Mike Simonsen is the founder and president of real estate analytics firm Altos Research, which has provided national and local real estate data to financial institutions, real estate professionals, and investors across the country for more than 15 years. An expert trendspotter, Mike uses Altos data to identify market shifts months before they hit the headlines.
In this episode of the Top of Mind podcast, Mike Simonsen sits down with Jessica Lautz, Deputy Chief Economist and Vice President of Research at the National Association of REALTORS®, to talk about the big trends shaping the real estate industry.
Jessica shares why NAR expects home prices to edge up over the next year, talks about her model for forecasting mortgage rates (and whether we should expect 8% mortgage rates in the future), and surfaces some surprising trends about millennial homebuyers. She also offers insights from NAR’s study on Adaptive Reuse: how to turn empty office buildings into housing.
About Jessica Lautz
Here’s a glimpse of what you’ll learn:
- Why NAR expects home prices to edge up over the next year
- Which stats demonstrate demand has been greater than supply
- Her model for forecasting mortgage rates
- Whether we should expect 8% mortgage rates in the future
- Why NAR uses surveys and focus groups in addition to tracking properties to gain insights into the market, and what they’re learning now
- Surprising trends about millennial homebuyers
- What the current household formation rate means for housing in the near future
- Which stats she looks at that housing analysts don’t normally track
- Insights from NAR’s study on Adaptive Reuse: how to turn empty office buildings into housing
- The dangers of the TikTok housing analysts and why everyone keeps expecting a crash in home prices
- NAR's view on affordability and the future of housing affordability in the US, and her take on what housing looks like over the next decade
Resources mentioned in this episode:
- Connect with Jessica on LinkedIn
- National Association of Realtors
- Mike Simonsen on LinkedIn
- Altos Research
About Altos Research
The Top of Mind Podcast is produced by Altos Research.
Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.
Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.
Welcome to the Top of Mind podcast from Altos Research. This is the show where we talk to real estate industry insiders and experts about the trend shaping the market today. Enjoy the show.
Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. For years now, we've been sharing the latest market data Every week in our weekly Altos research video series, the Top of Mind podcast, we like to add context to the discussion about what's happening in the market from leaders in the industry. Every week, of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data, and we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. The market was frozen so solid last fall, and then the landscape changed suddenly again this spring. So what happens next? If you need to communicate about this market to your clients, go to altos research.com and just book a free consult with our team.
We'll review your local market and how you can use market data in your business and speaking about market data and communicating with market data for agents and brokers, I have a terrific guest today, Jessica Lots. Jessica is the Deputy Chief Economist and vice President of research at the National Association of Realtors. The core of her research focuses on analyzing trends for both our members and for housing consumers, and she uses surveys, focus groups, data analysis, and then presents the new and innovative ways to showcase the results. I love Jessica's work both in understanding but also communicating market data. In 2021, Jessica was named one of Housing Wire's Women of Influence. She's also been named the Riz Media Newsmaker Influence and Crusader Categories respectfully. So Dr. Jessica Lots welcome. Thank you for joining me.
Thank you so much. I'm really excited to be here. I know we have been connected on social media for a long period of time, so this is really great to be here and have this conversation,
But we've never really had a chance to talk.
Great. Well, I'm going to dive into the data and also process, and I'm interested in the work that you do and also what we're seeing in the market right now. What a crazy time to be in the real estate market. So first though, tell me a little bit about your background, how you got into business, what your journey looked like to get you here.
Yeah, so I really am a researcher. I have been working in research now for about two decades, not to date myself too much, and I have been here at N A R actually 2007, and now I manage a team of folks who do surveys, who do focus groups, who do individual interviews. They really understand what is going on and what the pulse is, what people are feeling. We're trying to get that information out there to consumers, to agents and brokers so that they can be educated as they go into the market so that everyone has the tools at hand.
Nice. And you are an economist.
How did you, you focus on housing?
So when I started N A R, it was 2007. It was a very, very interesting time to start here at N A R at that period, and I learned very quickly how integral housing is into the entire economy. It's nearly a fifth of the entire economy. So when we look at this, we have to know just what a huge impact it has and it's not just the place where everyone calls home. It also is a huge driver in local communities of what that means. Do you have a solid job market? What does each home sale mean? Well, it actually translates into more jobs. It translates into a stable community. It translates into stable housing. And so I really fell in love with it and it's something that I really wanted to practice and understand what was really going on.
Great. That's super cool. So let's start by talking about the data and what you and N A R are seeing right now and your current expectations for the year. What do we think is going on?
Well, I don't think anyone has a crystal ball and I think one of the two big problems that we're facing right now, it is no one's surprise, it's inventory and it's the interest rates. And as we look at those two huge factors right now, we know that inventory is an enormous struggle. It's one of the biggest hurdles for home buyers today is just to find that right home. We know that agents are saying it's the biggest hurdle to actually bring a client into the market that's beyond getting a down payment and saving for that down payment. Qualifying for a mortgage, it's truly inventory. But the other huge problem that we're facing is that interest rates are high, they're above 7%, and even knowing that they're just a tadd above 7% right now, we do have the expectation that they're going to take down, but there's a mindset right now for consumers that once you hit that 7% line, it's hard for a consumer to really fathom themselves purchasing that home and knowing that they could in the future refi into a Largo mortgage. But they have to be able to afford that right now and for potential home sellers, they're just not going to place their home in the market. So that's exacerbating the inventory crisis even more.
Do you see 7% as sort of a threshold? You have data on that or is that like a gut? How do you view 7%?
So I think that it's a gut feeling in that if we know that that is the highest rate in 22 years, that means that a millennial is going to have a hard time entering the market, both from a price point, but also understanding that there is nobody in their recent history that they know personally who has purchased a home at that rate. Even their parents may have purchased a home in that 6% range, but maybe not seven. And so they're going to have a harder time fathoming that.
Got it. So it's really that threshold is because it, it's just the highest in two decades.
It really is, and it translates right now into $250 more per month compared to just last year. And so I think the other thing that we have to remember too is that people have pretty short memories. And so if you have celebrated anyone's house warming party in the last couple of years and they have that two to 3% interest rate, there's probably some intense jealousy that they weren't able to enter into the marketplace.
Yeah, I'm sure there is. And there's the fomo. Did I miss it? Am I ever going to be able to do that? You mentioned surveys and focus groups. Do you do those with millennial home buyers? Do you do that level of stuff?
We sure do. So we actually do an annual survey that profiled home buyers and sellers. We've been doing that since 1981. That's an annual survey that we do. We slice and dice it by generations and we get some really great data out of there. Right now, I have to say you say millennials, they're a pretty small share in comparison to where they have been in the past. And in fact, if we look at that over the last decade this year, millennials dipped down below baby boomers. But for the last eight years of the data, millennials were the biggest generation of home buyers because they're the biggest generation. So we have to know the struggles that they're facing looking at the real estate market, and those are the inventory crisis that we talked about, affordability obviously, but it's factors outside of the housing market looking at rising rents down payments, student loan debt, all of those factors as well.
So millennials actually declined in share of home purchasers this
Year. They did.
And that's sort of like the boomers have all the cash, and so the boomers are the ones who are buying homes. Is that really what's happening?
I mean, yes, short answer is yes, absolutely. That is what is happening. Yeah,
The boomers ruined everything, man. The annual survey, of course, the home buyers is really insightful every year. It's really, really good stuff. Are there other things in those surveys or do you do focus groups during the year that are you testing? Are there stuff, we know the headlines. We know inventory is low. We know that that demand was stronger than expected in the first half of the year. These are well known prices they corrected down in the second half of last year, but that's not happening anymore. So are there things that you're surveying or focus grouping on now, insights that are bubbling up now that aren't yet in the headlines?
Yeah, I mean I think that the big things that we should be looking at right now are looking at the all cash buyers. You touched on it looking at those baby boomers, but right now we know that they're about a quarter of the market of all cash buyers and they have been substantial. So when you talk about interest rates, we really have to remember that that quarter of the market doesn't care. The other thing that I think is really on the pulse right now too is that even though we have less demand than what we have seen over the course of the last year, we still have three offers for every home that's listed right now and 35% are actually moving more than the asking price. So we know that there is strong demand in the market, but it's a different consumer. It's not necessarily a millennial. It's someone who has cash, who has money, who's willing to make that offer right now. And that's new data, fresh off the press.
That's three offers per home is really interesting. That is one of the assumptions, and let me test this hypothesis with you. One of the working models that I've been with this year is that yes, demand is down, home, sales are down, but in many ways we are in a supply constrained market so that if there were more supply, we'd actually have more transactions. It's not just demand, like you can't gauge housing demand by the sales rate in a supply constrained market. Does that ring true to
You? I absolutely agree with that because if we look at those numbers historically, what we see is that the typical offers that a home seller receives is 2.4, so 2.4 or 2.5, whether you take the median or the average doesn't really matter. You're right in that sweet spot. So knowing that you're seeing three offers for every home means that there's plenty of demand who's sitting by the sidelines who just can't find a home. And I think that's what we're really looking at right now, that if we had more inventory in the market, we absolutely would have more home sales that it's really not a question. And I think it depends too on what type of inventory we're looking at. We certainly know that there's high income buyers who are out there. We also know there's retirees with a lot of housing equity, so they can make a pretty nice trade into something that is the same size, same price that they've been moving from, but we also know that we're lacking that inventory at the lower price point too. So all across the board, we need that inventory coming into the market.
Great. And the lower price point, I do want to talk about affordability and affordable homes before we're done here, but let's talk a little bit more about the active market and what we're seeing. Does N ar or do you personally have forecast for say the rest of the year or the next 12 months or so?
Well, I think it's really hard to forecast those things right now. We certainly do have an official forecast that's out, but I've also heard Chief Economist, Dr. Lawrence Yoon give things that are well out of what is the printed forecast in recent days. So he's saying that rates could go as high as 8%. He's also saying that they could be dropping in 2024, and I think a lot of that is so completely out of what we know the Fed is going to do. It's truly a 50 50 chance here of whether they're going to continue raising rates, the Fed fund rate, and then whether that's going to translate into a higher 30 year fixed or not. We just don't know at this point. So yes, we have a forecast. I am just not sure how reliable we can make it right now when the Fed is just so up in the air and what they're going to do.
So 8% is really fascinating. First half of the year, the conventional wisdom people I talked to here in general was that, oh, we're probably going to see rates start easing down the second half of the year. Part of that was assuming that the economy would slow. The economy hasn't slowed yet those things. And so now though we are starting to see folks say rates could go up from here, we could see rates at mortgage rates at 8%. And rather than asking you for your guess on those things, I've been wrong on interest rates for 30 years, so I don't forecast interest rates, but tell me about the framework that you use for thinking about where rates might go, what's most important right now? Is it inflation, is it job losses? What's most important in your framework?
Well, I mean I think if we're going to trust the Fed, and we probably should trust what they're saying on face value, the only thing we can do is really to see inflation, but it's also to see the job market and it's whether to see if we've really tamped down consumer spending, which is what they wanted to do. All of these three big factors. It does look like the job market's pretty much in a sweet spot. We're not gaining as many jobs as we have been. It looks like inflation largely is tapped down, but it's still above where they want it. They want it at that 2% range, and it's still above there. So I think I'm not going to hedge any betts on here. I think if we have a coin in front of us, we could flip that, but no one carries cash anymore, so I don't have one, but if we did, I don't know what's going to happen here.
Yeah. What about then thinking about home prices over the next year, what should we be thinking about that?
Yeah, so I think that we can solidly say that home prices are going to continue edging up when we at the west region, and that's the region that was hardest hit. When we think about the beginning of this year, we know that prices ease there, that actually buyers for the first time in a decade actually had some negotiating room. That's pretty unheard of if we think about the last year and for any other market. Now, when we look at it in the last month though, home prices are up in the west region. So I think that we are rebounding. I think a lot of that is because of the inventory constraints that we're seeing right now. And so we are seeing that home prices are going to keep going up. The other thing that I think we have to think about too as we think about that equation is household formation. So yes, we can blame the millennials, but we also have to perhaps blame the baby boomers who want them out of their basement. I'm not entirely sure who we want to blame here, but I think there is household formation that is yet to be had.
Okay. And we can always blame the boomers on this show, so that's okay, but household formation. So you think there is room to grow in household formation, you think there's still more? We've got demographic trends. We've got like, man, I'm 33, it's time to move out. And actually, and so you think that is a tailwind for housing in the next year?
I do. I've been saying that though for the last couple of years now I have to say, I think it is a big pressure though, that we are facing in this market because when we look at the population, the biggest population that we have is between the ages of 28 and 32. That is generally where traditionally someone purchased their first home. Now we have seen it at the highest age point in the last year that we've ever seen at 36. But if we look at that and think of that peak of that population, they should be aging into household formation. They should be thinking about their first property, and maybe that's a rental property to start with. It doesn't really matter, but it means living independently, and that's important to note.
And so yes, household formation has been driving a lot of the growth of especially during the pandemic. And do you see though, does that if we roll into recession finally gets here, does that change that?
I mean, people always double up if there's a recession. They just do. But we also know that during the pandemic and coming out of the pandemic that people have doubled up more than we have seen historically. Truly, if we think about the young adults who moved home already, we know that we're in the high teens now. It's been ticking down, but we're still in the high teens. If we look at that historically, it's really single digits. So we already know that people have already doubled up. So they do at some point want to uncouple from their family and find their own property. The other factors at play too are marriages, divorces, new jobs, new babies, all of those things have been happening even as rates are going up. And all of those folks probably need to find a new home.
So that's said, I hadn't thought or known before that because we're already, we actually we're under household formed is sort of how you would describe it. Is that right?
Absolutely. Those headship rates, they are down and we need them to go back up so that people can find their own place.
So that perhaps means that recession will be less impactful on housing because some of that's already happened, or maybe that also implies a faster housing recovery out of recession because those people are ready to move out.
And that's a lot of ifs if we're in a recession, which if we look at the recent forecasts that are coming out, it does seem that largely people are saying, well, the chance of a recession is probably dropping. Maybe we really are having a soft landing. So I think it's all a little hard to say right now. Yeah.
Yeah. I mean it's crazy times, and that's why I'm interested in the data that you're looking at in that household formation. One, the fact that we have, we are under householded actually is a useful data point for us because it can be very easy to assume that recession comes and therefore we're going to lose jobs and therefore housing is next. Are there other stats in there that you think are in an unusual state right now that we should pay attention to?
Yeah, I think the other one that I think is important to pay attention to too is looking at seniors and knowing that they're aging in place and they really have no intention of moving into a retirement community, a senior center, something like that. It's just off the table. And so as we look at seniors, older boomers, silent generation who are really reinventing aging, we have to remember that that used to be housing stock for young adults coming in, and that is off the table now because they're not going to budge. And whether that means they're not going to budge from their current property or whether they're going to buy a new home and they're going to stay there forever, that's a lack of inventory that we haven't seen before. And I think that's important to note too.
That is interesting. And how do we measure the senior desire there?
Yeah. Well, one is their activity in the housing market. So seeing that they are quite active in the housing market, asking them their expectations. How long do you plan on holding this home? And truly it's this is my forever home. I am planning on aging in place, and that's the data that we're getting back. And we're also seeing a long trajectory too. I'm talking about seniors here and I'm talking about aging in place, but even as we look at first time home buyers who purchased last year, they plan on holding onto that home for 18 years. So I don't think that's reality. I truly don't because something in someone's life changes. But I do think that we have to look at that housing tenure and see that, well, no one's going to budge, or at least they're saying they're not going to budge. So all of those things really become factors as we look at the lack of inventory.
So the surveys say that planning on holding this house for 18 years
As a first time home buyer who purchased at 36 years old, that's a lot of life changes that you're going into. You're almost going into pre-retirement at that point.
Yeah. That's amazing. And I wonder, do you know off the top of your head what that used to come in at?
It used to be that a first time home buyer would make a trade after five years, and they planned on holding onto that home for under 10 years. So really seeing that is skyrocketed. That's a difference.
Yeah. So yeah, we knew it was a five to seven holding period, and I know that that holding period's grown to 10 or more, but the intention is growing as well, which is really fascinating. Intention goes from 10 to 18 year. That's dramatic.
It is. It's dramatic. I do think there's some implications there for remodelers too. I mean, even though remodeling activity is down, I get it. I've seen the data, but I think that people are going to remodel more. They're going to have to change how they use their home.
Yeah, sure. I think about my mom, my 83 year old mom is in her house until they Carter forcibly cart her away. She's definitely not that and is mobile and she's super strong, and so it's perfectly good for her to stay there for that period. Okay. Those are really interesting insights. Exactly what we wanted to dive into. When do you see inventory climbing?
Can I not answer that question? I mean, sure. We're seeing home building activity going up, and I think that's great. That's super encouraging that we're seeing that activity go up. I think that we have to think beyond new builds though. And again, this is not a new idea certainly, but we need folks to get on board with adaptive reuse. We need folks to be thinking about taking these empty office buildings, empty schools, empty vacant hotel motels, residential malls, and thinking about how you can use these spaces as residential spaces because these places are empty and they can be used.
Have you seen some good examples? Is that some of those offices? I live in San Francisco. I'm in my office in downtown San Francisco right now, and the official vacancy rate is 30 some percent, but the cell phone data rate is off 70%. So is there a chance that helps San Francisco? Have you seen examples?
Yeah, so we actually did some case studies on this. So each one of those that I listed, except for the schools, we have not done intense work on that, but I know what's happening. It happened in my hometown of all of 2000 people. So if it happened there, it can happen anywhere. But we have done some work on this and we have case studies actually on NAR realtor that you can check out of where this has been successful in communities.
Great. I will go check those out. I'd love to see that. It feels like opportunity to the adaptive reuse use some of those office buildings, but it also feels a little bit like wishful thinking like, oh, let's just make these into condos, make 'em into housing units, and where in some cases like, okay, yes, but let's first knock 'em down to the ground and then rebuild that same space for that.
Yeah, absolutely. And I get it. I know that the builders are saying how much of a struggle it is, especially for office spaces, but I think hotel motels is probably an easier lift. I think classrooms that are really apartment size, studio size with bathrooms in them, that's probably an easier lift
On the inventory topic. The way I've been communicating with the Altos data and for when people ask me, when are we going to get some inventory? Let me again posit my hypothesis and see what your take is on it. Here I've been calling it the Altos rule, and the Altos Rule is like the conventional wisdom is that once rates come back down, we'll finally see some inventory again. And my observation is actually the opposite of that, and it's that when rates go down, holding costs are lower, therefore we hold more real estate, we don't sell as much. And so rates go down, inventory goes down, rates go up, inventory goes up. We're seeing that this week in the middle of September, in the first few weeks of September this year we're seeing it in general last year, rates spiked and inventory climbed. And the way I view it and explain it, and again I want to hear whether this resonates with you, is when rates are up.
Over the last decade, rates have been generally falling. We've been holding more. We hold more investment properties, individuals, you go to buy your next house, you keep the first one because it's super cheap, and now over the next several years, if rates are in the sixes or sevens or eights, now every next deal, as you say divorce or marriage or kid is, it's less affordable to hold both. So you resell the first one to finance the second one. And so over the next few years with rates higher, we would then start to build inventory up in the resale market, fewer of those deals, pencil out fewer of the investment properties, pencil out. Then therefore we start building inventory there. So higher rates, higher inventory, lower rates, lower inventory. Do you agree?
I think possibly yes. I think the other part of the equation too, sure, we could have fewer accidental landlords right at that seven 8%, they're not going to hold onto properties. I totally get that one. They are going to hold onto those properties in the two and threes. They'll have no intention of selling those even if they move on unless they have to. The other part of the equation though that I'll throw in there is that if you do have slightly lower rates, you're going to have a lot more demand. And as that demand goes in, you're going to have those multiple offer situations back. So even if you have slightly more inventory, you're just not going to actually feel it. You're going to have more home sales, but you're not going to feel as a home buyer entering that market that there's a lot of inventory.
You'll have more transactions, but you'll have less inventory. Well stimulate lower rates, stimulates demand, but not nearly as much supply.
So as a home buyer, you might be going into a field or checking your zip code where you want to buy, and perhaps you're actually going to see pretty similar of what you do right now on the open market because it's just not going to be available. And I don't know if anyone wants that inventory situation or the feel of the frenzied market that we had those lines out the door, 15 minute timed showings. Does anyone want that back? I don't think that's a good situation.
Yeah, I don't think that was healthy even for the sellers at that moment. I don't think that was a healthy market. It seems like, no, we don't want that. And it'll be interesting to see what the threshold is that we really start to stimulate that demand. This year we were starting to ease back down around six or dip below six, and we had more demand than supply and inventory fell super late into the year, was really a fascinating trend. Now that's changed and rates are climbing again. As you say, they may be heading to 8% and therefore we're seeing demand slow. We're seeing supply build pretty late in the summer.
Yeah, I mean it's going to be a very interesting fall as we move into this. And the concern of course is that winter months, there is no inventory that is always the lowest inventory month. So what happens then? And I think that's the big question.
Yes, exactly. It will be fascinating to see. Last year inventory peaked the last week of October, which was super late in the year, and I corresponded with rising rates in September last year. And so I'm certainly looking at that, although this week it looks like we may be peaking on inventory flattening out this week. So it'll be really, the next few weeks are going to be terrific. So as we're talking about these things, and there's a lot of assumptions about inventory, there's a lot of assumptions, especially in the social media world about where home prices are going to go. What do you think? Are there things that conventional wisdom has wrong or that the headlines typically get wrong about housing or there things that we should try to shed new light on for folks?
If I could stop watching TikTok videos that say that we're going to see this massive drop in home prices, that would really make me happy, that definitely I like to scroll through at night as opposed to reading a book, which I should be doing. And definitely that'll get your heart rate up. So I don't think it's going to happen, and I think there's a lot of folks out there who are saying it, and I think they need to actually look at the data and take a look at what's actually going on, talk to their local realtor who can tell them what's going on in their local community as opposed to putting this nonsense out there.
Great. Yeah. So when you say look at the data to then give you confidence to not expect a home price crash, what data do you like to look at?
Well, I think everything that we're talking about right now, talking about the lack of inventory, the demand that's currently there, talking about how many homes are moving above the list price, how many offers they're getting, looking at the actual data. When we say it's 1% of realtors who have worked with their foreclosure or just draw sale in the last month, and when it goes from one to 2%, okay, I will say yes, you are correct that it's a hundred percent increase, but you just went from one to 2% within a margin of error. So this is not a real increase. And it's also a very unsubstantial number.
I mean, it's an understandable fear. We had a big runup in prices. You can imagine it's very easy to imagine a reversion to mean that prices would take back down. And so the foreclosure one is, let's talk about foreclosures for a second. So yes, foreclosures are at essentially record low. They're still way below 2019 levels. And so yes, if they tick up, they will assume they're going to tick up at some point. What should I know about foreclosures and distressed inventory and like that? What should we be looking for? What's interesting there?
Yeah, so looking at the data, if we look back at 2009, we actually know that half of realtors were working with a distressed seller in the last month. It has consistently been zero to one to 2% for months now, years now. We just don't see that in the market. And the basic reason why too is that we know that homeowners have a tremendous amount of housing equity. They have about $200,000 in housing equity that they're sitting on after being in their home for the last decade. So even if they did have a job loss, even if they did have something very unexpected that happened in their household, they likely could sell their home and walk away and actually put some money in
Even if you lose your job. And it's not just the fact that nobody's upside down, they have their equity. It's also the fact that there are three offers for every home for sale right now. So you could hold out for a long time and then sell your house in a week if you wanted to wait and do it before you get into any kind of distress scenario.
Absolutely. And you very potentially could have a bidding work. So I think that pricing your home correctly, knowing that expert to work with you could be in an okay situation. And I think that's reassuring to homeowners. It's reassuring to home buyers. I think that TikTok has yet to catch up with that, but maybe perhaps those influencers could use the real data. That's all I got to say.
Well, it turns out in social media that the message of crisis gets orders of magnitude more engagement. And so if you're in an engagement business like TikTok or YouTube, the message of crisis is the one that wins. Are there scenarios where home prices in the next year or two?
I don't see it. I truly don't. And I think there could be limited pockets. Of course, there's always the possibility that there's job losses in one particular area and you have a very unattractive place to move to. There's always that possibility, but I just don't see it not on a widespread scale.
Even if mortgage rates go to nine and we lose jobs and stuff,
Well then we have to remember a quarter of the market's still paying all cash, so they don't care. We also have to remember that we don't have inventory. And so I think both of those factors play into their, yes, housing starts are up, but we also know it's taking a longer period to get those homes onto the market so that families can move in. So yes, there's absolutely people who are interested in those, but it's going to take a minute for those homes to be built.
Yeah, alright, that's great. That's a terrific, I love a real precise view there. The factors are in place to keep that market pretty stable. I generally agree, although I would say that we can see some of those demand trends change very quickly. We saw it last year change very quickly. Although I could also see that we could see investors, for example, in places like Phoenix, we saw a little bit of price correction and suddenly the cap rates were better and they had put a floor on pricing very quickly, even in places like Phoenix last year. And so that seems to be encouraging to me in terms of thinking about not fearing a great home price correction in the coming year or two.
And I think that's the other aspect. So if an investor comes out of the market, what does that mean? Well, it means that's an opportunity for a first time home buyer or a retiree. And so that's what we have to remember is there is a trade off there. It's just a different type of buyer who's moving in
On that front. Are there other macro trends that you're looking at that I track the housing market, but the macro is I turn to real economists to tell me about the macro. So tell me about the macro.
I think I'm right with you. I'm a pretty micro economist looking pretty much only at the housing market. Yeah, big trends. I don't know how much traffic is going to take to get me into the city. I don't really know to tell you the truth, how much building is going on. Yeah, I'm not a good macro economist when it comes to that kind of stuff.
Got it. Okay. Then let's talk about affordability. One of the problems in this market is we've got the first time buyers that have been priced out. They've been priced out by the evil boomers. So I guess we've established in this show, and then we had a little bit of price correction, but rates went up, so affordability got worse. So where do we go from here, especially for first time buyers?
Yeah, I mean, I would like to say the only place we could go up is more first time home buyers in the marketplace, but it certainly could be that we lose even more. And I don't want to say that, but it is possible. And the factors that I think that are on play there when we look at first time home buyers is that student loan debt repayments are back due. You have to pay your lender again after a long time period where that payment was paused and you could get ahead of that payment and really pay down that principle of the debt with the pause and interest as well. I think it's going to be very hard for first time home buyers as that reestablishes. The other factor, I think it's important too, looking at first time home buyers, childcare costs. We know that the typical home buyer right now who's a first time home buyer is 36 years old, meaning that they are more likely to have a child who's under the age of 18 than they would've been if they were a 28 year old home buyer, which we had seen historically.
So looking at that, that's a big factor. And childcare costs only seem to be going up $800 in the typical area for one child per month to go to daycare. That's quite expensive yet. And two, you go to a high cost area and you're talking about four, $5,000 a month, and that's not unheard of. So I think that really becomes an issue as well, as well as rising rents, they have tampered down. We see some ease and rents, but I think it really complicates factors as well. When we look at first time home buyers, we saw the biggest share of first time home buyers in the last year, 27% moved directly from their family member's house into home ownership. You put a 36 year old with their two kids into their family member's basement. I do not know how long that family is going to last because they're going to have to find that first home pretty quickly.
So let me just make sure we got that right. You said 27% of the buyers were first time buyers last year?
Yes. And 27% of the first time buyers moved from their family members' home into homeownership.
Okay, got it. And that was like record, did you just say that was record high?
Yeah, that was a record high.
So first time home buyers had a better opportunity as rates rose, we had less competition for the first time in a few years. Is that what was going on there?
So no first time home buyers actually dropped to a historic low. But what they did to get ahead of this, the successful first time home buyers is that they moved in with friends and family and they kept paying rent.
Got it. Interesting. Okay. Talk to me about student loan debt. Are you observing impact already on payments, on offers, on things like that? Is there any evidence in the data yet about what's happening with the student loan change?
Not yet, and I think it's too soon. I think in the next few months we're going to start seeing the impact to potentially first time home buyers and what student loan debt is doing. We know that it has been paused and before the pause, it was the biggest hurdle for first time home buyers to enter home ownership was student loan debt. So knowing that that had been a really big struggle and knowing that that pause still didn't help those young adults, I think we're really going to see an issue when that pause is lifted.
Is there any risk that resuming the payments, puts some people who previously bought upside down and therefore maybe get some distressed inventory or some rushed inventory there? Is there any risk of that flooding the market?
Big sigh. I mean, it's possible. It is possible that those folks are going to struggle. I would hope though, that when they purchase their home, they factored that in and that their lender factored that in and said, okay, this isn't going to be forever what happens. I hope that that is the case. We also know that there is also reticence of first time home buyers knowing that those potential first time home buyers that they would have to pay their debt again. And so they said, I can't afford to purchase because once I have to pay, I can't afford both. So I hope that there's not that.
Yeah, I am pretty sure that the lenders have been including the payments in the calculations and the approval calculations and even though the payments weren't there. So it has been making it easier. It'll be fascinating to see. I think we're okay on that, even if it tamps demand down. But in some sense, if the lenders, you can already only get approved, assuming that payment is happening, then it may not change demand at all. It was already factored in. Maybe it impacts down payment because you're not collecting, keeping as much cash or something like that. Okay. That's really, really interesting. Have you, in your policy work, do you have no areas or programs or things that are doing affordability well, have you seen any good work on that?
So I always send people to hud.gov and I tell them to go look at your local area. I mean, I think one of the biggest things to keep in mind too is that these programs are so overlooked. Most home buyers have no awareness that these programs are out there. So just knowing that they are out there and you can direct buyers to them, I think is really helpful. Also, getting the information out there that the typical down payment is just six to 7% for the typical first time home buyer, even though they still think they need 20% down, yes, you're going to have to pay P M I in many situations, but making sure that you're educated on your loan products like F H A and va, I think that's very important.
Yeah, I always think it's interesting that we, government policy wise, focus on affordability from the demand side, but not the supply side. We give more incentives and assistance on buyers, especially first time buyers and veterans, all the different classes. But we don't really do affordability from the supply side, but maybe we're starting to see some supply incentives happening for affordability.
We are, and that's something that N A R is starting to work on too, and our tax policy folks are all over trying to think of incentives, capital gains tax, for instance, thinking about where that cap is when you go to sell your house and know that that has not been inflation ingested. Making sure that those things are looked at and our lobbying team is all over that.
Yeah, I, I'll skip the California Prop 13 tax soapbox that I like to stand on and not put you on the spot about what N A R thinks that tax law?
Well, I have nothing. I will just say that Carr is in charge of California politics and we are not.
Okay, great. Terrific. People get so mad when I get on that prop 13. Anyway. Okay, let's shift now to the longer term future. What do you see for the industry and the market? We've been, obviously the last 12 years have been a specific market, one of lowering rates of decreasing supply, of greater owning accidental landlords as you called them, what happens in the next decade,
Very long time period. So I think that's very hard to know what happens in the next decade. What I think that we can assume will happen is there's more inventory because we know that builders are building and we know that there is a strong interest from policymakers to bring more inventory into local markets, and that seems to be a bipartisan support behind that. So I think looking at those ridiculous laws that are in many books about low density density restrictions, having two parking spots for every house that's billed, all of these ridiculous things, I think that there will be a look at that. I think the other thing that we can say pretty assuredly is at the peak of young adults moving into the housing market is here, they want to move in and they're probably going to be here in the next 10 years. Moving into that, it seems to be very consistent that home ownership is part of the American dream. It just seems quite out of reach for a lot of Americans. I think what we can hope that happens and that a lot of people are working on too, is to narrow the gap between black and white Americans when it comes to the home ownership rate. There's a lot of work going behind that to try and narrow that gap. And we know that that's part of the future and something that we need to have happen.
What are some good things that are happening to narrow that gap?
So certainly there is an effort right now by 2030 to bring 3 million new black households who own homes into the market, and they're working on that through a lot of different measures, looking at down payments, looking at edge education and financial literacy, and making sure that people are aware of home ownership and the financial benefits of home ownership to try and bridge that gap and break down those barriers.
And do you see that as a federal level, like government level incentives, or is there other areas that were happening
That is certainly happening on federal policy side is to lobby for those efforts as well. And again, I think there's bipartisan support on that too, but our policy folks are probably best to say, but there's a lot of efforts going towards that as a coalition.
Jessica, this has been really, really terrific. I love the data that we're getting there. Where can people go find out your work, follow you or n a r and some of the things that we talked about?
Yeah, so following N A R research on Twitter, following me, Jessica Latz on Twitter is great. You can connect with me on LinkedIn, but also follow n a R research because they have such great information. I'm one researcher in this department of many who are putting out such great content. So our blog or social media accounts follow along
Really it is actually great. And even on Instagram, the n a R research team puts out good stuff there. I am interested in doing more the output of the focus groups and some of the survey work, and I'm interested in what we can learn from surveys at a more frequent basis than the annual, the annual's. Interesting. But I like weekly. I'm interested in learning
Demographics don't change weekly.
Yeah. So that's great stuff. And so I'm looking forward to doing more of that level of data work with Altos data in the coming years. So Jessica, thank you so much for your time with us today. It was exactly what we wanted to accomplish. And any last thoughts for the team, the audience, anything about what we should be paying attention to for the year?
Just keep your heads up. Be patient. It's a different market, but I am hopeful and I am an optimistic economist, so I am hopeful for 2024.
That's right. Terrific. I find that economists tend to be optimistic in the longterm and pessimistic in the current data.
Yep. That is me.
Okay, terrific. Great, everybody, this is the top of mind podcast. Thank you for joining us. I appreciate the listen. Thanks everybody. Thanks for listening to Top of Mind. If you enjoyed the show, I'd really appreciate leaving a nice review on your favorite podcast app that helps other people find us as well. Be sure to subscribe so you don't miss feature episodes