Plunge in sales, low inventory, high prices: Economist on spring housing market

Roughly 41% of homes have faced a bidding war in the four weeks ending May 10, according to Redfin. First American Chief Economist Mark Fleming joins Yahoo Finance’s On The Move panel to assess the state of the housing industry.

Video Transcript

ADAM SHAPIRO: We got some interesting data on existing home sales today. They actually fell, 17.8% percent year over year with an annual run rate of about 4.3 million. But the other part we got was Redfin, which reports 41% of homes actually had bidding wars in the 4 weeks that ended May 10, which is better than what we saw as far as bidding wars in January before the pandemic shutdown.

To make heads or tails of this, we're going to invite into the program Mark Fleming. He is the First American Chief Economist, understands mortgages very well. And what do you make of that, bidding wars on one hand, but existing home sales dropping almost 18%?

MARK FLEMING: It gets to what we've all realized, particularly as economists, in the last three months, that monthly data that looks back even three or four weeks ago is old news, right? We know from the faster moving data that you were just referencing, mortgage applications, showings, bidding wars in April. April was really the trough, I think, for the housing market. And the existing home sales number-- numbers reflect that. But we do expect the rebound to be quite strong in the May numbers that will come out at the end of June.

JULIE HYMAN: And Mark, it's Julie here. Good to see you. We've had some conversations as well about migration, right? Even if it's not regional migration, it might be within a region, moving from urban to suburban, for example, how moving to a commute from home or work from home environment might change things. What are you predicting on that front in terms of where we're going to see the home buying trends?

MARK FLEMING: Well, even the existing home sales numbers that came out this morning showed differences between single family homes and condominiums. And condos were even worse further down. That's sort of one tiny little aspect of what you suggest. Yeah, there is an element of, you know, the-- the larger suburban home, if we have to have a home office and, you know, are spending more time in those homes, is probably more attractive. Certainly elevators and common spaces are less attractive.

But we have to be careful to not over-attribute that to sort of our response to health pandemic because the truth of the matter is also, demographically, home buyers were already making that transition to suburban homes. Those young millennials having families, you know, the condo's not as attractive as opposed to the single family home when you've got one or two kids in tow. So it's probably some combination of both of those things driving the trend out of the city.

BRIAN CHEUNG: Hey, it's Brian Cheung here. So on the point of maybe people who are interested in buying in this market, does that suggest, based on what we were just talking about, that they missed the boat already, that we may have already seen a bottoming out in April for home prices, and that if you were trying to maybe, you know, buy something on the sidelines of this recovery, maybe you're a little too late?

MARK FLEMING: Well, I guess I'd say there's two types of buyers in the market, right? There's the existing homeowner, who's actually the majority type of buyer. Most, about 2/3 of all home sales are not to first-time home buyers. And those existing homeowners, as we saw in the inventory numbers, are not listing their homes for sale. Therefore they're not also buying homes. That's one of the reasons why home sales are down. The buyer and the seller is the same person, the existing homeowner.

On the first-timer side, which is really what your question gets to, you know, can you time the market and get in? Well, I can say that, you know, if you still have a job obviously and interest rates being where they are, in fact possibly being able to get a 30 year fixed rate loan below 3%, you know, your buying power is through the roof right now. The big challenge is you can't buy what's not for sale. Can you find something? Hence the bidding wars.

ADAM SHAPIRO: Mark, you know, I've got a buddy in Chicago literally put his condo on the market this week. Already has an offer above list but contingent on selling the previous home. I'm not going to get into the details of that. But you just brought up first time buyers. With almost 40 million Americans unemployed, isn't that going to throw a wrench into the first-time buyer sector of the market? And that slows everything down moving up.

MARK FLEMING: There's certainly going to be some impact on the first-time home buyer, largely because that first time home buyer is younger. And we know from understanding the unemployment data that this is disproportionately impacting younger, less educated, lower-income individuals. Now, the truth is the data seems to show that the people who are most likely to be becoming unemployed by this pandemic were less likely to be your first-time home buyer, not that it doesn't impact demand to some extent. But there's sort of this bifurcation because of the way this recession is playing out that's disparately impacting lower-income people. But those are less likely to be participants in the housing market.

JULIE HYMAN: Hey, Mark, inasmuch as you can, predict for us what the rest of the year looks like. As we start to see more real openings, as hopefully more people go back to work, does that mean sort of a sustained buying cycle or a different buying cycle than we would typically see?

MARK FLEMING: Yeah, I think, you know, one of your prior guests-- guests was talking about the economic recovery and the idea that V's sort of off the table and it's going to be some sort of a different shape. I think the popular term is the Nike swoosh now. The real-- the more real time data like MBA apps and showings and things like that, you know, makes the housing market looks like more of a V. I mean, mortgage applications are already back to practically where they were prior to the situation.

This is really driven by the fact that, unlike the fact that I'm missing a number of haircuts that I'll never get back, you can time your decisions. And so spring, the spring buying season, has I think effectively been deferred to summer. So we do believe that a lot of that pent up demand and pent up supply will start to appear in the second half of the year once we're allowed and once it's easier to do it, although even that, even with the challenges, we're still finding ways.

ADAM SHAPIRO: All right. Mark Fleming is the chief economist at First American. Thank you for joining us here "On the Move" to talk about the housing market.

MARK FLEMING: Thank you.