Housing market seeing ‘more balance’ as mortgage rates climb: Economist

First American Deputy Chief Economist Odeta Kushi joins Yahoo Finance Live to discuss the decline in existing home sales, the state of the housing market, rising mortgage rates, and the outlook for home sales.

Video transcript

AKIKO FUJITA: Well, it has been a seller's market in real estate for some time now, but there may be signs that the market may be leveling off. April existing home sales fell for a third consecutive month. And joining us to discuss this, we've got First American deputy chief economist, Odeta Kushi. Odeta, it's good to talk to you today. You have said that we're kind of in this market right now where we're going at high speeds, and that it's going to be some time before we get back to where, sort of-- I'm paraphrasing what you said here, but just where the speeds come back to where they should be. Where are we in that point?

ODETA KUSHI: Yeah, so you saw today, third month in a row of decline in existing home sales. But what that really means is that we're becoming more of a balanced housing market. It's been-- the housing market's been going at 150 miles per hour. And now we're kind of coming to a housing market that's more in line with its historical speed limit. So if you look at pre-pandemic, home sales in April of this year are actually higher than home sales were in April of 2019, which is more of a normal pre-pandemic, but still strong housing market. So we're just starting to see more balance come to the housing market, which, ultimately, is good for prospective homebuyers.

BRIAN CHEUNG: Odeta, it's Brian Cheung here. Great to speak with you. I wanted to ask about the supply side of things because we know that still remains near pretty historically low levels. Now, is there this challenge or a risk of overshooting it where demand is coming down because mortgage rates are getting higher, but you also have this backlog of building that may have actually been slowed by the supply chain, which could lead to perhaps that catching up later in time?

ODETA KUSHI: So the majority of inventory is actually existing home inventory. And as we saw today, that remains near historic lows. It ticked up a little bit, but we need a lot more existing home inventory to see moderation and house price growth. We should see some more new builds come to the market slowly but surely. There's a lot of homes under construction right now, but it's taking builders quite a bit of time to get those to market, just because of all of the supply chain disruption. So kind of in the medium term, we should see some more new construction, but what we really need to see to bring more supply relief is existing homes coming to market.

AKIKO FUJITA: So let's talk about some of the supply chain crunch you alluded to. We're not talking about supply of homes, but it's materials to build the homes. The demand for homes has been there, but you just-- these crews just haven't been able to keep up because they can't get a hold of those supplies. Either that, or the cost is incredibly high. Where are we in that process? What are you seeing on that front?

ODETA KUSHI: There's still quite a bit of issues when it comes to supply shortages. And actually, one of the issues is that builders just can't get enough construction workers, right? Building a home is a very manual process. You need more workers to build more homes. And it's actually one of the issues has been getting enough construction workers to actually build the home. We have seen residential construction employment increase over the last year. But it's just not enough. We need more skilled workers to build more homes.

BRIAN CHEUNG: Odeta, one natural question for a lot of people that are thinking about the pivot that we're seeing in economic conditions right now is whether or not the broad macro will favor cheaper and more accessible and more available homes if that does end up happening in the later part of this year. Is there perhaps a buying opportunity that could be coming as some of these recession worries start to rear themselves?

ODETA KUSHI: So that's a great question because, right now, all eyes are on mortgage rates and where mortgage rates are trending. And for the most part, I think most people say mortgage rates are trending higher and are expected to move higher just because of all of the inflation concerns.

But with kind of recession fears, a lot of volatility in the stock market, geopolitical concerns, a lot of those fears kind of push down that long end of the yield curve, that 10-year Treasury, which could actually put downward pressure on mortgage rates. And so we might actually see some of those concerns kind of push down mortgage rates, or at least, keep them steady, which should give buyers some kind of near-term relief.

BRIAN CHEUNG: All right, First American deputy chief economist Odeta Kushi, thanks so much for stopping by. Appreciate it.