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MortgagePoint July 2023

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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 52 T H E P O I N T F e a t u r e d C o n v e r s a t i o n s W i t h M o r t g a g e ' s B e s t a n d B r i g h t e s t to buy, so the lack of supply has been a big challenge for the housing market. This is also true in the rental market. There is progress that has been made, but then the other challenge is mobility: people freezing in place because of a challenging housing market, both with high rents and high mortgage payments because of high rates. [This] incentivizes people just stay in place when households are less mobile and less likely to move across the country to take a new job. It makes the American economy less dy- namic. It also does not bode well for opening up areas of opportunity for upward economic mobility, like for people moving into a better neighborhood for their children to get into a better school district. If those moves are held back because of fluctuations in interest rates and available sup- ply, that's a big concern. So, the lack of mobility has been a top issue for the housing market, especially right now because of interest rates. But it's also been a long-standing one where we've been in basically five decades of declin- ing mobility, with people being less mobile each year as a share of moves per household. Q: What are some of the most important factors that influence home prices? Well, supply pulling back is an important factor because that means that even though demand has fallen, many buyers have gotten priced out of the market. A lot of sellers pulling back and not listing their homes for sale has kept prices pretty resilient overall. If you were just looking at how rates change and how much you need prices to fall because of that change in rates, you would have expected prices to be down more than 30% by now, to keep people's mortgage pay- ments in line with their income or what you would expect. But prices haven't fallen 30%โ€” they've barely fallen 3%. And so, the most im- portant factor behind that is just that supplies have pulled back almost as much as demand. The other factor here is that finding a baseline for what prices should be is incredibly difficult for housing. A lot of people might compare how prices have risen from 2019 to 2021, and they expect prices to revert to that average or to just automatically fall. But there's been also a big boost in af- fordability, not only from low rates, which pushed up prices quite a bit. We certainly shouldn't return to what we would expect from pandemic-era 3% rates. But also, there was a lot of pandemic stimulus money that went into the housing market, and all the billions of dol- lars that were directed to households and in- creased the budget that people could spend on housing. In addition, suspended student loan payments increased the number of first-time homebuyers that might be willing to spend on a mortgage. The work-from-home phenom- enon shifts how much you're willing to spend as a share of all your income on housing versus on other things like your commute. There have been a lot of fundamental shifts in terms of demand that have pushed up prices in the long term. That means that prices don't necessarily need to fall back to pre-pandemic levels. That increased demand and decreased supply. Both of those are just fundamentals that, long term, have pushed prices up overall. Now, the most important thing to take away is that most American households own their home, and higher home prices have given tril- lions of dollars of equity to American house- holds over the last five years. That extra equity has been remarkable in terms of how it's sup- ported the American economy. As people have refinanced their mortgages, the Fed recently put out a research paper showing how much [has been saved in monthly payment savings], as well as people cashing out from that equity to pay down debt. That's a huge stimulus for the economy that is under-appreciated. Higher home prices create challenges with affordability for first-time homebuyers. And Redfin has looked at that, but overall, on net, there's also been a big gain for the typical Ameri- can household that might not even be moving but has benefited from refinancing by tapping into that equity and having either lower housing payments or getting some money that they've been able to pour into to other things. Q: What do you think is the biggest misconception about the housing market? In part, doubling down on what I just said, one of the biggest misconceptions I see is when people post these charts like price-to-income or how housing has outstripped inflation. Of- tentimes, what these charts are trying to imply is that housing is either in a bubble that will fall 50% to come back in line with how prices were as a ratio to rents or incomes back in 1980, or something along those lines. So, focusing on over-indexing of home prices, and what that means for where they're supposed to be and overlooking all these fundamental shifts of demand, and also not appropriately adjusting for mortgage rates. What matters more is not the home price but the mortgage payment, and the typical mort- gage payment has not been concerning, even with higher rates right now. They're certainly "Now, the most important thing to take away is that most American households own their home, and higher home prices have given trillions of dollars of equity to American households over the last five years. That extra equity has been remarkable in terms of how it's supported the American economy."

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