Zillow’s Matthew Speakman on homebuyer demand

Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:

Victoria Jones: Pulled from the hottest topics coming across our news desk, I’m Victoria Jones and this is “HousingWire Daily.”

Today’s “HousingWire Daily” features an interview with Zillow economist Matthew Speakman. In this episode, Speakman discusses Zillow’s most recent Market Pulse report which claims that a disappointing April jobs report raised some questions about the pace and timing of the nation’s recovery, and new data that suggests some homebuyers may be getting discouraged while sellers are growing more confident.

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Victoria Jones: Hello, HousingWire listeners, today, I’m joined with Zillow’s economist Matthew Speakman. Hi, Matthew. Thanks for joining us.

Matthew Speakman: Hi there, good morning. Thanks for having me.

Victoria Jones: Of course. Listeners, today, Matthew will be speaking to us about Zillow’s most recent Market Pulse report which claims that a disappointing April jobs report raised some questions about the pace and timing of the nation’s recovery and new data that suggests some homebuyers may be getting discouraged, while sellers are growing more confident.

Matthew, during the month of April, 266,000 jobs were added in the jobs market. This number was well below many forecasts that expected closer to 1 million. Additionally, during the month, the national unemployment rate increased to 0.1%, from March to 6.1%. Now, I know there’s been a lot of talk in the news about how Americans feel about employment at this time, but my question for you is what may be preventing more Americans from gaining employment?

Matthew Speakman: Yeah, you’re right. It was a surprising report, one that does call into question about the pace of the economy’s recovery and the labor market’s recovery, specifically. I think it’s important to note that it really is just one report and we could see far more strength in the labor market in the months to come. It was eye-opening, of course.

One thing to note, I think, is first of all, demand for labor is really strong. We saw it in the job openings numbers from March that were released earlier this week, which reached a record high, so there’s clearly a demand for labor. but for whatever reason, you know, it hasn’t resulted in a wave of hirings quite yet. And there are many reasons why that could be the case. You know, one is apprehension about going back to work, for many people we’re not out of the woods yet, with this pandemic, and, you know, some people are still concerned with their health, their safety in the workplace, and for good reason. You know, childcare and caring for others is another factor. Schools, in many places, are still not fully back in person, meaning people still have to stay home to take care of their kids and other loved ones.

There might also be a skills gap, as a result of this pandemic, where people are kind of re-evaluating maybe what they want to do professionally, you know, following the pandemic, and also employers have maybe changed what’s required in some of these roles. And there are other factors at play too. I think it’s a combination of things that’s maybe contributed to this limited improvement, at least relatively limited improvement in the labor market in April. But I’m confident that we’ll see stronger improvements in the months to come.

Victoria Jones: Those are all great reasons. The pandemic has transformed the job market tremendously. Well, as you know, the job market has a direct correlation on the nation’s economic health and experts are saying, due to the lack of significant job gains in the market, mortgage rates took a dive. And back to last week, they hit their lowest levels since maybe February, and the Mortgage Bankers Association indicates they slid even further this week to 2.94%. Do you think that rates are expected to continue sliding, and if so, how long can this decline continue?

Matthew Speakman: Yeah, you’re right. So mortgage rates are still historically low. We actually did see them come back upward in the last couple of days. You know, it’s really, every day, there’s a new move in mortgage rates, it seems, as the economy kind of jockeys to figure out where we’re headed here in the medium term. In particular, it was the inflation reading, the consumer price index that was released on Monday. You know, prices rose 4.2% year over year, the highest annual pay since 2008 and more importantly, was stronger growth than most were expecting. That’s in part, of course, to base effects from this time last year, when prices really took a dive at the early stages of the pandemic. But that’s still stronger price growth than most many were expecting.

It did introduce some questions about how the Central Bank, the Fed is going to handle monetary policy, how long they can keep these loose monetary conditions that, when tightened, ultimately put more pressure on mortgage rates. So it’s always difficult to forecast the path forward for mortgage rates. It’s always uncertain, particularly right now when there’s still a lot in the air. It could head back down where in the coming weeks if key economic reports or pandemic-related developments take a turn for the worst, but it does seem like, for now, particularly because of this inflation report that came out earlier this week, the pressure has actually moved back to the upside for mortgage rates. So my prediction is that they’ll gradually head back upward here in the next couple of weeks, but rates should continue to stay historically low for the near future.

Victoria Jones: All right. I know the market is really eager to see how those play out. As we talk about low mortgage rates, we have to discuss home buyer demand. Record rates this and last year has spurred a significant uptick in home purchases leading to what many now believe is a seller’s market. As demand peaks and supplies dwindles, many now claim the housing market is experiencing a worsening affordable housing crisis. My question for you is will this lack of supply and affordability discourage potential homebuyers who are struggling to find homes at their price point?

Matthew Speakman: Yeah, it’s extremely competitive out there in the housing market. Demand is very strong, demand for homes, and the inventory is still very tight. We’re seeing homes sell very, very quickly, in record time, which really isn’t allowing the stock of inventory, let’s say, to accumulate. And, you know, while sellers are still…they are growing more confident, we’re seeing that in some of these reports, I cited them in my report last week, and where homes are entering the market, we haven’t yet seen really, the influx of homes that we may perhaps expect when prices are rising so quickly. So yes, as a result of that, it does introduce some affordability constraints for many buyers, people who are right at the margin, saved up and are looking to enter the market, perhaps for the first time, and see these rising prices and are ultimately unable to pull the trigger.

That said, in the data, if you look, we actually saw that first-time homebuyers, typically the people you would expect to have, maybe, the hardest time finding a home to afford, they actually had a pretty good year in 2020. They represented the largest share of overall for-purchase mortgage originations, just under half, than they did in about a decade. For many first-time buyers, they’ve actually been able to take advantage of some of these low rates, and maybe, you know, use some tools, like those we offer at Zillow or elsewhere, to do a lot of their homework beforehand so that they’re able to jump in and pull the trigger when they find a home that fits their needs and desires.

So affordability is something that we need to keep a close eye on, particularly as prices rise as strongly as they are and we expect them to continue to. But for others, it seems like they’ve been able to take advantage of what are generally very favorable financial conditions and enter the market for the first time.

Victoria Jones: All right, I wanna pick up on affordability and supply. The National Association of Home Builders’ most recent housing index, which is a report that gauges the pulse of the single-family housing market, claims, “While builder confidence jumped in April, prices relating to materials were still a top concern.” In fact, the NAHB says it won’t expect price declines until late 2021, and urges policymakers to find a way to increase the supply of building materials now.

Matthew, how likely do you think there will be some form of legislation from policymakers relating to either affordability or supply?

Matthew Speakman: First, just speaking to the materials’ prices, you’re right, prices of lumber and other key materials have risen very strongly. It goes without saying, at this point, in the last several months. And a lot of that is due to supply-side constraints in part because of the pandemic, it kinda disrupted a lot of, you know, the production, introduced a lot of uncertainty. So you know, part of that, it is just sort of the fact of the matter given where we are in the pandemic, in the disruption that it’s caused.

You know, from a policy standpoint though, it is difficult for me to speak to the likelihood that specific policies will be implemented, but it does seem like, you know, the federal government is taking it upon themselves to implement some policies, or at least introduce some policies that would help tackle affordability and other construction and housing-related topics. You know, one is the First-Time Homebuyer Act which is a tax credit of up to $15,000 for first-time homebuyers and we’ve done some research on that bill. And should it pass, it will actually help millions of renters achieve homeownership.

There’s also talk about offering federal money to cities that ease their zoning rules as part of the infrastructure plan that would cut overall housing costs. And then there’s this actually new policy or new initiative from the Federal Housing Finance Agency, FHFA, which aims to help less credit-worthy and low-income existing homeowners refinance that would aid in their affordability on a monthly basis, help ease their monthly payments. So it’s clear that the government is looking to implement and introduce new policies that help tackle affordability, as I mentioned before, and it’s top of mind. We’ll see how that plays out in the coming months and years.

Victoria Jones: All right. thank you for answering that. I want to end this interview with some forecasting. What kind of housing market do you think the housing industry is facing in 2021, as Q2 approaches a close?

Matthew Speakman: Yes, we’re actually just finalizing our most recent forecast update at both home sales and prices. And high level, we expect the competitive state of the market to remain in place for the months to come. Put simply, demand for homes is still really strong. You see a lot of people growing, aging into homeownership age, people re-evaluating what they need from their home, where they want to live, which we’re calling the great reshuffling here at Zillow. A lot of these organic sources of demand teamed with inventory conditions that are still quite tight even as things improve and we believe more sellers will come on the market. Those combine to what we expect to be really strong price appreciation in the coming year. We expect double-digit price appreciation on an annual basis through this time next year. And, you know, we do think that these rising prices might make it difficult, as we mentioned before, might make it difficult for some to afford a new home and to achieve homeownership. But broadly, these demographic factors, the fact that mortgage rates are still very low and more generally, sort of an improving economy and more certainty that comes from that will support sales volume in the coming months and year, and we expect a double-digit percentage increase in home sales in 2021 compared to 2020.

Victoria Jones: Right. Well, there’s a lot in the market that we’re looking forward to and I can’t wait to see that report itself too.

Matthew Speakman: Yeah, we’ll keep an eye on it and be sure to let you know. So thank you very much for having me. I appreciate it.

Victoria Jones: Thank you so much. Listeners, join us back here on Monday, for next week’s “Monday Morning Cup of Coffee.” Thank you again, Matthew.

Matthew Speakman: Thanks very much.

Brena Nath: More than ever, the housing industry is looking to its leaders for answers. That’s why each week, the “Housing News” podcast invites a new mortgage, fintech, or real estate executive to the show to provide its listeners with more perspective on the announcements and news stories crossing HousingWire’s news desk. Hosted by Sara Wheeler and produced by Alcynna Lloyd, the “Housing News” podcast is now available on iTunes, Spotify, Apple, Google Podcasts, and more.

Victoria Jones: That’s a wrap for today’s episode of “HousingWire Daily.” Remember to subscribe, rate, and review on Apple Podcasts and join us again tomorrow.