'The housing market has been “downgraded from blistering to sizzling': SitusAMC Managing Director

SitusAMC Managing Director and former Chairman of The Collingwood Group, Tim Rood, joined Yahoo Finance Live to break down the outlook for the housing market.

Video Transcript

SEANA SMITH: New reports out on housing this week showing a bit of a slowdown here in the industry, as new home sales falling to a one-year low. Existing home sales falling for the fourth month in a row.

So we want to talk a little bit more about this with Tim Rood. He's SitusAMC's Managing Director, also the former chairman of the Collingwood Group. And Tim, when you take a look at the reports out we got this week, do you think these numbers suggest that maybe home buying has already peaked? Has it peaked a couple of months ago?

TIM ROOD: It seems like it's moderating. I think I would say it's been downgraded from blistering to sizzling. I mean, so if you're using metrics like, oh, my God, it took a week for virtually half of all homes on the market to sell, that's hardly a cautionary tale. I mean, last month it was like two days. So I mean, that's-- it obviously reflects a shockingly low base. But I mean, no, it's still red hot across the country.

JARED BLIKRE: And we've seen input prices, particularly lumber, fall, I think more than 50% peak to valley. They were adding something like $36,000 to the median new home price. What kind of effect is that having on these home sales data that we're getting this week?

TIM ROOD: Yeah. I mean, look, even though it dropped 40%, 50%, it's still up 200% from a year ago. And the supply chain for new home construction has never really fully recovered from the great financial crisis. Beyond the zoning issues, the land issues that make sprawl difficult for suburban communities and urban communities, you still have a lot of trouble. You're tapped. Out there's two times as many openings in the real estate, or in the construction field than there are jobs, or they're openings than there are people willing to take those jobs. So there's a huge gap and we simply can't make up the delta that exists between the supply and the demand. It's somewhere around five million units that we're coming up short.

So it's coming back. They're trying hard. But also, you've got, on the buyer's side, I'd say buyers are dealing with three main issues. They've got-- they're being priced out. They're freaked out. And quite frankly, they're tapped out, right, so they don't have enough money to keep chasing this market. They're fearful that they're going to buy at the top and then it's going to crash. You know and they're getting less comfortable going out to the exurbs and buying in the middle of Montana somewhere, [INAUDIBLE] heck, the pandemic's getting behind us, I'm going to have to commute probably sooner or later. So there's a variety of things that are causing it to kind of slow, but I wouldn't say it's anything to be worried about.

SEANA SMITH: Tim, looking at the action that we still are seeing, is it still millennials that are driving this, or who's behind the buying now?

TIM ROOD: Millennials almost 50% of the market. And you've got-- so you've got millions of millennials coming of age every year. I think it's about two, three million a year that are getting to that 32-, 33-year-old range, which is the prime home buying age. And right behind it, you've got all this store demand, where you've got younger Americans, young adults in their 20s, 50-odd percent of them are living at home with their parents. So that means they're probably saving some money. They're getting ready to pop out, and they're probably going to get some help with their parents who are tired of seeing them, you know, sleeping on the couch every morning.

JARED BLIKRE: What's your long-term view of the market? Just thinking out to the rest of the decade, into late '20s, do you see any secular trends in housing? Because I've talked to some other portfolios, I've talked to portfolio managers who believe that the rising tide of millennials and Gen Z purchasing homes, there's going to be some ebbs and some, you know, it's going to wane and wax, in other words. But he believes-- this is Bill Smead-- that the housing trends are going to persist throughout the end of the decade.

TIM ROOD: I don't see why not. I mean, again, you get the economic tailwinds, assuming that you don't have some sort of a financial crisis, some exogenous event that you can't predict. There's no reason, just from pure supply and demand standpoint, that the housing would tap out.

There's a lot of changes that are going on, I'd say. Like the migration that you've seen from the Northeast, the Midwest, the coastal towns in California, that's been going on for a decade. So you're still seeing that pattern play out as people are leaving those areas and moving to the Southeast, the Southwest, inland mountain areas or regions. That's going to persist. I don't see that changing just because it's more affordable, it's got a better quality of life, generally has lower taxes. So I think that will continue.

And again, we've got 30-odd million people in this country and they've got a bias towards living indoors. If we're five million units short for supplying them today, then I just don't see how we're going to tap out by the end of the decade.