NAR Real Estate Forecast Summit: Residential Update

Good afternoon and welcome.

Thank you for joining the National Association of Realtors for our in-depth Residential Real Estate Forecast Summit. I'm Kevin Sears. I'm your 2023 NAR First Vice President and a REALTOR® from Springfield, Massachusetts. At today's summit, we'll cut through the headlines and hype and focus on the market trends and original data our skilled economists are tracking.

These sessions are invaluable for realtors and their ability to strategize for their clients and prepare for changing conditions, and they provide critical insight about the economy’s impact on home ownership itself.

Now, before we begin, I do have a couple of upcoming events that I’d like to share with you. NAR is partnering with CCIM for NAR’s third annual C5+ Summit, which will happen September 28th through the 30th in Atlanta, GA. You’ll have the opportunity to learn from top commercial leaders and hear about opportunities that will drive the economy. Visit c5summit.realestate for more details and to register.

You’ll also want to save the date for the fifth annual iOi Summit. iOi stands for Innovation, Opportunity, and Investment; that will be happening August 29th and 30th in Miami, Florida, where you’ll be able to connect with over 700 technology leaders and futurists, investors, and forward-thinking real estate professionals that come together to fuel the future of our industry. Visit ioisummit.realtor for more details and to register.

Finally, the link to today’s session. The recordings and slides will be available on our website, nar.realtor/forecastsummit. Let me say that again. It was a mouthful: nar.realtor/forecastsummit. finally the link to today's session. They'll also be posted on NAR's research social media account pages.

So on Twitter, the handle is @NAR_Research, and you’ll also want to follow the hashtag, #ForecastSummit.

So, without further ado, I'm pleased to introduce our two esteemed speakers today, Dr. Lawrence Yun and Dr. Jessica Lautz. Jessica is NAR’s Deputy Chief Economist. She analyzes trends for members and consumers through surveys, focus groups, and data analysis. Jessica Lautz frequently discusses her findings in major media outlets and international presentations. She has received numerous accolades for her work, including being named among the 100 most influential women in the housing industry. She received her doctorate of real estate from Nottingham Trent University in the United Kingdom, and a master's in Public Policy from American University. And on a personal note, I want to give a shoutout to Jessica's husband, T.J.

Next we have Lawrence Yun. He is NAR’s Chief Economist and oversees NAR’s Research Group. He supervises and is responsible for a wide range of research activity for the association, including NAR’s existing-home sales, statistics, affordability index, and the home buyers and sellers profile report. Lawrence creates NAR’s forecast and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal forecasting survey. He appears regularly on financial news outlets and is a frequent speaker at real estate conferences throughout the United States and has testified before Congress. Lawrence earned his PhD from the University of Maryland at College Park. And on a personal note, I had the pleasure of being with Lawrence recently in Plattsburgh, New York, for the Regional Real Estate Summit. So please join me in welcoming Dr. Lawrence Yun.

Great, thank you, Kevin, for the introduction. And definitely Kevin, as part of the NAR Leadership Team, goes out to meet with members, trying to get REALTORS® engaged in their community and also talk about the importance of real estate to the local community, to the national economy, and to address some of the issues that we are facing, such as inventory shortage, what NAR is doing related to trying to address some of the inventory shortage that is out there in the marketplace. So, you know, we are very lucky to have Kevin as part of the NAR Leadership Team, advocating REALTOR® issues.

Now to the economy, market trends, and what to anticipate.

I will speak for roughly 30, 35 minutes before turning it over to my colleague who is right in the next office to mine here in Washington. I am here in Washington. The traffic is fairly light because federal government is still working remotely on most days, and is a different environment. As we all know, especially in many major cities, the remote work has changed some of the landscape. But this morning I am concerned that the government borrowing rate has ticked up because, when the government borrowing rate ticks higher, 10-year Treasury yields at 4.1%, breaking the 4% mark, that just means the mortgage rate, unfortunately, will follow that trend.

So, what’s happening related to the downgrade of the U.S. debt has really bumped up some of the borrowing costs and, you know, this is today’s news, but let’s see how things will play out. So let me put the PowerPoint onto the screen and then go from there. So here is the slide and put it in the right mode. So there we are.

Let’s first start from the downgrade of U.S.A. debgt. First, I’m not sure if this is really a serious remark to put a downgrade, because everyone knows if you buy a U.S. Treasury bill, you can be assured that you will be paid back. I know at times there’s a government shutdown or little game playing, but no one really panics, because even if it’s a delay, a few days, a few weeks, everyone knows the U.S. government will pay the people who have purchased the government bonds, Treasury bills.

But I think the downgrade is related to this chart. The orange line that you see is the tax revenue that is coming to Washington. So here the red line is all the dollars that are coming in, while the blue bars represent how much government spending there is, and I can, especially in the second half of the graph, you see that blue bar is much larger than the tax revenue. So that’s the deficit. And then when COVID hit in 2020, massive deficit, naturally people were unemployed, at least temporarily. And then there was a massive COVID stimulus in play, but even today, as you can see, that lingering impact of the COVID, the spending along with the tax revenue anticipated to be slightly lower this year, especially related to the capital gains tax collection, because the stock market had been weak, recently recovered, today not good. But you know that, so one sees the large budget deficit, and maybe this is the reason, just for a wake-up call to say, “Hey, people in Washington, let’s be serious. You know, don’t play games.”

Let's focus on serious issues so that once we begin to focus on the debt issues, perhaps it could be upgraded back to the safest asset. That means lower borrowing costs on most long-term debt, including the mortgage borrowing conditions.

Now, the Federal Reserve has not helped on the mortgage rate conditions. So this is the Fed policy on fed funds rate, the short-term interest rate that Fed charges to the banking system. So it’s the interest rate, not for you and me, but for the banking system from 2019. You see what it was and, in the middle, shows the uncertainty related to the COVID. So the Fed essentially put the interest rate at zero, zero interest rate condition. But look what happened from last year. Rate hike after rate hike after rate hike, the most aggressive raising of the interest rate in 40 years. Essentially, this is a, you know, once-in-a-generation type of rate increase that has occurred.

So this high interest rate, as all the REALTORS® would know, in the marketplace, has really bumped up the mortgage rates, pricing out some potential buyers from the marketplace, uh, with some attitudinal surveys related to home buyers. I mean, they're saying they want to buy a home. They have that aspiration. They're simply priced out at higher mortgage rate condition. And the recent meeting, they raised the interest rate. One more time. The next meeting will be in September. There's two data points that will be coming since, uh, until the next meeting. There will be employment report one coming this Friday, and then another one the next month. And the key consumer price inflation data.

So Federal Reserve will have two chances of reading the consumer price inflation to determine its next action in September. If the data shows moderating inflation, I think it's possible that the Fed may stop raising interest rates just essentially for the remainder of the year, or with even with a possibility of cutting interest rates, should the economy, uh, become a little wobbly, because, you know, the job of the Federal Reserve is also to keep the economy stable, aside from trying to contain the inflation.

So fed rate hike last time around, the next one is in September, but we have to wait and see as to what will happen. The Wall Street, right now, the betting in the Wall Street has 50/50 chance of another rate hike in September, but Fed has indicated they will be data dependent. They wanna see the data before deciding what to do.

Now, one of the data points that we'll be looking at is the broader economic activity called GDP, Gross Domestic Product. If it is going gangbusters robust activity, then Federal Reserve may say we don't need to cut interest rates, maybe we need to hike interest rate. But if the economy is showing some slowing conditions, then they will be much more cautious about raising interest rates.

So one data point that we’ll closely monitor is GDP growth rate, and I would say it's somewhat sluggish—3% growth will be sort of normal. Above 3% will be considered robust. Right now, one can say is, one 10 low of the ideal GDP growth rate.

Now, one sector that has really common under pressure on the GDP number is the residential housing investment. It comprises all the economic activity, income generation related to home building, home sales, mortgage origination, title appraisal, remodeling, moving trucks. So you can think of all this type of activity, and it has actually been falling even before the rate hikes.

So, you know, home sales boomed, uh, back in 2020 and 2021, then it no longer rose from that point, I mean, it was at the peak condition. Then, as you can see in 2022, it really came down from the higher mortgage rate conditions. So you can say the housing sector underwent recession housing, recession housing, uh, you know, fewer income generation conditions for the past two years. Fortunately two last bar point is indicating much diminished, uh, figure, uh, meaning that declines are still happening, but at the lower pace. And I think by the third quarter you will actually turn positive, uh, because home housing starts, the early indicator for future home building activity, has been rising.

So I think that will begin to turn the corner. Furthermore, from the homeowner's perspective, in some areas they saw some price declines; in other areas, no price decline, but any price, uh, uh, condition, I think we have essentially reached the low point and now will be set for some increases, especially given the continuing multiple offers situation that's happening in the marketplace, uh, in the lack of inventory.

So housing recession, I would say, is essentially over. Uh, and, but this data clearly indicate the past two years, tough condition in the past couple of years. Inflation is the reason why the Fed has been raising interest rates.

So typically inflation would rise 2% a year. You go to grocery store, you go buy, wanna buy something, uh, baseball tickets, you know, prices rise about 2% a year or typically, but you see what has happened, uh, in 2021 conditions, fast rising inflation. So this is the reason why the Fed has been so aggressive. They're saying their job, the Federal Reserve's job mandate, is to contain inflation.

So they have been raising interest rates, but guess what? Inflation is beginning to calm down. The latest reading is showing 3% inflation. Soon it will be 2%, essentially an ideal rate of the, what the Fed is desiring to see. So if this is the case, then it's clearly the, uh, that Federal Reserve may not need to raise interest rates.

Now, someone who has studied economics, Econ 101 in college, you will know that there is always a lag time between monetary policy and the full impact of that to the economy. So given that the Fed has been raising interest rate earlier in the year, and also one few weeks ago, the full impact has yet to show up, which means that inflation will be definitely much calmer. So I think the rate hike conditions should be over, but we have to wait and see what the Fed really wants to do in September. But I think the Fed is you either close to ending their rate hikes, or in my own personal opinion, that should not even have raised the interest rate last round because of the long lag time between what occurred in the springtime, and that has yet to be filtered down.

So I think the inflation would be much calmer. In fact, if we look at this graph a little differently, so the blue line that you see here is the same inflation picture as the prior chart. So this inflation blue line is the same blue line in this chart. The red line is people's wage growth. If you look at the beginning of the chart, 2019, those are normal conditions where the red is higher than the blue, people's standard of living rises. Wage growth, little above inflation.

So that will be under normal circumstance, but the green box in the middle is a special circumstance due to the great uncertainty of COVID. So massive COVID stimulus spending out there. People had additional income, and you can say that extra amount of extra income really led to the inflation getting out of hand. So then the inflation really got out of hand. But if you look at the very last point, very last data point, we are now at a point where the wages are rising faster than people's wage growth. So maybe we turned a corner related to the improvement in the standard of living, but it was couple of years where people's, uh, standards of living were falling behind because inflation was outpacing people's wage growth.

If we look at some key items on the consumer price inflation, we see the following table. Let's start from the bottom.

So gasoline prices are lower, important for the REALTORS®. One of their major expenditures is that they are driving around all day long, they spend a lot on gasoline. So gasoline prices are a little lower, but you are saying, well, you know, it took me $70 to fill it up. I know that it was a hundred dollars last year, but before COVID it used to be $50. So we are not really necessarily happy, but at least it is no longer a hundred dollars to fill the tank. So a little lower concerning the gasoline prices.

Airfare is lower, but so much delay. So many headaches, flying around. Medical service. I don't know how they measure it, but they're saying actually things are a little cheaper now to get a medical service.

A little expensive, new car, 4.1% higher price, lodging away from home essentially at hotel, motel, maybe Airbnb, how much you can charge. Many REALTORS® are involved in Airbnb business, electricity to run the household, 5.4% higher grocery store. Not a happy store yet. It's a daily reminder.

So even though inflation appears to be contained when you go to grocery store, you are not happy.

5.8% rents 8.3% increase. This is a heavyweight. Very, very big, big factor.

And car insurance is a little bit of an outlier. Uh, just briefly, I think the reason for car insurance being so high is first, there is a labor shortage among people with trade skills, you know, trying to fix cars. So naturally with a shortage of labor, anytime there's a car crash, it's, it's more expensive to fill.

And the second reason is, I mean, here I'm in Washington and I think many people living in, like, San Francisco, we’ll say, is increased auto vandalism. Teenagers are going out and smashing car windows and such. I mean, that is not a free lunch. Even if your car is not damaged, you are paying some of it in terms of higher car insurance. So, you know, we have to really contain some of those, uh, vandalism out there. And maybe we can get more people to go into trade skilled labor, in order to bring down the car insurance. Uh, but the rent, let me refocus.

Rent is the heavyweight, and it, according to the government, is rising at 8.3%. That is a very large increase. You may be wondering, you have a rental property, did you increase rent by that much in the past year? So, the situation on the rent, according to the government, on a longer time graph looks like the following. So from a year 2000.

So typically if you are owning a rental property, you are charging 3% higher or 4% higher rents. But look, 8% maybe, as you can see at the, towards the end, maybe it's beginning to turn the corner. That is to say it is still rising, but maybe at a slower rise than before. Eight percent sounds large. Maybe I am a little blinded because I live in the Washington area where housing price increases, along with the rental increases, has not been as strong as all the national statistics have been indicating. So, but uh, right now the national rent, according to the government, is saying 8% increase.

But why should it rise so high when we have so much apartment construction, so much empty apartment units reaching the marketplace?

So I think it's just inevitable. Rents cannot rise at 8% continuously. So as the rents come down in the future months and going into next year, inflation, consumer price inflation will be much calmer, better behaving, which will allow the Federal Reserve not only, uh, about stop raising interest rates, but the possibility of cutting interest rates once the inflation truly calms down, uh, well below, uh, in the end, if that is combined with a little shaky economic condition, I mean that will definitely call for the Federal Reserve to cut interest rates. But that will be towards the end, end of this year or maybe going into next year.

Private sector data, not government data. According to private sector data, at least related to apartment rents, they're indicating the apartment rents are only rising about 2% from one year ago. So a little mismatch between the private sector information; this is only on apartments. Government data includes single family rentals along with the apartments.

But anyway, uh, right now there appears to be some disparity between private sector data, government data, but maybe the government data will eventually catch up with the private sector data. And if that's the case, uh, expect calmer growth in rents, but also calmer inflation, which will permit for a lower interest rate environment.

Now, home sales, because mortgage rates are much higher, home sales during the first half of the year are down 23%. This data that you see front of you that is month-to-month change in home sales is something called seasonally adjusted annualized sales.

All the economic data has to go through this process. Employment data, the GDP data and such, to assess the momentum of the market. And the momentum of the market is, for the home sales, down 23% below one year ago, uh, you know, the first half of the year versus first half of last year. Also note the line in the middle is COVID arrival, so pre-COVID/post-COVID separation.

So you see the recent activity is well below pre-COVID. So we had that initial boom when the interest rates were low, but now it's much lower such that we are now current activity is low pre-COVID conditions, but new home sales, interestingly, are back up to pre-COVID or doing a little better than pre-COVID conditions.

You look at some of the publicly listed builders, large builders, KB homes, toll brothers, Lennar, their stock prices are up 50%, 60%, 70% because they build those empty homes. And what do you know, they can find buyers and make the sale existing. Home inventory is limited, but the builders can add inventory to it and they can find a buyer. Now, hopefully many REALTORS® can participate, or I should say the builders still offer, uh, REALTORS® to bring the clients and then provide the compensation. Uh, but right now the building activity, uh, the business opportunities, their, their stock prices are high and they are back up to pre-COVID a smaller market, generally about only 10% of the total home sales.

But now because of the inventory availability on the new homes is making up about 20% of all transactions are newly constructed home sales. And in fact, let me illustrate this, uh, the inventory of existing homes on the left hand side, historically low levels on the right hand side, new home inventory by their standards and more upper end. So they're able to produce, bring inventory, and they can get the sales done.

But on the existing side, just for comparison, pre-COVID, at this time of the years during the summer, we had 2 million homes listed for sale. Today we have only 1 million. So that is the difference and that's why we have these multiple offers. Not all demand is being fully satisfied. One other thing, uh, Kevin Sears’s leadership team is, uh, advocating in Congress is to say, can we provide a way to bring more inventory to the market?

Certainly trying to bring more home building activity or converting some of the empty office buildings into residential units could help, but that's going to take time.

But a more immediate impact would be if there is a temporary capital gains tax relief for sale of a residential property, that is, a rental property, but is sold to owner occupant. You can put a restriction, first generation buyer, first time buyer, income restriction, whatever it may be, and you may have some of the real estate investors trying to take advantage of that situation. Uh, but we're working on it. Uh, many congressional staff are aware that, you know, we're pushing for this. Hopefully they listen.

Unlike back in 2008, subprime lending foreclosure problem, the problem back then was too much inventory. So what happened there was a home buyer tax credit, thanks to NAR pushing for that measure and the buyers return to the market condition. But today we are in exactly opposite. We don't have enough inventory. So maybe by providing some tax incentive for real estate investors to unload, maybe we can get immediate inventory onto the marketplace. We are working on it. Please be patient. Uh, I know Congress is focused on many, many issues out there.

Now, home prices.

So home prices are down 1% on a nationwide basis. In San Francisco it was down close to 15% in our most recent measurement. So there are some variations, but, nationwide, down 1% from one year ago. Uh, and if we look at the price change in not the actual median price, but percent change, so little, uh, different computation on the data.

So the first big circle shows the foreclosure crisis that happened in 2008 all the way through the 2010 period. But look at this, the recent, there was some decline, but I think this is over.

So you may actually say, wow, home price decline is already over, uh, multiple offers returning to the marketplace. So anyway, this is the home price trend, uh, that we are observing.

Looking at other pricing measurement, another home price measurement by the federal government, something called Federal Housing Finance price index. If we look at the month-to-month price change, it's actually showing some acceleration. So price decline, middle of last year, but now you can see that it's beginning to show consecutive months of increase.

Now, nationwide, if we look at the price change, there are some negative markets. So if you see orange, uh, yellow color, they are down from the prior quarter.

So price change from one quarter, and then we annualize the condition. So you can see Nevada, if you can pinpoint Nevada, it is down 7.9% from the peak condition on an annualized basis. The blue color is all positive, all positive, uh, conditions. So this is a change in prices in one quarter. So focus on Nevada just because they're down. But if we compare from one year ago change in Nevada, they're still positive. 2.2% darker blue are even more positive.

So like Florida up 13.1% from one year ago. But look at this three-year change from the onset of COVID. So again, going to Nevada, they are up 38.7%, even accounting for the recent decline.

So you may even say that well recent decline really have no impact on Nevada at all. Maybe only the most recent buyers were impacted. But for people who bought home in Nevada, Las Vegas, say three years ago, two years ago, they're all doing fine.

Again, darker, uh, blue are doing, uh, out performers. So you can say Utah is outperforming Arizona, Idaho, Rocky Mountain State, along with the Carolinas and Florida. They are the outperformers, I guess Maine. Maine is doing pretty well, uh, out in the New England state. So price change condition.

So there's always little change from one quarter to the next. But if you look at the longer-term perspective, you can see how this has brought great wealth accumulation for homeowners.

Now, foreclosure situation looks to be non-existent. These are serious mortgage delinquency that we are monitoring. Middle of the graph is the subprime lending, uh, implosion that happened. Thankfully, we don't have subprime lending anymore. Uh, and the serious delinquency rates currently are at historically low levels, as you can see. So I don't anticipate any increase in distressed property sales, home ownership. Maybe this is the peak, especially given that first-time buyers are unable to enter the marketplace.

But you still see some variation across the country. Generally speaking, more affordable states higher home ownership rate. So if you restrict supply and prices really skyrocket like in California, Hawaii or New York state, then home ownership rates will be very low.

Now, the upstate New York home ownership rate is high, but the New York City area, expensive area, uh, the home ownership rate would be low.

But look at your state and see where it is.

But this may be the peak unless we address inventory. If the inventory is limited, maybe this will be the peak in home ownership rate, because it's a top goal for first-time buyers out there.

Let me now turn to the job market before turning into the forecast.

So related to the job market, would each passing month more job creation? Earlier in the graph shows the COVID lockdown job cut, but now we have 4 million more people working now than before.

Job opening is much greater than those people who are still searching for jobs. So red is job openings, while the blue is people who are searching for job. So we have a labor shortage, but no, just the red part, just the red color. It is less strong job opening condition now than before, indicating the economy is less strong compared to what it had been.

So even though we are still in a labor shortage, you see that job opening number is beginning to go down, go down, go down, uh, condition. Another point is that line that I showed you, people who are searching for jobs, well, they are searching for jobs, but there are many Americans who are not even searching for jobs. These are people who are completely out of the labor force.

Now, if you are retired right, you should not be in the labor force. But you have to wonder why was there a sudden spike when the COVID came, but it never went down again. So a number of people are out of the labor force. Labor force remain elevated. If they were to return to the workforce, then certainly then, you know, you will lessen some of the inflationary pressure that is out in the marketplace. But many people, they went out of the labor force and not returning to the labor force, which is contributing to the labor shortage related to the job creation, I'm looking at pre covid to the latest information.

How much job creation in each of the individual states? Texas, 8% more jobs. Massachusetts, where Kevin Sears is from, a little sluggish: 1.4% more jobs in the state of Massachusetts. Blue is positive, but red, I'm glad there's only few states that are more, you know, lighter color, brown, yellow color, uh, condition. But you see there, Hawaii is down 4% from their employment pre-COVID.

Uh, but some variation across the country. Uh, and the mortgage rate forecast, big driver for home sales is the following.

So mortgage rates began to rise last year, but we are not done. So as you can see, 2023 on average is actually higher than the average for 2022, but next year it’s expected to go down. And if that is the forecast, what's going to happen to the home sales is that home sales are essentially bottoming out this year. Blue is new construction, the peach color is the existing home sales, but right now we are essentially bottoming out in home sales before an anticipated upturn going into next year. But this is contingent upon mortgage rates falling.

So, uh, what is the prospect that the mortgage rate will actually decline?

So the mortgage rate will fall, in my logic. I mean, I could be wrong. Today's information downgrading the U.S. debt. That's not a good news; that's going to make mortgage rates a little higher. But the logic behind my reasoning is the following.

First, the rents will calm down so much empty apartment construction that will contain consumer price inflation, which will make the Fed stop raising interest rates and even cut interest rates going into next year.

Second reason, every time Fed raises interest rates, it's doing great harm to the community banks. We even saw a few community banks actually go bankrupt the Silicon Valley Bank. I think the other community banks, but they're under great stress and the Fed is aware of this and I think they want to minimize some of the damage. So they are cautious of not wanting to harm the community banks.

The last point, uh, which is more esoteric, is that mortgage rate follows the government borrowing rate, but by certain spread, because most mortgages are government guaranteed. FHA  government guarantee, veterans affairs, government guarantee, and even mortgages originated by, say, Bank of America, local mortgage lender, get sold to Fannie and Freddie government guarantee. Government guarantee means there will never be a default unless the U.S. government defaults on those people who are providing those mortgages.

So why buy government bonds at 4% when you can get mortgages at 7%? So there's always a little, uh, a spread. So right now the spread is a little abnormally large, but I think that spread has steadily declined and that as the spread returned back to normal, mortgage rates could be, or should be, closer to about 6%. But so far it hasn't happened.

So we have to wait and see. Let me uh, just stop there. Uh, we did release our latest study on international buyer report, but I will ask the reader, uh, the audience to go and look at the report.

Some states are very heavy on international buying activity, but I wanna turn, uh, to important how you should frame yourself related to what type of buyers are trying to buy the home. First time buyers and multi-generational home purchases. And my colleague, uh, Jessica, la Dr. Jessica LA is the expert in this area. So I'm gonna turn it over to her to focus on those issues. So Jessica, all yours.

Thank you so much Lawrence. Um, always hard to follow Lawrence Yun, who really is such an expert on all things having to with housing. I enjoy doing these presentations when we're next to each other in the same office because I can hear him talking and then going into the computer.

So let me jump in. I wanna give you five different things that I'm thinking about when I'm thinking about the housing market right now, hearing everything that Lawrence is talking about and how I'm really translating that into what I'm can see in consumer activity and what we're actually getting back from you when we look at our REALTORS® Confidence Index.

If you are one of those many people who take the REALTORS® Confidence Index on a monthly basis, thank you. If you are not taking the REALTORS® Confidence Index survey, I highly encourage you to do so because what we can do is we can understand and we can learn from each other in the housing market and what in the world is going on as we look at all of this data and who's entering into the marketplace.

So let's take a look.

The first thing I'm going to say is let's try and go beyond the headlines because, as Lawrence broke down, looking at the home price differences just within the state of Nevada, if we just take that on its face, we're going to see some big headlines. But if you take the data and you look out for a farther distance, you can actually see perhaps the sky is not falling when cinema headlines like to say that.

So let me give you a few examples of why I think this one is.

When we talk about that lack of inventory that Lawrence talked about, it really does translate into the number of offers that we're currently receiving when we look at home sales right now. So we're actually seeing more than three offers for every home that's listed because of this historically low housing inventory.

And what that means is that about a third of homes on a monthly basis are actually moving more than the listed asking price for that home because of these bidding wars continuing to happen. Now, this is not in every area and location of the country, but when we look at this on a nationwide scale, this is what we're seeing. Now, of course, this is less than what we did see in spring of last year when interest rates were just ticking upwards and consumers were very frantic to have their offer accepted. But we still see competition in the marketplace.

If we look at this back to 2015, what we can actually see is that 2.4 offers is the average. So we're exceeding that at this point right now.

The other thing that I think is important to note, too, is these non-primary residence buyers, those who are buying that vacation home or their small mom and pop investors, and there's probably a lot of crossover definition in that at this point because you can use Airbnb and place your home on the marketplace for that.

What we see right now is we're at 18% as a share and that's still pretty elevated when we look at the marketplace. Now what that means is that if we do have multiple offers, that non-primary residence buyer is probably going to win out on that bid as opposed to that first-time home buyer coming into the marketplace who may have a smaller down payment, doesn't have as much money in reserves and they're going to have a harder time competing for that home sale.

The other one that I think is incredibly important right now is looking at all cash buyers and why do I think it's important? Well, it's more than a quarter of the marketplace on a monthly basis, pretty consistently since fall of last year, which now when we're heading into August, that's nearly a year we see that it is very strong when we think about the typical consumer who's out there. And I'll show you some data on this, but what we actually see is that the typical homeowner who's been in their home for 10 years has $200,000 in housing wealth. So if they're moving to a more affordable market, uh, if they're a retiree, they perhaps can put a down, a pretty sizable down payment, pretty limited areas of the country that they could pay all cash. But if they've been in their home longer and they've chalked up some savings as well, they may be able to pay all cash. So we're seeing this activity going on.

We also know that investors are more likely to be paying all cash as well.

So this activity is happening. If we look at this before the pandemic, what we actually saw is it was high teens for this share. So we are trending substantially higher.

The other thing that I think is important to note, and Lawrence touched on this, so I'll just give you just one slide here, is that when we look at the share of REALTORS® who are working with foreclosures and distressed sales, it's just not happening in the marketplace.

And it's something that we hear from potential buyers out there that “I'm going to just wait. I'm going to wait for home prices to drop.” In fact, I was recently on vacation and I heard someone talking about it and I just had to walk away. I couldn't think about it on vacation because when I look at the data, I just don't think it's happening right now.

And I'll see headlines that say there's a hundred percent increase in distressed sales in the marketplace, but really it moved from 1% to 2% and on a monthly basis it does bounce around from zero to one to two. But it hasn't been moving further than that. And why? Because homeowners have equity. So even if something in their life happened, we just don't see, it's likely that they would be selling their home and not have enough equity to cover their mortgage. When we look at this back in 2009, we do see that half of REALTORS® were actually working with a distressed seller at that time period.

So a very different marketplace like than we have right now because of tight lending standards. Because it's so hard to obtain a mortgage, you have to have money in reserves, you have to have a solid down payment, a solid income, prove your earnings to be able to enter into the marketplace.

All right, the second one, we have longer moves that are happening right now. People are moving a longer distance than what we traditionally have seen and they're doing so in a slightly different way as well.

They're using technology now, but don't let that scare you because we are seeing that they're using technology hand-in-hand with an agent out there today. And that's really important to note.

When we look at migration flow patterns, our economists dug into this data and this is actually USPS change of address data. And in the last year what you can see is that there are hotspots in the country that people moved to.

The Sunbelt was incredibly popular for people to move to favorable weather, taxes, more space, affordability, good job market, all of these being factors that drove people into these areas around the country. As they moved, they did so in a slightly different way too.

We actually saw that people moved a much longer distance than we have seen historically. Historically, between 1989 and 2021, people just moved 10 to 15 miles. It's really pretty boring and flat.

If I were to show you this chart before then in the last year, they moved a median of 50 miles. If we look at repeat buyers, they actually moved a median of 90 miles. A quarter of home buyers moved more than 470 miles.

This is really very striking when we think about this because this had not been happening before the pandemic. And again, people are moving for different types of reasons.

Retirement is certainly one of those reasons that that's happening. People want to be close to their grandbaby, they're chasing that grandbaby multiple states away just to be down the street. And that certainly is a factor. Housing affordability has mixed this up.

We also know that CEOs, for the large part in the last couple of years, have said you can either work in a hybrid setting or you can work remote because of the pandemic. As people go back to the office, and I'm even hearing that big employers after Labor Day are going to insist on three days a week instead of two days a week, that's going to mix it up and I wonder what's going to happen then? Are people going to stay put? Are they going to be insistent on finding a new job that they can be remote? I'm not sure what's going to happen, but I think this is a number to watch.

This does strike a lot of fear though. When we dig into the data, we actually see that people who are moving the longest distances, they are still using an agent and they're actually using an agent at a higher rate than local movers where they're finding their agent is different though. They're finding their agent online. So making sure that you have all your online websites and all your information up-to-date is incredibly important because they're not going to go to friends and family for that local referral as you would if you were just moving 10 miles away.

The other thing that has changed here, and I think this has made your job harder in the last few years, is that we continue to see that people are actually purchasing their home without physically stepping foot in that home. They're working with an agent. That REALTOR® is walking through that home, that REALTOR® is showing the client that home, but they're doing so via technology.

Some of this has to do with lack of inventory, but some of this has to do with those longer moves too. If you're moving nearly 500 miles, there's maybe not that opportunity to jump in the car and drive several hours or to jump on a flight and go and see that home before that home's going to be under contract. We're seeing it's 10% of the marketplace right now. It's very sticky.

I kept expecting this would go into the single digits and it did, and then maybe we'll see it trail off, but we're not. So I think this is something that's important to keep your technology up to date as well as you think about those homes on the marketplace.

All right, a little generational warfare here.

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I think that this is pretty important as we look at who's buying and selling today. So let me jump in here. We have the US population overall, little pandemic babies born in the last couple of years and in the green. And then as mortality rates don't necessarily make it past a hundred, that's not super common.

We can see those bars going down smack dab in the middle of this chart is the millennial generation in the sea of blue here. What becomes very important here is that the median age of a first time home buyer today is 36 years old.

When we talk about the lack of inventory and the need for more building, this becomes very important because we can see a pretty sizable population here is between the ages of 26 and 32. So when you think about housing starts and household formation, these young adults are going to want that place to live that's not necessarily with a roommate or with their family. They're going to want their own place.

What's also important here is when we look at the yellow, the median age of a repeat buyer today is now 59 years old.

One of the big takeaways I want you to have is that that is a dramatic shift when we look at this data. Back in 1981, when we first started collecting it in 1981, the median age of a repeat buyer was 36 years old, and today at 59, there's a lot of lost housing wealth that's being had for these young adults who are entering the housing market at a different age group.

The other thing that we see here too is that that 59-year-old buyer is going to need and want different things out of their home than what we had traditionally seen for that 36 year old. They're at a different time in their life. They may have kids who are long out of their household by this point, they may be looking for a place that they want to stay for a significant period of time, and that's a difference for sure.

The other thing that's important to note is I've seen some articles of late talking about home ownership rate. For those who are under the age of 35, it's going up and this is something to celebrate it. Absolutely, I wanna celebrate that. It did go up in the last year, but one of the things that I wanna keep in mind too as we look at this is just looking at this historically. Historically, what we have seen for other generations at the exact same age as our young adults, as our millennials today, is that the home ownership rate would've been higher. In fact, we would've seen, uh, 39.7% of those who are under the age of 35 would've owned a home at this point. We've never had millennials have that home ownership rate.

So it is important to keep in mind that, well, we should celebrate the growth in the home ownership rate for young adults today. They're still not keeping pace with past generations at the same age. Anything that you do can do to educate them and bridge that gap could be incredibly helpful. As we can see, there's a lot of them out there who wanna find their first home, talking about FHA loans, VA loans, low down payment programs, advocating for those in your local communities, we can bring these home buyers to the table as long as we have the inventory to support it too. When we look at the generations of home buyers today, we should see that millennials are the biggest generation of home buyers, and that's the blue right there. For eight years out of the last decade, they were the biggest generation of home buyers in the last year. Unfortunately, they dropped off and we've seen baby boomers have taken them over. Doesn't matter who's buying as long as someone's buying, I know this is a good thing, but we are seeing that unfortunately, they're being priced out of the market, losing those bidding wars with those all-cash buyers. Half of older boomers are all-cash buyers.

So unfortunately we're just not seeing them as active in the housing market as we should be seeing these young adults, Gen Zs, they're sneaking in there though they're 4% of recent home buyers in the last year. I think this is entertaining. It is interesting. They're doing so largely with Mom and Dad's money, Mom and Dad's support, perhaps, but they're making their way into home ownership because we do see that boomers are a significant portion of the housing market.

I wanna give you a few facts about them. Please know that they are different than past generations. At the same age, we know that they're moving these long distances. They're not necessarily downsizing, they're actually making very similar size trades on their properties. They're buying this house they want to live in for a long period of time.

Even a share is buying as roommates. So the Golden Girls phenomenon, Grace and Frankie, whatever you have there, they are doing so they also have money.

So the idea of wanting tech features and green features in their homes, we often think of these as young adult features. Gen Zs, millennials want these. Well, seniors want them too and they're able to afford them now. And I think this is an important note.

The last one I'll give you on this generational warfare is we do see multi-generational buying is up. It's at 14% of the marketplace today. It seems to be a sticky trend. People are buying in different ways, whether it's roommates, multi-generational homes, people are supporting each other in different ways than they had before the pandemic. And we're seeing that this buying trend is out there.

All right, number four, it's a little depressing, but I think it's incredibly important to plan your business and think about how your interaction in the marketplace could be different as you think about your clients. When we look at seller tenure and home, it's a decade right now.

We see that people are staying put, they've earned that housing equity, they're ready to make that trade. But people may have really locked themselves into these low interest rates and environment. They really don't want to lose that lower interest rate. And when we look at the expectations of buyers, what we actually see is that for first time home buyers, they plan on holding onto that home for 18 years. Now, I know this is a much longer period of time than what they may actually do because something in their life may change.

They may have a baby or get married or get divorced. Life changes happen, a new job across the country, but they may be wedded to this lower interest rate mortgage.

So thinking about ways that this is going to be a different relationship, but that recent buyer, maybe they need a remodeler, maybe they want to do a different thing in their home because the how they're using their home has changed. And I think it's important to think about that too as you build that relationship with that client.

The agent role, number five, this part is very good.

We're still seeing and consistently seeing the buyers want an agent. If they're a repeat buyer, they haven't done this in a decade. If they're a brand new buyer, they absolutely need your help. They want help finding that right home, negotiating, helping with all of the terms and how to go about that process.

You are that conduit for them. For sellers, we continue to see that sellers want an agent and they're using a full service agent in that process. Someone who will provide all the bells and whistles, who will guide them through that transaction and truly help them as they go through every step of that process. Everything from staging the home, understanding that they have to market that home in a different way. Uh, finding that perfect buyer who is qualified and pricing it correctly all within their very specific timeframe. This is what they want from you.

And your job has changed in the last couple of years, uh, really upping your game as you meet the needs of these clients.

So those are the top things that I'm looking at. I'm gonna stop sharing my screen.

I want to thank everyone for showing up today for coming and being here live with us. It's incredible to have you all. All of the slides, the video recording, it will be emailed to you, uh, regardless of whether uh you are here live or not, but it'll also be posted on nar.realtor, and you can grab all of the latest and greatest information there. The video should be posted by tomorrow, but you will have that in your inbox very quickly as well.

So thank you all so much for showing up today, and we really appreciate your being here and your interested in NAR research.

Thank you.