Jeff Taylor, Co-Founder at Mphasis Digital Risk, joined Yahoo Finance Live to discuss his outlook for the housing market and Mphasis's 2020 fall housing survey.
ADAM SHAPIRO: We want to bring into the stream right now Jeff Taylor. He's co-founder and managing director at Mphasis Digital Risk. We want to talk specifically how tech technology and applying the technology that they do at Mphasis can help us understand what's going on with the US housing market. Because we saw housing starts beat expectations in October. And there's a lot going on there. So first, thank you for joining us, Jeff.
JEFF TAYLOR: Thanks for having me, Adam. I really appreciate it.
ADAM SHAPIRO: I want to start with one thing in particular. Because there was a digital risk survey that found 61% of Americans are concerned about the state of the housing industry. Some are worried that it's too expensive to get in. Some are worried that they're missing out and can't get in. What do you take away? What are you seeing happening across the country in housing?
JEFF TAYLOR: So, you know, across the country in housing, compared to where we were 10 years ago, when people say they're concerned, they're concerned they can't get what they want, right? The housing market is as tight as it's ever been in the last seven to eight years. Housing starts are up.
People are looking for more space. People are realizing, look, going through this pandemic, I may need to have to school my children, work from home. So they're worried about, am I going to be able to buy the house that I want at the price-- the price points that we have right now. And then when you look at the overall housing market, we're going to be somewhere between a $3.39 trillion market and a $3.9 trillion market.
To give you perspective, that will be the second-biggest residential housing market in the history of the US. And from where we sit, at Digital Risk as the largest fulfillment country-- fulfillment company in the country for residential mortgages, it could be $4.5 if there was the capacity. So the housing market is extremely healthy. From a consumer perspective, it's just, can they find the right house that fits their needs that are ever-changing today.
SEANA SMITH: Jeff, when you look out into 2021, would you expect that a lack of demand then to meet-- or a lack of supply, I should say, meet demand. You mentioned the fact that it's the tightest that it's been in seven to eight years. When can we expect it to balance out a little bit?
JEFF TAYLOR: You know, I think you have to look out to maybe '24. Because if I look at companies like Lennar and DHI, specifically Lennar, they're homebuilding, they cannot buy enough land and build the houses quick enough because, finally, you have those millennials that were on the sideline for so long they are now coming in to the marketplace and that are buying. And then on top of that, you have people living in big cities that rent apartment buildings saying, you know what?
We can probably leave here. We can go into the suburb. And we can- we can work remote. So [INAUDIBLE] specifically with that builder segment, I see an incredible run through '21 and '22, coupled with interest rates probably staying around, you know, the Fed rate around zero. So it's a perfect storm and a great wave ahead for the building market.
ADAM SHAPIRO: Nothing in this indicates to you that there might be a bubble forming that could end, perhaps, poorly in 2023, '24?
JEFF TAYLOR: So it's a great point, right, Adam. Go back 10 years ago, the problem with the housing market was nobody really had equity in the houses. Therefore, when times got tough, they gave back the keys. And we had-- talk about trends around foreclosures. Let's fast forward to where we are right now.
Home price appreciation is still pretty much flat. It's going to be probably up 1% this year. But going forward, we have close to $20 trillion in home equity right now in the entire US housing market. So I don't see a scenario in the next couple of years where you have on a mass scale people walking away from their houses saying, look, we just-- you know, we don't want them. If people have a life situation where they want to get out of the houses, they'll sell them, make a profit, and maybe become renters or what have you. But I don't see a bubble ahead.
SEANA SMITH: Jeff, mortgage applications rose 4% for the week. And I bring this up because when you take a look historically at November, it's not usually a strong season right for home buying. Is it all because of the pandemic? Does some of it have to do with the election outcome? What's your read on that?
JEFF TAYLOR: It's still-- so to comment a few minutes ago, it's right now you had so much demand for refinancing and for purchase that, you know, basically, this could've been a $4.5 trillion market. So what you're seeing right now is people still trying to get that refinancing or that purchase in. And where the summer might have been the buying season, it got pushed into into the fall for reasons like maybe they couldn't get into the house, they had reasons at work or they were out of stock.
So the whole season has adjusted. And I can-- I expect to continue to see the housing market on fire through at least the first half of 2021, maybe slowing down a little bit in that refinance component in the second half of '21, but very strong through June of 2021.
ADAM SHAPIRO: Help us understand something from your fall 2020 housing survey. I get why lots of people go to Florida, no income tax, right? Makes sense, especially when you're coming out of New York.
JEFF TAYLOR: Right.
ADAM SHAPIRO: But California, the survey found 11% indicated an interest to move to California. No water, high taxes, explain that.
JEFF TAYLOR: You know, it's the East Coast, West Coast phenomenon, right? Still at the end of the day, if you're retiring, downsizing, you still see a lot of demand going to either coast, whether that be Florida or California. Look, I live in Miami. I agree with you. I left New York. I'm back in Miami.
I'm very happy in Miami, Florida. But we're still seeing that California and Florida are high demands. In California, even with the taxes, we still see 11% people in that survey saying they were looking to move to California.
SEANA SMITH: Jeff, also going off that survey, it was interesting to me what you saw just in terms of the forbearance and the need for that from some of your participants, 24% saying that they do anticipate needing to ask for further forbearance if government relief for COVID-19 is not extended. How do you see that affecting the housing market in the near term?
JEFF TAYLOR: It's a great question. So first, let's talk about what the forbearance programs actually work, right? So they can opt in. They get 90 days. They can re-up for six months. And they can go up, they can go up to 12 months.
So when the survey was done a few months ago-- and, again, time is moving so quickly these days. I still think that people were thinking, we may need to take forbearance, which is, do we feel really good about our jobs and when are we going to be back on our feet. So right now it feels like the job market-- unemployment is down to 6.9%. It feels like maybe that 24% will be lower than what it is going forward.
But I think that's people also still saying, I have a little bit, potentially, in a safety valve if I need it. I know it's there. I know I can pay the loan back on my terms later on. And they're probably saying, this is something that we're still keeping in our arsenal to pull out just in case we need it.
ADAM SHAPIRO: Jeff Taylor is the co-founder and managing director at Mphasis Digital Risk, joining us from the shores of Biscayne Bay, Miami, Florida. All the best to you. Thank you for being--