Why the housing market will remain muted this year given the effect of higher mortgage rates

JOHN, I'LL START WITH YOU SINCE YOU'RE HERE IN STUDIO. >> SURE. >> TWO BIG REPORTS. ONE FROM KB HOME. AHEAD OF THE REPORTS, YOU SAY IT IS A BUYING OPPORTUNITY. WH WHY? >> WE THINK SO. FIRST, THANKS FOR HAVING ME. INVENTORY HAS TICKED UP A BIT. CONTEXT IS IMPORTANT HERE. 1.5 MILLION SINGLE FAMILY HOMES IN THE MARKET TODAY. THAT IS UP 15% YEAR OVER YEAR. WHAT IS IMPORTANT IS THAT IS 1.5 STANDARD DEVIATION BELOW HISTORICAL AVERAGE. INVENTORY IS STILL VERY, VERY LOW. THE MARKET SENTIMENT HAS SOURED BECAUSE OF THAT. I THINK IF YOU THINK ABOUT THE TWO MARKETS, EXISTING HOME SALES AND NEW HOME SALES. EXISTING HOME SALES HAVE BEEN LOW. >> BESS, YOU ARE LOOKING AT NEW CONST CONSTRUCTION. COST IS UP 5% YEAR OVER YEAR. HOW IS THAT INFLUENCING THE ACTION OUT THERE WITH BUYERS AND SELLERS? >> I THINK IT'S GOING TO TAKE SOME TIME. BUYERS ARE STILL SLOW TO GET INTO THE MARKET AND, YOU KNOW, WE SAW THE FED DECIDED TO HOLD RATES STEADY FOR NOW. THEY INDICATED THERE MAY BE ONE CUT. I THINK THE SECOND QUARTER HAS PROVED TO BE BUSIER AND AS JOHN MENTIONED, INVENTORY HAS PARTTICKED UP. BUYERS ARE WAITING A BIT AND SELLERS ARE HOLDING OFF BECAUSE THEY DON'T WANT TO LET GO OF THE 2% OR 3% MORTGAGE RATE THEY LOCKED IN. THEY HAVE A LOT OF EQUITY IN THEIR HOMES. THE MARKET IS BETTER AND IMPROVING, BUT IT IS A SLOW SLOG. >> ACCORDING TO JOHN'S DATA, 77% OF HOMEOWNERS HAVE A RATE AT 5%. IT IS A DIG DEFERENCE. BESS, I WANT TO STICK WITH YOU. TALK ABOUT HOW THE FED IS INFLUENCING THE HOUSING MARKET? WE HAD THE FED SAY HIGHER FOR LONGER. WE HAD NEEL KASHKARI SAYING MAYBE DECEMBER IS WHEN WE GET THE CUT. HOW DOES THAT PLAY INTO BUYER AND SELLER SENTIMENT? >> I THINK BUYER AND SELLER SENTIMENT IS DEDECENT. DESPITE WHAT THE FED DOES, THEY COULD HAVE RAISED RATESED AND THEY DIDN'T. THE TARGET IS 2%. WE ARE NOT THERE YET. THE ECONOMY IS STRONG. THE STOCK MARKET IS STRONG. THE LABOR MARKET IS STRONG. EVERYTHING HAS BEEN VERY POSITIVE. SO, I THINK CONSUMER SENTIMENT IS DECENT. IT IS TAKING THEM TIME TO GET INTO THE MARKET BECAUSE RATES DOUBLING IS STILL SOMETHING THAT TAKES TIME FOR THE CONSUMER TO FEEL GOOD ABOUT AND BE WILLING TO GET IN THERE AND PUT AN OFFER IN AND BUY SOMETHING. THEY WANT TO SEE RATES POTENTIALLY GO DOWN. ALL EYES ARE REALLY ON THE MARKET AND WHAT WILL BE. >> ABSOLUTELY. I KNOW A FEW PEOPLE HAVE TO MOVE WITH THE KIDS OR DIVORCE OR SOMETHING ELSE. IT IS DIFFICULT TO GO FROM SUB 5% TO ANYTHING HIGHER, ESPECIALLY BECAUSE HOUSING PRICES HAVE RISEN. JOHN, YOU ARE SAYING THIS MAY BE A BUYING OPPORTUNITY. THE FUNDAMENTALS DON'T SOUND GREAT. WHAT DO YOU EXPECT TO HEAR FROM THE REPORTS? THEY CAN'T SAY A.I. AND GET A JUMP. I'M ASKING ON A SERIOUS NOTE. WHAT ARE YOU EXPECTING IN. >> FRANK, EVEN IN A MARKET THAT HAS BEEN SIDEWAYS THAT THE PUBLIC BUILDERS ARE GAINING MARKET SHARE. THEY GREW LAST YEAR FIVE POINTS ABOVE MARKET. IT'S A LOT OF SHARE BEING GAINED. THERE'S STILL GROWTH. WHAT WE ARE EXPECTING IS BEATS ACROSS THE BOARD FOR LENNAR AND KB ON MONDAY AND TUESDAY. THE QUESTION BECOMES THERE IS UNCERTAINTY IN THE MARKET TODAY. WILL THEY BE MORE CAUTIOUS ON THE OUTLOOK WHICH IS NOT A GOOD RECIPE FOR STOCKS THIS EARNINGS SEASON. I THINK THE ACTUAL PRINTS WILL BE STRONG. >> WE TALKED ABOUT THE FED IMPACT. WHAT ABOUT THE IMMIGRATION IMPACT? THAT IS SOMETHING JAY POWELL TALKED ABOUT. WE HEARD OTHER COMPANIES TALK ABOUT THAT AS WELL. HOW DOES THAT PLAY A PART HERE IN THE U.S. WHICH IS A BIG ECONOMIC FACTOR? >> IT IS TWO PRONG. IT PUTS MORE BUYERS IN THE MARKET, FOR SURE, BUT LABOR IS THE BIGGEST PINCH POINT IN THE HOUSING MARKET FOR THE LAST EIGHT YEARS. IMMIGRATION TICKING UP IS GOOD FOR HOUSING. >> WE SHOWED A GRAPHIC. THERE ARE TWO HOUSING-RELATED DATA POINTS. KP EXISTING HOMES AND STARTS. DOES THAT INFLUENCE THE STOCKS AND PERCEPTION AND SENTIMENT? >> I THINK HOUSING STARTS IS IMPORTANT. IT IS SHOWING WHAT IS COMING TO THE MARKET AND THE BUILDERS IN THE ENVIRONMENT. ON THE EXISTING HOMICE SIDE, EXISTING HOME SALES STAY LOW AND IT IS A CHALLENGE FOR OVERALL HOUSING. >> BESS, SIMILAR QUESTION FOR YOU. A HOME BUYER OR INVESTOR. BETWEEN THE TWO DATA POINTS AFTER KB AND LENNAR REPORT, WHICH IS MORE IMPORTANT? >> IT IS SO HARD TO SAY. YOU KNOW, I THINK IT WAS YOGI BERRA WHO SAID PREDICTIONS ARE HARD, ESPECIALLY ABOUT THE FUTURE. REMEMBER, THE HOUSING MARKET IS CYCLICAL. I THINK IT IS EMOTIONAL COMMODITY FOR PEOPLE. I REALLY WOULDN'T BE ABLE TO TELL YOU WHICH

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Id: C_BbnLGUe2o

Length: 6min 17sec (377 seconds)

Published: Mon Jun 17 2024