Jeff Tucker, Zillow Economist, joins The Final Round panel to break down the record high number for the Homebuilders Confidence report and expectations for the housing market moving forward.
- Let's throw down into something that Jared mentioned here and that's action that we're seeing in a lot of the homebuilders. Because this morning we got that homebuilder confidence report out and hit a new record high in August, not of course being helped by lower rates is boosting some of that buyer traffic out there, but to dig a little bit deeper we have Jeff Tucker. He's at Zillow economist. He joins the program now.
And Jeff, when you take a look at this morning's report, I mean, I think it just highlights the question, just how that housing market has behaved during this crisis and it has continued to hold up relatively well. I'm curious just what kind of traffic and market activity you're seeing at Zillow.
JEFF TUCKER: Yeah, so we've been seeing record traffic on Zillow, looking up for sale listings all summer. We absolutely saw a dip in March and April. And housing activity really did pullback for a couple of months there but buyers have come back in a really big way and we've now been seeing pending sales running at least 17% above a year ago levels for weeks on end now. So really expecting, for instance existing home sales coming out later this week to show a really strong rebound, probably back or above a year ago levels for the July numbers at the end of the month.
I think the story there is that record low mortgage rates are giving people a reason to shop right now and buyers are actually running into some pretty limited inventory. So all of that is great news for homebuilders, they are the other source of inventory aside from existing homeowners being willing to list their homes.
They started the year extremely confident. The COVID 19 sort of obviously put a damper on things this spring. They've been looking at the same data we are at Zillow, which is that there are way more buyers than there are homes on the market right now, so it seems like builders are just absolutely firing back up. They're firing on all cylinders now.
- Which markets are you seeing for the biggest increases right now? We've heard of the exit from the cities and how people are moving to low tax states, are there any areas that have kind of surprised you, that have been really resilient?
JEFF TUCKER: So the leading market is actually not terribly surprising, it's Phoenix, in terms of major metros for price appreciation right now. It's been a pretty hot market for years now. It's a very popular kind of sunbelt destination, there's abundant new homes being built there, but even despite that prices are rising pretty quickly.
Some of the surprising ones we've seen a lot of strength in sort of medium sized midwestern metros. Cincinnati, Kansas City, Cleveland, these places are seeing some pretty impressive price appreciation at the moment, so broadly speaking we're just seeing really low inventory across the board and that's making homes sell faster. So homes are taking about half as long to go pending as they did this time last year and that is absolutely putting upward pressure on prices now.
RICK NEWMAN: Hey, Jeff, Rick Newman here. So, there was an affordability problem in housing before the Feds started cutting interest rates again and we got mortgages back down to around 3%. So now we've got super low mortgage rates, increasing demand that leads to the higher prices you just talked about. Is all of this making the affordability problem worse, especially for people just trying to get into the market for the first time?
JEFF TUCKER: Yeah, I think a lot of people, actually a lot of people in the millennial generation who have already sort of put off homeownership longer than previous generations, I think a lot of people were sort of thinking one silver lining of this recession might be a chance to be able to afford a home finally.
But if there were really any bargains on prices, it may have been back in April and May, but we never really saw prices drop this time around. On the bright side, the lower mortgage rates do make that monthly payment more affordable, they just don't do a lot to help you save up for that down payment. Especially in a really expensive city like here in Seattle or New York or San Francisco.
What we are seeing is, I think a lot of folks are kind of angling for some of these maybe secondary cities, so again, I'm coming from Seattle here, we've, seen the strongest price appreciation in Tacoma. Which is up to an hour away but there are several cities like that within a pretty short drive where the price level is not so out of reach for people on more typical middle class incomes.
But the kind of big story here is that we really under built housing in this country for about the last 13 years. We really swung too far the other direction after the last housing crash in the Great Recession. And now we've got not enough supply and this huge millennial generation. There are 5 million more people right now between the ages of 26 and 35, than there were 10 years ago. So that's just the sort of demographic wave driving demand for it.
And I think you're absolutely right, that affordability and especially in terms of the top line prices, is only going to get worse.
- Hey Jeff this is Emily, I just want to go back to the National Association of Home Builders report we got out this morning. Interesting detail in there talking about actually lumber price inflation, so this is more on the new home side of the equation. Is that something you're seeing as well and do you see that as being a credible downside risk for the housing market going forward?
JEFF TUCKER: Well, it's absolutely true, lumber prices are through the roof due to a combination of demand from homebuilders, a ton of remodeling work, ton of bars and restaurants have been out there buying up tons of lumber to build outdoor patios, sort of just like a million reasons everyone's trying to buy lumber this summer. Combined with some supply constraints, including some pretty big tariffs on Canadian lumber, which was traditionally a major source for lumber in the US.
All of that is absolutely making this critical input for new home construction much more expensive. I think that's definitely going to increase the price of these new homes that folks are able to build. Given just how strong this demand is for new construction though, I think basically that consumers are going to be willing to pay it. The builders are just going to pass that on to the buyers. And I think they're going to be willing to pay it.
When I mentioned our traffic on Zillow has been up double digit percentages this summer, pretty much whatever it's been for the site overall, it's been up twice that amount. So back in June on new construction listings on Zillow so, back in June new construction site traffic was up 80% year over year. So buyers are just really hungry for new construction right now so I think they are just going to pay that extra lumber cost.
- All right, Jeff Tucker of Zillow. Great to have you on the show. Thanks so much for joining us today.
JEFF TUCKER: Thanks for having me on.