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The hot housing market is bringing homebuyers to tears

Lawrence Yun, chief economist at the National Association of Realtors, joins Yahoo Finance Live to discuss the red-hot housing market and how it's literally bringing some to tears.

Video Transcript

- Switching gears the US housing market is so stressful. It's leaving buyers in tears. So a new survey from Zillow-- finding that more than 65% of Gen Z buyers, 61% of millennial buyers report crying, at least, once during the homebuying journey.

Lawrence Yun-- he's the National Association of Realtors Chief Economist, joining us now. Lawrence, it's a known fact that when you go through, and you buy a house a lot of times, it can be very stressful. Is this consistent with what you're seeing? And I guess what can people do?

Because people that are out there looking to find houses, simply there just aren't enough. The supply is still not there.

LAWRENCE YUN: Yeah, yeah, when you have a multiple offer situation, and sometimes it is quite intense-- 30 offers. So by definition, you have only one winner and 29 losers who have to retry again. So it is a very high expenditure to begin with and to go through the process of rejection, re-submitting the contract. It can be quite frustrating.

For those who succeeded, I mean, they are seeing a immediate wealth gain based on the housing shortage and home price growth.

- And everyone's focused-- laser focused on the Fed right now, which is fighting inflation. And this relates to the longer term interest rates and, specifically, mortgage rates. I'm looking at the 30-year. It looks like it peaked out above 5%-- 5.3%. It has since ticked down to about 5.1%. What effect does this having on homebuyers?

LAWRENCE YUN: Well, maybe some good news for buyers. Because what we are seeing is a little more common away from the intense multiple offers to actually home sitting on the market for about a week or two weeks before finding a buyer. So the pool of eligible buyers have shrunk because of the rising mortgage rates.

And it is quite a meaningful increase. It was 3% last year-- now, above 5%. People punch the number into the mortgage calculator, and it's quite shocking how much increase in monthly payment. So it has shrunk the pool of buyers. But still, we have an ongoing housing shortage.

And consequently, there could be still residual multiple offers. But I expect by year end, things will be much calmer, maybe only a 5% price appreciation.

- Wow, so-- so it sounds like the market could potentially correct here over the next couple of months. That's what you think?

LAWRENCE YUN: I mean, you know, sales are coming down. But the prices are still going up. Because of the housing shortage. So we saw the latest data with 20% gain in home price. But say a 5% price growth by December compared to the year before, I mean that would match up with the wage growth currently. So there would be much more healthy development.

- And I just read-- read a report today that rents in the Hampton have crashed. They've fallen 20%. Now, that is a luxury market. That's a high-end market. But a personal story here, I was able to get a-- I was able to get an apartment at a very good rate in March of last year. And I'm up for renewal in a few months.

I'm wondering if this is going to spread to other markets. And should I be looking for perhaps lower rent prices? Because they are sky high here in Manhattan.

LAWRENCE YUN: The rents, interestingly, in the inner cities, it actually declined during the early months of the COVID. But now that people are slowly going back to office, there is an increase of the apartments in the-- near the cities. And therefore, the rents are beginning to accelerate perhaps out in the Hamptons or other vacation regions.

As people are going back into office, they are saying, well, maybe I don't want to renew the lease in the vacation region. Because I have to go back to the city. But the rents overall is rising. In some places like Florida, 20% increase in rent from the year before as people are migrating into that state.

- Lawrence, how long can this continue for the fact that people are going to be facing a 30%-- 40% increase in their rents? Do you see that subsiding any time when you look out maybe a year or two or three years down the road?

LAWRENCE YUN: Now, fortunately the housing start on the multifamily, which is essentially apartment building. It is at a cyclical high. In fact, I believe it is a 40-year high. So it will bring more supply. There are still some supply chain issue on materials and others not coming on time. But eventually more supply will reach the market.

It's a welcoming trend. That will begin to moderate rent increases. And also the builders-- home builders are also building more single family homes. So that will begin to also moderate on price growth.

- Well, not very good news for me in particular-- my renewal is up in September. But we really appreciate your insights here. Thank you, Lawrence Yun.

- You may have to move out of New York.

- That's never going to happen. Come on.