First American Chief Economist Mark Fleming was interviewed on CNBC earlier this week and shared his perspective on today’s housing market and the outlook for 2019.
“The bigger challenge is really the availability of supply. Existing homeowners today are sitting in their homes on average for 10 years. That’s up significantly from prior to the boom or even 3-4 years ago. They are the primary provider of most of the homes for sale in the U.S. So, the key challenge really is how do we build more new and affordable homes to solve the supply problem.”
Interview Transcription
Interviewer: One of the lead stories on CNBC.com right now is about the New York city real estate market having a bit of a real pullback in terms of the overall markets. How do you see certain markets in the U.S. fairing versus others? Or is this a general feeling of an overall pullback in housing in 2019.
Mark: I think it’s a general pullback. Obviously, different markets might experience it differently. New York is a high-priced market, so there are the additional issues with the changes in the tax code having an influence on high-priced homes there.
Diana’s right, mortgage rates will likely rise in 2019, as they did in 2018. Maybe not as much as we thought. The news from Fed Chairman Powell -- there will be fewer rate increases – is effectively good for the housing market.
The challenge is, the reason why rates are going up is because the economy is strong. That counter acts the affordability crunch of mortgage rates. It’s the tug-of-war between the good economy and rising wages and why rates are rising. It actually means the housing market can at least withstand or deal with the more normalized rate environment we expect next year.
Interviewer: Mark, you bring up an interesting point about that tug-of-war. If we are to look at the U.S. housing economy. If we are to look at the housing stocks and all the building product companies out there. They didn’t tell a very good story in 2018. Does this mean the real estate market is not the best indicator for the U.S. economy?
Mark: No, I don’t think so. It certainly interacts or reacts to the U.S. economy. The good thing about housing is everybody needs it and you can’t outsource it. What we’re struggling with is, as Diana mentioned, is a lack of supply. Homebuilders, with some challenges, can help to solve.
The reason there aren’t many homes for sale is that so many existing homeowners today are sitting on mortgage rates at 3.5 or 4 percent and don’t want to move. So, you don’t get that supply of homes for sale, even though there’s a great story of a strong tailwind of demand from millennial first-time homebuyers who would love to buy something, if only it was for sale. Interviewer: Mark, what would be the primary drivers of the housing market in 2019? Is it going to be interest rates? Is it going to be the supply-demand imbalance? What is going to be the primary factor that is going to be the biggest influence over housing next year?
Mark: The supply and demand balance is definitely the one I’m focused on for next year. Rates will rise to maybe mid-5 percent, but that’s not a high-rate environment from a historical housing perspective. The bigger challenge is really the availability of supply. Existing homeowners today are sitting on their homes on average for 10 years. That’s up significantly from prior to the boom or even three or four years ago. They are the primary provider of most of the homes for sale in the U.S. So, the key challenges really is how do we build more new and affordable homes to solve the supply problem.
Interviewer: Mark, we know that certain key markets like you pointed out, New York city also places like southern California, are feeling a bit more of that pullback. We know those markets are hot right now. What is it about the rest of the United States housing market that perhaps should be a little bit more tempered with regards to expectations? Both to the upside and downside. We’re not seeing the kinds of price declines in real estate in certain other parts of the country that we are in the coastal parts of the northeast or the western coast of the United States, right?
Mark: Right. The high-priced markets are high priced because -- one, they’re sought after, so there’s a lot of demand for housing and, in many cases, they’re highly restricted in terms of the availability of housing. That’s not necessarily the case in many of the other markets in the United States. Houston is a perfect example. Fourth largest city in the United States. Tons of homebuilding. Lots of expansion. Texas in general. It really gets down to, not where people want to live but the availability of the housing stock there and the ability to build new stock in those markets really makes the difference.
Interviewer: Before we let you go Mark, if I am a homebuyer what’s the best time of year next year to target that? Given your view on interest rates and affordability and housing demand.
Mark: I’d say probably early spring. There’s not a lot of inventory for sale typically in the winter months. Particularly in the cold parts of the United States. We know the rates will be rising further in to the year, so let’s target March to start looking to buy.
