Lending Tree Chief Economist's Tendayi Kapfidze joined Yahoo Finance Live to break down his thoughts on the state of housing.
ADAM SHAPIRO: So we saw housing starts, Commerce Department told us that they rose by 3.6% month-over-month in May to a seasonally adjusted annual rate of 1.57 million. But it wasn't quite what Wall Street was expecting. You might say it actually was a bit of a miss.
So let's walk up to this and what it means and open a door on the future as we bring in Tendayi Kapfidze. He is the Chief Economist at LendingTree. It's good to see you, Tendayi. And I mean, this isn't-- there's going to be no relief in the future, whether it's the housing starts or people trying to buy a home based on these numbers for people who are getting priced out, is there?
TENDAYI KAPFIDZE: No. Unfortunately, there's a huge deficit in term [AUDIO OUT] you know, new construction and the supply of homes. Actually, a study just came out from the National Association of Realtors, and they estimate over the past 20 years, almost 6 million deficit in new construction.
So we've got a big gap in terms of homes that are available. And unfortunately, it's going to continue for a while. There's labor shortages. There's shortages of lumber. And all this translates, of course, into higher home prices.
SEANA SMITH: So Tendayi, what does this mean for housing starts? Because yes, we did see an increase. It wasn't what the Street was expecting. But is there enough, though, that we could continue to see this upward trend, at least for the next several months?
TENDAYI KAPFIDZE: Yeah, I think so. If you look at home builder confidence, that's still pretty high, even though it did fall to a 10-month low. The decrease in builder confidence has more to do with some of these supply chain issues, which hopefully will ease as the world kind of returns, you know, with the success of the vaccination programs in the US and around the world.
So I think if builders can get supplies, and if they can get labor, which hopefully both those two things are going to improve later on in the year, we should see construction continue to trend upwards. And it's important never to look too closely at kind of month-to-month fluctuations. It's more the long-run trend, and that's been an upward trend for a number of years now.
ADAM SHAPIRO: But when you look at the future, especially with lumber when we talk about the supply constraints, I mean, futures for delivery have fallen quite dramatically from what they had been at the end of May. So if I'm looking at maybe building a house, is it perhaps time to hold off? Because we're waiting for the labor market to turn in September. We see the supply chains opening up and prices coming down. Would it be in my interest to delay?
TENDAYI KAPFIDZE: I don't think so. And the reason I say this one, it takes a really long time to build a house. You probably want to get started and get going. And then secondly, I mean, it's really difficult if you're almost trying to, I guess, to time the market on when to build the house, right.
What I typically suggest to folks, whether it's building a house or buying a house, is that you really want to make a lifestyle decision first and not necessarily try to get into this game of what are interest rates going to do, what are lumber markets going to do? You know, the people who engage in these markets every day themselves can't predict these markets. So really, make a lifestyle decision, and then, you know, you're a price taker in the marketplace for lumber and a price taker in the marketplace for mortgages, and just get the best deal you can when you engage in those markets.
SEANA SMITH: So certainly still a lot of demand for houses in the suburbs, but we're seeing a resurgence a bit in some of these crowded cities, namely New York. We're seeing the prices of some of the apartments and homes sold in this city well off the lows of what we saw in the middle of the pandemic. Is this something that you expected? Or the comeback that we're seeing now, is this a little bit earlier than we initially thought we would see?
TENDAYI KAPFIDZE: Yeah, I think the comeback is directly correlated to vaccination rates and just kind of the phenomenal success that these vaccines have been, success rates in the high 90s for most of the various vaccines that are broadly being used in the United States. So I think certainly nobody could have predicted or maybe expected vaccines one, so quickly, and vaccines that are just such an absolute success in terms of their impact on this virus, which is really making people much more comfortable once again being in these kind of more crowded, more dense downtown city areas. And so those areas are coming back relatively strongly and relatively quickly compared to, I think, what people might have expected at this time last year.
ADAM SHAPIRO: Tendayi, we hear you loud and clear, a lot of us, when you say it's a lifestyle choice and don't try to time the markets. But given what we saw today on the 10-year with yields going up, I mean, interest rates for mortgages are going to start to follow, or not?
TENDAYI KAPFIDZE: Yeah, I think definitely interest rates for mortgages tend to follow the 10-year Treasury somewhat, right. But there's also a lot of industry-specific factors that will impact the interest rates. So for example, if we get a general increase in interest rates, it means that refinancing activity is going to slow significantly, but lenders have kind of staffed up, right, for a lower mortgage rate environment.
That means that they have a lot of capacity. And typically what they will do is that they will lower their profit margins perhaps on the purchase mortgages in order to draw volume and gain market share from their competitors. So you can see an environment where you can actually have the 10-year Treasury going up, and you can have mortgage rates not going up as fast or, in some cases, even kind of staying flat.
That really has a lot more to do with competitive dynamics in the mortgage industry, including, you know, what-- what input we get from the 10-year Treasury. So I think mortgage rates are probably going to remain attractive for probably a long time, probably all of this year, a good bit into 2022. It may not be the rock-bottom mortgage rates that we've seen recently, but I think we'll still get great rates for somebody who's trying to enter the market.
ADAM SHAPIRO: Somebody who might have triplets, one of whom is opening a door, another who is just starting to walk. Tendayi Kapfidze, it's always good to see you, and all the best for your young family. Tendayi, we should remind you, is the LendingTree Chief Economist. Thanks for joining us.