Mortgage applications have risen for the first time since May, but elevated rates could still be keeping homebuyers out of the housing market. Chris Porter, John Burns Research & Consulting Senior Vice President and Chief Demographer, joins Yahoo Finance Live to discuss real estate affordability and tightening inventory conditions for prospective homebuyers.
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Video Transcript
AKIKO FUJITA: Mortgage applications are seeing a boost in demand coming after recent declines in mortgage rates. Applications saw its biggest weekly advance in three months, increasing 7.2%. But the issue with housing affordability is far from over, leaving more room for housing demand to improve. And this latest installment of our week-long series, real estate, the new reality, we are taking a deeper dive into housing construction in relation to the push and pull of supply and demand dynamics.
Let's bring in Chris Porter, John Burns Research and Consulting Senior Vise President. Good to have you on today, Chris. So walk us through what that supply-demand dynamic looks like right now.
CHRIS PORTER: Yeah, I mean, we've got some pretty strong demand for housing. Obviously, people want to-- they've got to live in a house, right? And we've got a growing population. The challenge is just the supply is not there, especially on the resale side. We are at a very low levels of resale supply. And, you know, I think that's actually created a bit of a floor on how far prices could fall, at least temporarily.
And also, it's given some more market share to the home builders. The new construction has really kind of been able to step in and represent a bigger share of the inventory available for sale. And that's why you see the builders doing quite well right now.
JULIE HYMAN: And so I believe it's your-- by your calculations what we need, 17.1 million more new homes over the next 10 years to meet the demand. Are we going to get those houses? Are they-- are we going to see actually see that many be built?
CHRIS PORTER: So the affordability plays into this in big ways. And that's under sort of normal affordability conditions. We are still not in normal affordability conditions right now. People are still paying a greater share of their income towards housing than they have historically. And the way that you bring affordability back into check is one of three ways. You either raise incomes, you lower mortgage rates, or you lower home prices.
And we really haven't seen prices come down all that much. That differs by market, obviously. Incomes are still growing pretty solidly. But mortgage rates remain, you know, high. And that's been a big challenge in housing right now.
Where the new home side has been able to benefit from that is by offering some of these rate buy downs and getting buyers in at lower rates.
AKIKO FUJITA: How quickly does that supply need to come online in order to bring those rates down, and how do we get there?
CHRIS PORTER: You know, I think once rates start to fall, and we think they will, I think we're not going back down to 3% rates anytime soon. And I think that was indicated today in the Fed announcement that, you know, we're not going to see the Fed funds rate come down anytime quickly. And, you know, I think mortgage rates are going to stay elevated beyond what people have been used to over the last several years.
And so what it's going to take is to get the demand or excuse me to get the construction there, I think the demand will play out over time. But probably, going to see less household formation in the short term until people can feel affordability is in their favor, and they can purchase a home.
JULIE HYMAN: Do we also need to fundamentally reset our expectations of what home ownership, what percentage of Americans will end up being homeowners?
CHRIS PORTER: You know, I think it's interesting. So you've got sort of two ends of the spectrum here. You have this massive wave of older adults who have 80% home ownership. And that's a number that's getting bigger. This older adults age into their later years and very high homeownership. It's the younger adults that had that lower homeownership rate today.
We've seen a little bit of an uptick in the last couple of years amongst the younger adults, just as they had more money in their pockets through government stimulus. As mortgage rates were sub 3%, many of them were able to get in.
But I think with rates staying high, it's going to be a challenge for homeownership to rise in the near term until that affordability measure gets a little bit more into check.
AKIKO FUJITA: Well, and to add on to that. If you talk about supply, you know, we talk so much about single family homes, single family units, but it really is about multifamily units as well, sort of becoming increasingly the only option for any kind of ownership. If you sort of look down the line on where things have been moving, what does that mix look like?
CHRIS PORTER: Yeah. So I mean, think about it's about 2/3 single family and about 1/3 multifamily in terms of the new construction. We've got a lot of multifamily in the pipeline right now that's delivering to the market. You know, I do think we're going to see a bit of slowing in multifamily over the next couple of years. And we do think that single family will probably slow-- won't slow by as much on a percentage basis here in the next couple of years.
As we have this group of millennials that's moving into those years where they're purchasing homes in bigger numbers, and even that Gen-Z group moving into those homebuying years, we're seeing more shifting towards that single family. And so we'll start to see that balance probably remain about the 2/3, 1/3 split. But certainly we've got a lot of multifamily coming online right now.
AKIKO FUJITA: Chris Porter, John Burns Research and Consulting Senior VP. It's good to talk to you today. Appreciate the time.
