Housing data disappointed in January with housing starts plummeting 14.8%, signaling persistent weakness in real estate as mortgage rates remain elevated. National Association of Home Builders (NAHB) CEO Jim Tobin joins Yahoo Finance Live to discuss the US Census Bureau's latest housing print.

Tobin says the weak print on housing starts does not surprise him, noting he expected a "bumpy" 2024. With over 900,000 homes under construction currently, Tobin says the high cost of capital disproportionately impacts the multi-family segment, though single-family homes are "showing a little bit more resiliency".

Per Tobin, first-time buyers in particular are locked out by high shelter inflation and uncertainty surrounding when the Federal Reserve could cut interest rates to spur demand.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

RACHELLE AKUFFO: Well, housing starts and building permits both took a hit in January. Housing starts, in particular, falling 14.8%. Both signal continued weakness for the real estate sector amid elevated mortgage rates. Let's bring in Jim Tobin, National Association of Home Builders CEO, to discuss. So I want to start with your big takeaways from this latest housing start data.

JIM TOBIN: Well, we always know that this year was going to be bumpy. So I'm not surprised to see it reflected in starts and permits. So single-family showing a little bit more resiliency than multi-family. And we've known that was coming. There's over 900,000 units currently under construction, the most since 1973.

But the pipeline behind all of those units is a little bit dryer because the cost of capital. So again, not surprising to see multi-family lead these numbers down. But single family generally reflects our own HMI index, which shows that our members are getting more optimistic-- it was up 4 points this month. So we're still feeling good on the single-family side.

- Lots of data this week. What concerned you the most about your view that we're entering this housing renaissance?

JIM TOBIN: Well, I really think the inflation numbers this week remind us that we are still coming out of this, that we're not there yet. Shelter inflation continues to be a driving force of that elevated inflation number. That will, again, in the rental sector in particular as these units come on board.

We're going to-- we predict we're going to build probably 5% more single-family units this year. Again, more supply is the answer to the problem. But the inflation numbers, if they continue to stay persistently higher, that, then, calls into question whether or not the Fed is going to cut three times, maybe they only cut two, and then when do they cut? This idea that they're going to cut in the spring seems to be off the table now.

RACHELLE AKUFFO: So, then, as we look at the demographics who are able to take advantage of what we're seeing with single-family and multi, is it really about those at the sort of upper end of the earnings capacity versus those who are still trying to get into their first home and maybe can't afford it when you figure in adding loans on top of the cost of the house?

JIM TOBIN: Yeah. I really think it's that low end of the market-- the lower end of the market, that first time, first generational home-buyer. There aren't any existing homes for them to buy. And that's traditionally where they have juiced the markets from the bottom, usually, and gets that churn going.

You sell your starter home, so you can get your next move-up home. The move-up home then becomes your retirement home. We just don't have that right now because so many people are still rate locked. I think I saw a number-- it's either 70% or 80% of mortgage-holders have rates less than 5%.

Well, they're not-- they're not going to move, at least now, certainly, with rates starting to creep back towards 7%. So that's really the story here. We've got to get those first time, first generation buyers back into the marketplace. We just don't have the stock to do it.

- Can more supply outweigh a 7-handle on mortgage rates?

JIM TOBIN: Well, we think more supply comes along with lower mortgage rates. We still are predicting the Fed will cut at least two times this year. And we think mortgage rates settle into the sixes this year. We probably don't get into the 5s by the end of the year, but certainly between 6% and 6.5%.

It's really when we get into 2025 that we start seeing rates really, we think, settle what is the new normal, which is 5.5%, in there. And that's-- when this generation of buyers recognizes we're not going back to 4% percent or 3% mortgages, that's when the floodgates open. So our members are still optimistic. Our numbers show that. And I travel all across the country in completely different markets, and everyone's feeling good about this year, but, really, the next five years.

RACHELLE AKUFFO: And are you seeing much in terms of labor pressure? Obviously, it's still a very tight labor market here. How is that affecting what you're seeing with home-builders?

JIM TOBIN: Labor continues to be one of the most persistent and biggest drags on the economy-- or at least on housing economy. So for us, there are about 400,000 jobs open in construction month after month. That's been about a decade. We're just not replacing the skilled labor in the construction industry to bring those new workers in to drive-- to put more workers and drive down the cost of housing.

So that is going to continue. That's why we need immigration reform. And that's why we need to make sure we're really investing in job training and skills training for kids, talking to parents, getting people to understand that the skills are plan a not plan b if you can't go to college. But labor is going to continue to be a drag on us for a while.

- Is there any indication that AI could improve productivity in the markets that you work in?

JIM TOBIN: Yeah, we're actually looking into that-- I do think in a variety of ways. And in fact, we're getting ready to go to our big trade show in a couple of weeks in Las Vegas, and AI is actually going to take a center stage when it comes to a lot of our education sessions. I do think that there is a role, whether it's architecture, whether it's finding problems-- I've heard you can use AI programs to solve some of your punch list items before you turn the keys over to a new homeowner or a new renter.

I think it's going to help materials-- use materials better and more efficiently. So I think we're on the cusp of AI really leaning into the building sector and making us more productive, and, I think, reducing costs.

- Nice. I asked ChatGPT to look at my new lease for me and tell me if there were any red flags. And it seemed fine.

JIM TOBIN: Yeah, good.

- Fingers crossed that it was good. Jim, thank you so much for joining us.

JIM TOBIN: Thanks for having me. Great to be with you.

- We really appreciate it.

JIM TOBIN: Appreciate it. Thank you.

- Thank you so much.