Kinloch Partners Co-Founder and CEO Bruce McNeilage joins Yahoo Finance to break down what higher mortgage rates mean for homebuyers and the overall demand for homes.
McNeilage affirms his stance on why mortgage rates will increase: "I'm calling 8%. There is not enough supply out there. Supply and demand is working. The value and price of homes is just simply not going down. If anybody is waiting to get a house and can get a mortgage right now I would suggest they do so. If you can't do it and can't afford a house, there's opportunities to rent brand-new ones out there for folks. "
He continues later on discussing how the American dream has changed: "It used to be you bought your house, you saved for retirement, you got a gold watch when you retired and moved to Florida, right? Those days are really over. People want experiences now. They want to be mobile. So I think a lot of people like the lock-and-leave lifestyle where they can move and just pick up without being tied down to a house and having to sell it. And so a lot of people are finding buying a brand-new house is much tougher and renting it is easier."
JULIE HYMAN: More bad news for homebuyers. The average rate on a 30-year fixed loan jumping about above 7% for the first time this year. That's according to Freddie Mac. Higher rates leaving potential home buyers on the sidelines as US existing home sales fell in March and fell by quite a lot.
Joining us now is Bruce McNeilage. He is Kinloch Partners Co-founder and CEO. Bruce, it's good to see you. So what is that 7.1% to be exact mortgage rate? What does that mean for demand for homes?
BRUCE MCNEILAGE: So demand is there. That's not going away. Quite frankly, there's more and more demand for housing right now. The problem is people can't afford it.
As rates are going up, it's making tougher and tougher for people to buy entry level homes. And there's not enough existing inventory out there. And so it's really put people in a bind as far as being able to own a home.
And I see rates just increasing. I think we're looking at 8% in a few months. And that's really going to put home builders and the buyers of homes in a tough position.
JULIE HYMAN: 8%, Bruce. Why do you think rates are going to go higher?
BRUCE MCNEILAGE: Well, I'm calling 8%. There's not enough supply out there, certainly supply and demand is working. The value and the price of homes is just simply not going down.
So if anybody's waiting to get a house and can get a mortgage right now, I would suggest they do so. And if you can't do it, and you can't afford a house, there's opportunities to rent brand new ones out there for folks.
JULIE HYMAN: Bruce, what are you doing on the pricing front because of this? We've seen a lot of the home builders offer incentives. But you know, that squeezes margins, obviously. So what does that do to your positioning?
BRUCE MCNEILAGE: So I'm seeing the Nationals buy down rates down to 4.99%. And where that's really going to squeeze the profits of these national home builders is if you're at 4.99 and you buy it down from 5.99, that doesn't cost a lot of money. But the minute you're at 6 or 6 and 1/2, 7, you're really looking at a large amount of money for these builders to be buying down the rates.
And so I think that's going to put a squeeze on earnings. And I think that's going to be something that's just going to be, again, tougher on the buyer. It's not going to be as strong as an incentive that maybe it has been in the last six months or so.
JULIE HYMAN: So you're talking about the nationals. What about you guys, Bruce? What are you doing on the incentive front? And are you getting squeezed?
BRUCE MCNEILAGE: Yeah, so right now, primarily, what we're doing is building brand new houses to rent. We're in the build to rent business. And we are just as busy as ever.
People can't afford to buy a house right now. They want to build one. And our industry is offering alternatives to housing needs that were not available just a few years ago.
JULIE HYMAN: Are you able to build fast enough and cost-effectively enough to meet the demand for rent?
BRUCE MCNEILAGE: Well, that's a great question. So right now, lumber is starting to creep up. I think Labor's getting a little easier as things slow down.
But right now, the problem is the pads, having the lots to put houses on. And it's tougher and tougher to get the lots. It's taking longer to develop the lots.
And developers are starting to pull back because they're seeing a slowdown in homebuilding. And so it's just tougher and tougher to get the lots. And yes, it is making it tougher to build a house, and it's also taking longer to do so.
JULIE HYMAN: Can you tell me about rental rates, Bruce? Because, obviously, this is one of the stickiest parts of consumer inflation that the Fed has been paying so much attention to.
BRUCE MCNEILAGE: So rents have actually gone down a little bit the last year or so. And I think they're going to remain flat this year, which is great for people that are looking to rent that can't afford to buy. But, you know, this is the first time in our history that it's cheaper to rent an entry level house than it is to purchase one.
Right now, in all 50 major cities in the country, it's $1,000 less to rent a house than it is to buy a house. So it's really driving people into these brand new rental houses, which is great because they're coming out of apartments and they can't afford to buy right now. But this is a stepping stone. They're going from apartments to rental houses. And then hopefully, when interest rates ease a little bit, they'll be able to buy those houses or go out and find houses as things and things improve.
JULIE HYMAN: Bruce, do you think, though, that we are going to see a long-term trend of just more renters an increasing percentage of people being renters in the United States?
BRUCE MCNEILAGE: Yeah, absolutely. I think the American dream has changed. It used to be bought your house, you saved for retirement, you got a gold watch when you retired, you moved to Florida. And those days are really over. People want experiences now. They want to be mobile.
So I think a lot of people like the lock and leave lifestyle where they can move and just pick up without being tied down to a house and having to sell it. And so a lot of people are finding buying a brand new house is much tougher and renting it is easier. And we are just trying to offer thousands and thousands of more houses each year, our industry.
And luckily, there's large national publicly traded single family rental operators in the business and then smaller outfits like ours that are providing these houses at a lower cost than it is to purchase them right now.
JULIE HYMAN: Bruce, good to see you. Thanks so much for joining us today. Appreciate it.
