The U.S. housing market hasn’t shown any signs of slowing down amid COVID-19. Yahoo Finance’s Christoforous and Brian Sozzi discuss what’s behind this with UBS Global Wealth Management Head of U.S. Real Estate, Jonathan Woloshin.
ALEXIS CHRISTOFOROUS: The US housing market showing no signs of slowing down even as we get ready to enter a season when most people traditionally aren't looking for a home. But the pandemic is upended the calendar for most of us and for real estate as well. Let's talk about it now with Jonathan Walsh, head of US real estate at UBS Global Wealth Management.
Good morning, Jonathan. So paint the picture for us. I mean, I know that homes are spending less time on the market. There are bidding wars and less inventory. Do you see this lasting through the end of the year into the winter even?
JONATHAN WOLOSHIN: The answer is, it's certainly possible. I mean, there's a few trends going on here, Alexis, as you correctly point out. And this has been a problem now for a while-- is a dearth of available supply, particularly for existing homes. I mean, historically, what's been considered a normalized market is about six months.
We've got less than three months of supply on a national basis. But if you look at some of the hotter markets out there, you're talking about less than a month of supply, so that's number one. Number two, we're looking at all-time low in terms of mortgage rates. I mean, even though mortgage credit availability has tightened up somewhat, houses have become more affordable, at least on a principal and interest basis, because of that. The other thing we have to remember is we delayed the spring selling season because of all the shelter-in-place place requirements.
And the last thing is-- and this is the biggest unknown to us-- is what are going to be the longer lasting psychological effects in terms of the health side of it? We've clearly seen, particularly in the New York area, a lot of people live in New York City for a variety of reasons-- some of which, because a lot of people have been working remotely. They need more room. Some of it is purely demographics. And this is one of the things we think is a real tailwind for housing, is if you look at those older millennials who are getting married and having children, that can absolutely be a good tailwind there.
And one other thing-- and I think, you know, we put out a report. We questioned what was structural versus cyclical. I think one of the things that is structural-- and this can really help certain markets in the country-- is this kind of interstate migration from what is traditionally called blue states to red states. I tend to think of it more as moving from more tax, business, and regulatory-unfriendly states to more tax, business, and regulatory-friendly states where homes are more affordable if you will.
And so when you layer onto that that we have a lot of companies, that once we get back to the office, are going to have a decent amount of their workforce work remotely, that we think that's a trend that could continue. And so yes, we could see some tailwinds. Now, can prices continue to increase without concomitant wage increases? That's a tougher question to answer. And I think it's reasonable to say that, as we get more supply in the market, we could see that slow down.
BRIAN SOZZI: Jonathan, how devastating will it be for small businesses amidst this migration for rural America?
JONATHAN WOLOSHIN: For some, it will be a real problem. If you think about the ecosystem, just in New York City where I work normally when we're in the office, if you think about the ecosystem of taking public transportation, stopping to pick up your newspaper, your coffee, or your breakfast, by not having people in these large cities you're talking about a lot of impacts on small business. I mean, the thing that's unknown, and obviously the question we're all grappling with and worried about, is what percent of small business, which are the largest employers in this country, will not survive the other side of this?
So on one hand, for some of the larger, denser cities, it does pose a larger risk. But the flip side is that, as we see some of this A, migrate-- out migration from denser cities, number one, and number two, this migration from, say, the coastal cities, if you will, to whether it's a sunbelt or you know, kind of more western markets that are not on the coasts, you could see a pick there. So some of it will be a sheer shift. But there will undoubtedly be some pain that will be irrecoverable for some small business.
ALEXIS CHRISTOFOROUS: I don't know how much of a picture you have on the commercial real estate market. But are we going to be left with office buildings, a lot of them, less than 50% full? And I mean, lots and lots of buildings that are new, looking for new customers to take on these leases, I'd have to imagine they're having a really tough time.
JONATHAN WOLOSHIN: Yeah. Well, it's interesting. And yeah, we just spent a lot of time in commercial real estate. And we addressed this issue a while ago. And interestingly, it's actually the newer buildings that might actually do better for the simple reason that if you think about the health concerns in sort of the post-pandemic world-- and again, this is something all companies are trying to figure out-- some of these newer buildings will have the most-- the most modern touchless controls, better air filtration systems. They'll be set up for a post-pandemic world even though they hadn't considered it when they built it.
But the realities are that no, we're not going to have everybody work from home remotely. Some buildings are going to [AUDIO OUT], particularly older ones. But I think there's one thing a lot of people who've called for the death of the office are missing. And that's what we call the dedensification trend.
Over the course of many, many years, we've identified office space, which is just a fancy way of saying we've pushed more people into the same amount of space. Obviously now with social distancing requirements and all the health requirements associated with it, we're going to have less people in the same amount of space.
And so look, we absolutely agree that there are going to be some losers here. But I think this extrapolation of right now, I think in Manhattan, roughly 10% of the skyscrapers are currently occupied physically. But remember, these in many of these cases, are long-duration leases, and we'll see a lot of people go back.
But some people will work remotely. Some people will work on kind of shift bases if you will. So it's going to be a conglomeration of things if you-- and it's the best way to phrase it.
ALEXIS CHRISTOFOROUS: All right, Jonathan Woloshin, head of US Real Estate at UBS Global Wealth Management. Thanks for being with us. Thanks for having me, Alexis. Thank you, Brian.