Nationwide’s David Berson on the latest home sales report

Victoria Jones: Hello. HousingWire listeners. Today, I’m joined by Senior Vice President and Chief Economist for Nationwide Mutual David Berson. Listeners, today, David will be speaking to us about the April Home Sales report. So David, thanks for joining us today.

David Berson: Victoria, my pleasure. Happy to be here.

Victoria Jones: Absolutely. Well, before we dive in, David, can you tell our listeners a little bit about yourself?

David Berson: Well, I’m the chief economist at Nationwide and more interestingly, for people in the housing market, I was chief economist at Fannie Mae for 20 years, left just before the housing bubble, I am a good forecaster, and then worked for the PMI Group. You know, live in Columbus, but have my Ph.D. from what they euphemistically call in Columbus, that school up north, because they won’t say the word Michigan.

Victoria Jones: Great. Well, let’s get started in discussing the latest home sales report. According to the U.S Census Bureau and the Department of Housing and Urban Development, new home sales in April were at a seasonally-adjusted annual rate of 863,000, which is roughly 5.9% lower than the revised March rate, but nearly double that of April’s 2020 estimate of 582,000. So taking a closer look at this data, what does the new home sales volume tell us about the current state of the housing market?

David Berson: Well, the comparison with a year ago is somewhat unfair, because a year ago, we were going into the COVID recession. The April, May numbers were just abysmal because we were being locked down. Nobody is going out to buy homes. Nobody was selling homes. Builders weren’t building homes.

The number we got for April was a little disappointing in that it was down from March, but it’s still a pretty strong number. You look at the data over the last 10 years or so, April number was still pretty good, even if disappointing because it was down. So it tells us that the economy continues to recover from the COVID recession and particularly the housing market. As strong as we’d like? No, but still a good recovery.

Victoria Jones: All right. Well, let’s discuss homebuyer demand, as it has undoubtedly been prevalent in this year’s housing market. And as I’ve previously mentioned, home sales have nearly doubled from last year, but with rising lumber costs and lacking employment across the construction sector, I’d like to know what changes you believe need to occur in order for the housing market to catch up with the homebuyer demand.

David Berson: The homebuyer demand is very strong. Mortgage rates are still near record lows. The job market is very good. Incomes are up. It’s the supply side that is holding things back. Builders can’t build homes quickly enough. And when they do, as you mentioned, supply costs are up, house prices are higher than people would like.

One positive on the supply-side is existing home inventories are in much worse shape than new home inventories. We have data from the realtors that go back to the early ’80s. There had never been fewer single-family existing homes for sale than there are right now. And so that pushed people into the new home category. Still, we’re seeing supply constraints, not demand constraints. if builders can build more homes, more affordable homes in particular, they will be sold.

Victoria Jones: Yeah, you touched on home prices, and we’re going to touch on that in just a few, but you know, we talked about costly building materials and home prices are impacting the market, but I’m curious on how you think they’re also impacting homebuyers. Do you think these factors are affecting potential homebuyers approaching the housing market?

David Berson: You know, any time house prices go up, it pushes some people out of the housing market. You know, they have a budget, they can afford a certain amount per month or a certain dollar amount per home, and when interest rates go up or house prices go up, they can afford either less house or they don’t buy at all. So clearly, the increase in construction costs that is pushing or helping to push new home prices higher is pushing some people also out of the market. So it’s hurting demand on the margin. Is it really hurting it a lot? Probably not, because again, people can decide they’re gonna buy a little smaller house, or a house with somewhat fewer amenities, or a house in a different neighborhood that isn’t quite as expensive. But it clearly is cutting off some of the housing demand that we’d see if home prices weren’t going up so quickly because of the cost of construction.

Victoria Jones: All right. Well, thank you for answering that. Speaking of home prices, you know, the U.S. Census Bureau and Department of Housing and Urban Development reports the median sale price of new houses sold in April 2021 was $372,400, while the average sale price was $435,400. So David, in your perspective, can we expect to see home prices continue to climb, and if so, when will they level off?

David Berson: As an economist, I would of course respond, the price of anything is supply and demand. So here, we have a market in which demand is very strong and supply is limited. So it’s natural the prices are going up. Even though I think home builders are trying to respond to that by changing the mix of homes they build and having homes be a little less expensive. Still, lot prices are up a lot and so builders can’t build a little house on an expensive lot. So there’s a limit to what builders can do there.

As long as demand continues to exceed supply, we will see house prices move up. Our expectation is the house prices this year, for both new and existing homes, will be in double digits for the entire year, because we simply won’t get enough new supply this year to offset the rise in demand.

Victoria Jones: Okay, well, we’re already halfway through this year, and looking ahead at the summer and towards the latter half of the year, do you expect home sales to rise or fall? I know you kinda mentioned that earlier, but what else would you have to say about that?

David Berson: Well, of course, economists always look at seasonally-adjusted things, and, you know, the big market for housing is the spring and early part of the summer. So if you just look at the actual number of home sales, they always go down late in the summer and into the fall. So the actual number of home sales will probably go down, but they do that every late summer, every fall. So on a seasonally-adjusted basis, I think home sales will go up, although perhaps less than they would have if we can get a bigger supply response. Still, I think home sales will rise simply because the demand is there and builders will build as many as they can to meet that demand.

Victoria Jones: A lot of great insight here today, David. Well, before we go, is there anything else that you’d like to add today or anything else you think our listeners should know?

David Berson: I’m often asked, particularly because I worked at Fannie Mae, is this another housing bubble? Are we looking into the abyss again in another year or two where house prices collapse? And the answer, I think, is very much no. The things that are driving housing demand and house prices this time are very different than what we saw in the mid-2000s. We used to joke that the only thing you needed to get a mortgage back in 2006 and 2007 was to pass the mirror test. The mirror test, you put a mirror under your nose, if you’re breathing, it fogs up, you’re alive, you get a mortgage.

Getting a mortgage today is much more difficult. The mortgages people are getting are suitable for them and prices are going up, not because people are buying homes to flip. They’re buying homes to live in, and there just simply aren’t enough of them there. So this is very different than the housing boom and bust in the 2000s. House prices eventually will slow. Those gains can’t go up in double-digits forever, but we’re not looking for declines, certainly not big declines as we saw in the 2008 to 2010 period.

Victoria Jones: Okay, David. Thank you so much again for your time today. We appreciate it. And thanks for joining us on HousingWire Daily.

David Berson: Happy to be here, Victoria.

Victoria Jones: Thank you.