Okay.<\/p>\n
There are some pretty wide estimates. I mean, we still have investment banks that are forecasting negative home price appreciation, but most of the housing economists that are watching are looking at that 3% to 4% range on a national level.<\/p>\n
I\u2019m curious. It must all be on rate declines, right? I guess I just don\u2019t see how prices keep going up personally, unless rates fall, so they must, and there\u2019s a good chance rates do fall next year. I\u2019m just saying that must be why.<\/p>\n
Great qualifier there, Dave. I think every housing economist that I\u2019m following is forecasting lower rates by the end of 2024. Now, wishful thinking, optimism, fact. I don\u2019t know.<\/p>\n
We don\u2019t know.<\/p>\n
I think long-term interest rate forecasting is a fool\u2019s game, and there\u2019s no win there.<\/p>\n
It\u2019s so hard. Yeah. Yeah. Just when we were starting to settle in the mid-sixes, everyone was starting to get comfortable with it, then bond yields just started going crazy in the last month. It\u2019s like no one even really knows. Yeah, we\u2019ve had good jobs data, but no one really even fully understands why bonds have just run up. There\u2019s this huge sell-off going on right now.<\/p>\n
I mean, a big reason why mortgage bonds are\u2026 the spread is so wide is the Fed is not buying.<\/p>\n
Yeah.<\/p>\n
We have a long-term\u2026 Look back at the last decade, spread between the 10-year and 30-year fixed rate mortgages was 130, 140 basis points. We\u2019re sitting at 300 right now, and that is because of the Federal Reserve. The Federal Reserve is not just controlling interest rates, they\u2019re also controlling the throttle on buying mortgage-backed securities, and that\u2019s creating incredible pressure in the capital market\u2019s ecosystem which arguably is more impactful on the price that consumers and investors are paying for debt than even some of the interest rate moves.
So the Federal Reserve is having a big impact on spreads right now, and that\u2019s something that can be fixed. If we start to see a normalization of mortgage-backed security buy-in, the bond market starts to operate as it should, and banks and the Federal Reserve start coming back into the market and buying mortgage-backed securities, we\u2019re going to see a massive change in the 30-year fixed rate mortgage for the better. But right now, you want to know who\u2019s buying mortgage-backed securities? Nobody.<\/p>\n
Yeah. Exactly.<\/p>\n
That is a dead market, and that\u2019s creating a really big spread.<\/p>\n
Yeah. So just so everyone understands what we\u2019re talking about here. If you\u2019re not familiar, mortgage-backed security is basically when people bundle a bunch of different mortgages, and they\u2019re sold on markets to investors. For much of the last, whatever, 15 years or so, one of the biggest buyers of mortgage-backed securities has been the Federal Reserve. As part of their effort to do \u201cquantitative tightening\u201d to reduce the monetary supply, they are reducing the amount of bonds that\u2026 or excuse me, of MBS, mortgage-backed securities that they are buying.
One of the major drivers of mortgage rates, as Clayton just alluded to, is the spread between the 10-year yield and mortgage rates. Normally, like you said, it\u2019s about 1.5% or 150 basis points. Now, it\u2019s about double that, and the spread is due to a lot of different complicated things, but one of the main things is demand for mortgage-backed securities. That is a major driver of the spread, and as demand goes down, prices for these mortgage-backed securities go down, and that sends yields and interest rates up. So hopefully that makes sense, but I totally agree with you, Clayton, that that is a very complicating factor in this entire scenario and maybe one of the reasons for optimisms that rates will come down because mortgage rates could come down without the federal funds rate falling.<\/p>\n
What happens if mortgage rates start to come down? Demand on MBS will, we anticipate, will pick up. So, at the same time, as rates coming down, the spread will narrow, and rates will come down even faster. So one of the reasons the spread is so wide right now is because who wants to buy a tranche of mortgage-backed securities at a 7.5% or 8% rate? Those loans are going to get refied so fast, so investors need to get paid off quickly. So they\u2019re demanding a really\u2026 There\u2019s pricing pressure on the mortgage-backed security portfolio because the loans are going to get refied the second we see a change in interest rates. So the owners of those mortgage-backed securities need to get paid fast. In the first year or two, they need to make their margin on the security, and that\u2019s one of the other reasons why there\u2019s a lot of pressure on the spread between the 10-year and tranches of 30-year fixed rate mortgages. So there\u2019s a potential for this market to move really fast in the other direction.<\/p>\n
Interesting. Yeah.<\/p>\n
But we just haven\u2019t found that precipice point where there\u2019s willing buyers in the market. If the Fed is not buying, banks aren\u2019t buying, and we sit at this stalwart standoff right now where nobody is buying mortgage-backed securities, consumers don\u2019t want to buy houses at 8% rates, yet there\u2019s still an inventory crisis, so home prices hold high. It\u2019s interesting.<\/p>\n
Yeah, it definitely is interesting, and I\u2019m glad you brought that up because I think for some people, it\u2019s illogical that you wouldn\u2019t want a 7% mortgage rate because as a bank, you would think higher mortgage rates equals higher profit. But as you clearly stated, Clayton, that these loans are not going to be held for a long-term. At least that\u2019s the overwhelming belief, is that rates will come down eventually, and that everyone with a 7% or 8% mortgage is going to refi into a 5% or 6% mortgage, or whatever it comes down to.
Then, a lot of residential mortgages don\u2019t have prepayment penalties or anything like this, and so that the only way that a bank makes money is by charging a higher interest rate upfront, which is exactly what they\u2019re doing. So this is getting a little technical, but it really matters because everyone wants to know where mortgage rates are going, and a lot of people just look at the Fed and they\u2019re like, \u201cOh, the Fed is doing this. The Fed is doing that.\u201d That does impact things, but there is this whole other bond market, MBS market that is playing a huge, huge role in mortgage rates right now. So hopefully this helps everyone learn a little bit about it.<\/p>\n
Prepayment is an important topic. So mortgages are one of the only securities out there that do not have any type of prepayment penalty. It\u2019s a unique part of our US housing economy. So if you\u2019re a bond trader or a fixed income investor, and you can get yield from corporate debt that has prepayment penalties and will have longer duration, that\u2019s a much better investment right now than the 30-year fixed rate mortgage that we know is going to get refied, and MBS holders are going to get taken out. So it\u2019s a complex factor there, but perhaps a better place to spend time than pontificating about where rates will go, it\u2019s like what happens when rates move?
Dave, one of the things that we\u2019re thinking about\u2026 Concerned, thinking, optimistic. It\u2019s a weird concentric circle right now, but if rates do move downward at a significant rate, that will be the precipice for more inventory coming to market because home buyers are home sellers. So as soon as the homeowner starts to feel confident and that move-up decision or relocation decision, that repeat buyer is going to come back in the game, that will create more inventory because they\u2019ll sell their prior home, which is a good thing. It lubricates the market and creates volume for the industry, but what it\u2019s also likely to do is put some wind in the sails of home price appreciation again. So if we see interest rates make a significant move beneath seven into the sixes, and God forbid, back into the fives, I think we\u2019re going to see home price appreciations shoot back to the teens, and we\u2019re going to be back in a precarious situation where we\u2019re talking about affordability issues again.<\/p>\n
Wow.<\/p>\n
This time, driven by the price of the asset, not so much the cost of the capital.<\/p>\n
Interesting. Wow. Do you think there is an inflection point there where it would get that high in appreciation in terms of rates?<\/p>\n
There is an inflection point there.<\/p>\n
Yeah. I mean, I\u2019ve seen some data from a John Burns real estate or research and consulting, and Zillow say it\u2019s about 5.5% I think is the spot.<\/p>\n
I think that\u2019s too low. I think the market is a full-on frenzy at 5.5%.<\/p>\n
I do, too. That makes sense.<\/p>\n
I think we have a very functional housing economy at 6%. If we dip back to the fives, I think we are in frenzy land.<\/p>\n
We\u2019re in trouble. Yeah.<\/p>\n
We keep talking about these first-time home buyers. First-time home buyers are not anchored or hinged to 3% loans because they didn\u2019t get them. They might\u2019ve heard about it, but they\u2019re not like me who has a two handle on their mortgage, and it\u2019s never going to go anywhere.<\/p>\n
Yeah. They weren\u2019t getting underwritten, and they saw what their monthly payment would have been.<\/p>\n
Yeah. So they\u2019ll be a little bit disjointed. Their nose will be a little bit out of whack, but they\u2019ve never had access to that cost of capital. I hope they don\u2019t ever again because we know what happens with\u2026 3% cost of debt means that we are in a world war with a national pandemic and some really bad stuff happening in our global society.<\/p>\n
Right. Yes.<\/p>\n
I mean, I don\u2019t want to forecast for that or bet for that because it\u2019s not a good thing.<\/p>\n
Yeah. You and be both. Yeah. It\u2019s interesting though because\u2026 I wonder though. The big question to me is what you just brought up, and I\u2019m glad you did, is that in traditional times, you see this scenario where when there\u2019s softness in the housing market, inventory goes up. This is clearly not what\u2019s going on in this market, and so your assumption, which I assume too, is that the reverse is going to be true, that when rates fall, the supply and new listings at least will start to increase. If it happens proportionately or not I think is a really big question. If we\u2019re going to start to see maybe more demand or maybe more supply, or how much supply comes online is still just such a big question. I could see exactly what you\u2019re talking about, or I could see, in some ways, demand just coming back online without as much proportionate supply, which would lead to this sort of frenzy you\u2019re talking about as well.<\/p>\n
Yeah.<\/p>\n
So I think it\u2019s a big thing to watch if and when rates do come down.<\/p>\n
If we\u2019re going to connect the whole picture and we see this environment where inventory starts coming back and interest rates are palatable, then we start to see an environment where the interconnectivity between the ownership market and the rental market starts to get more attention. So I think we\u2019re in a point right now where for first-time home buyers, homeownership has become inaccessible due to asset price and cost of capital. So potential first-time home buyers are choosing to continue as tenants and continue renting.<\/p>\n
Yeah.<\/p>\n
In the last week, we\u2019ve seen headlines in the Wall Street Journal, we\u2019ve seen narratives from the National Association of Realtors about potential first-time home buyers extending their leases. I think there\u2019s even some YOLO-type headlines in the Wall Street Journal about people saying, \u201cI took that house down payment and went to Europe and just chose to travel.\u201d So there are some people\u2026 Now, we all know how some of those article sources are developed. It\u2019s not always representative of the whole population, but there\u2019s a narrative that some folks who had homeownership in their sites are just backburnering that, and they continue on renting, and go on and live their happy life. But that title turned at a certain inventory level, on a certain interest rate level where those renters decide, \u201cHey, homeownership is now back in my option pool, and I\u2019m going to make that jump.\u201d
So, ultimately, it all comes back to demographics, and we have a very strong demographic wave of 20-somethings and early 30-somethings that are either forming households today or form households in the near future, and it doesn\u2019t matter what happens in the financial markets, the interest rate markets. We do not have housing supply to meet the demand of current demographics. So those people are either going to own or they\u2019re going to rent. There\u2019s going to be demand on either side, and there\u2019s going to be movement between the two, and that\u2019s going to be driven by interest rates.<\/p>\n
Yeah. That\u2019s going to be very interesting for us, for our audience in particular because I think it points to the idea that their rents could start growing again, too. We saw this crazy rent growth, and it\u2019s really flattened out. But if this scenario that you\u2019re describing does unfold, it would point to further demand for rentals, and I could definitely see that happening. There\u2019s definitely a logical path where that could happen.<\/p>\n
The crazy thing with the rent market is it\u2019s a lot more feasible to change the volume of rental inventory faster than it is the volume of ownership inventory. So multifamily developers have been able to bring a lot of inventory to market really quickly at a pace that home builders cannot. So the rental market has more control of their own future than I think the homeownership market does for better and for worse.<\/p>\n
That\u2019s interesting. Yeah.<\/p>\n
Overbuilding can happen fast, and inventory problems can be created or solved. I would defer to you, Dave, on where you think we are in that cycle.<\/p>\n
Multifamily is not looking great, I mean, from an oversupply perspective like we\u2019re seeing\u2026 I think in Q3 of 2023, we\u2019re going to see by far the highest delivery of units ever at a point where it\u2019s already starting to soften, and it looks like we\u2019re going to have above-average deliveries for\u2026 I don\u2019t have the data in front of me, but I think we have above-average deliveries, and that just means new units coming online for at least another year. So I think this is going to create a very interesting situation for multifamily where rents are already getting soft, cap rates are rising, there\u2019s an influx of supply. It\u2019s why I think on our show we\u2019ve been saying that multifamily values were going to drop quite a bit, and I still think that\u2019s true, but probably a conversation for a whole other podcast.<\/p>\n
Yeah, it\u2019s a complicated ecosystem, and multifamily capital is important. I think that some of the same banks who have been supporting multifamily developers and operators both at development and lines of credit are going to start filling some of the\u2026 They have exposure to the office market as well, and there\u2019s going to be some pressure on access to debt and access to credit lines, and starting to see that pop up in the ecosystem already.<\/p>\n
Definitely. It, honestly, unfolded a little slower than I was expecting, but I think that will be a major story in 2024.<\/p>\n
So we\u2019re not going to convert all the office buildings to apartments, right? Are we doing that?<\/p>\n
I wish. I mean, they keep talking about it, but from everything I look at, it just says it\u2019s not really as feasible or as easy as people want it to be. So it would be nice. But before I go, Clayton, we\u2019re talking about stories for 2024 with your media business here. Are there any other stories in 2024 you\u2019re looking forward to or think are going to be particularly interesting?<\/p>\n
Yeah. I mean, I think housing is interesting from media perspective because it\u2019s a sector that goes through rapid change, and our mission and vision is to provide the full picture to housing professionals. I think as a media and data business, we\u2019re more important than ever in a period of change. So I\u2019m excited to support our audience and support our users as we go through a volatile market. It\u2019s sad and disappointing that we\u2019ve seen a lot of really qualified and really successful professionals exit the industry with volume down in real estate and mortgage. We\u2019re going through a wave right now where there\u2019s a pretty notable reduction in force, in the number of people that are part of this industry.<\/p>\n
Yeah, staff.<\/p>\n
It\u2019s sad and painful to watch, but it\u2019s also a really important inflection point in residential real estate. We\u2019re watching volumes come down, but we\u2019re also watching change at the national level. Some pretty headline lawsuits happening around real estate agent and broker commissions. Depending on the outcome of those, and there are some pretty varying viewpoints there, it could be a precipice for major change in the way that homes are bought and sold, and potentially could open the door to a very strong innovation wave.<\/p>\n
I like the sound of an innovation wave. I\u2019m not hoping for anyone to lose their shirt, but hopefully, it\u2019s an innovation wave that raises all ships.<\/p>\n
Yeah. No. Innovation waves. There\u2019s winners and losers, but ultimately, this industry is built to support the homeowner, and the changes that we\u2019re seeing in market right now, as painful as they may be, do seem to point to a more efficient and economical solution toward homeownership. That\u2019s going to come with technology. It\u2019s going to come with faster and more free access to data, and knowledge, and information, but hopefully, it creates a faster-moving, more easily accessible housing economy that\u2019s great for homeowners, and then ultimately, still is a very fruitful place to do business for lenders, real estate professionals, and then folks like you and I who operate in the ecosystem.<\/p>\n
All right. Great. Well, I trust you all will be covering this closely. If anyone wants to follow Clayton and his team\u2019s work at HousingWire, you can find them at housingwire.com. Clayton, thank you so much for joining us. We appreciate it.<\/p>\n
Dave, it\u2019s my pleasure. Thank you.<\/p>\n
On The Market was created by me, Dave Meyer, and Kaylin Bennett. The show is produced by Kaylin Bennett with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.<\/p>\n