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Gen X, Boomers choosing to retire in current housing may ‘exacerbate inventory challenges’: Expert

Bank of America Head of Retail Banking Matt Vernon joins Yahoo Finance Live to discuss U.S. mortgage rates and how Baby Boomers are participating in the housing market versus Gen Xers.

Video Transcript

- Mortgage rates are declining for the fourth consecutive week. Freddie Mac reporting the average 30-year fixed rate at 6.33%, the lowest since September. Rates may be coming down, but there's still a lot more, more than double what they were a year ago. A Bank of America securities note finds that about 95% of current mortgage holders have rates at 5% or lower, definitely not the environment most owners want to sell in. Seana.

SEANA SMITH: All right, let's discuss how this will impact the housing sector. And for that, we want to bring in Matt Vernon, Bank of America head of retail banking. Matt, we'll get to the new survey in just a minute. But first, just your take on what we heard from the mortgage rates falling for the fourth week in a row. The lowest that we've seen since September. The implications that we'll have for the real estate industry.

MATT VERNON: Hey, it's nothing but good news for the industry. We saw a massive and abrupt change here over the last six months that has certainly shocked the system for a variety of different reasons and certainly put questions on consumers' minds on is this a good time to enter into the home buying market? So any movement like this is nothing but good news to help our clients be-- get back into the market for sure.

- There really are two camps forming at this point, Matt. And one says yeah, we'll probably lose low single digits into '23 and basically level out. But there is a complete opposite side of the school that says we are looking at a crash, perhaps, a 20% peak to trough decline in home prices. Which are you in?

MATT VERNON: Yeah, we're probably on the latter of that. We would say as we look at next year that home prices are going to flatten out from a historical appreciation over the last two years to more of that 1% to 2% level next year. You could certainly see some market variability across the country as you would imagine. But we certainly don't believe that we're going to see that crash that the ladder there would have said.

SEANA SMITH: Matt, supply has long been an issue here with the real estate market as of late. I should say you're out with a new home buyer insights report taking look into whether Gen Z and baby boomers, if they do plan to move out of houses that they had prior to retirement, what did you find?

MATT VERNON: Yeah, interesting enough that baby boomers and Gen X make up 70% of all households out there that are close to 80 million households that are out there. And of that 70%, 78% of baby boomers and Gen X say that they want-- they will stay in the home that they are either in, they've retired or the home that they're going to retire into. So you can imagine with that large population of those two groups that that's going to put more stress, more challenge into the inventory challenges that the market's facing today.

- Yeah, and what are the implications of those numbers on the broader housing sector?

MATT VERNON: Yeah, I think the biggest implication is it's going to exacerbate the inventory challenge that we're seeing. If you look back to pre-pandemic, we had about 1.4 million homes listed. That number today is around 787,000. And the fact that the millennials and Gen X make up a disproportionate portion of the denominator at this point just makes that even more challenging.

Couple that with the fact that we've got stagnant housing growth from a development perspective. So the builder business. And then you've got pent up demand just makes this mortgage market even more challenging than we've seen recently for sure.

SEANA SMITH: Matt, why are most baby boomers and Gen Xers deciding to stay in their home? Is it all because of rates and where home prices are today?

MATT VERNON: It's a combination of things. It's one, they love the home they're in. They've made memories there. They've raised children there. They've done a lot of things, so they love it. They've also improved it over the years. So they think that this is the home, and it has that which they need for going forward. And they really love it.

Now, rates are certainly playing it. Affordability is certainly playing into it, and finding that next home is playing into it. But more than anything, the survey, 78%, said it's because I love the home that I'm in, and I'm comfortable in the home that I'm in.

- Maybe if you get rates back in the three range, they start to love it a little less, right, because now, they're going to pay way more. So that dynamic could certainly change. What is largely speaking the inventory story both in single and multifamily?

MATT VERNON: Yeah, it's certainly at near all-time lows. We're off of the trough that we were in, call it three to 4, 5 months ago. Supply's roughly 3 and 1/2 months. But that number that I mentioned, 1.4 trillion down to 700,000-plus, that is an extremely low number for us. But it still gives about 3 and 1/2. Now, good news is, I think Mortgage Bankers Association recently came out with some numbers that said in October, inventory is up 38% over a previous quarter. So we're beginning to see the market listings come back for sure.

- A glimmer of hope. We will take that, Sir. Matt Vernon from B of A. Good to see you.