US has huge housing shortage: Economist

Channel: Fox Business
Published: 05/21/2019 01:18 PM

First American Chief Economist Mark Fleming on the housing market and the outlook for the U.S. economy. Ben Carson, secretary for the US Department of Housing and Urban Development, testifies in front of the House Financial Services Committee on "Housing in America":

Bringing us right now is first american chief economist mark flemming and market. It'S great to have you this morning. Thank you. So we're talking about the economy, broadly speaking and you just said a lot of metrics look good, and yet here we are in the morning looking at retail sales under pressure, kohl's stock down ten percent, a number of others closing stores like dress barn. Is there a bif ...
rcation going on in this economy? Is the consumer a weak spot? I don't think so in in broadly speaking, the consumers consuming as much as they ever had before. The question is how they consume it, and i think there is definitely in the retail sector a shiftof winners and losers in terms of our consumption patterns. The amazons of the world are taking more and more consumption away from the traditional big-box retailers in particular, so housing we're waiting on the existing home sales housing. What does it look like to you and give us your assessment of the economy right now? Well, consensus estimate for housing is up home, sales are up par, that is because the economy is strong and, most specifically, within the economy, growing wage wage is growing, which means more household income. You get the rate benefit, which is amazing in terms of purchasing power for housing, and so we see a lot of demand out there, because rates are lowand. Incomes are up because mortgage rates have come down, especially in the last couple months, and we saw existing home sales and new home sales really get hit hard in the fourth quarter after the fed raised rates for the fourth time this year and since then, they've been On pause, we've had a little bit of a hiccup in the market here, and rates have come down with this trade tension. Are we out of the woods in the housing market? The consumer is feeling good, maybe not out of the woods, but you have to remember in the housing market existing home sales, there is the vast majority of homes that come to market for sale, thatmeans, there's a consumer already in the home with a low mortgage rate. When rates rose, there's a rate lock in effect, it would cost me more to you know, move, and so we see 10 year, rising see-saw people staying put what's happening now.

This spring is because rates have come back down almost to those historic lows that rate lock-in effects not really there, so people are jumping in and moving. How is new home construction coming along my families in the real estate business and my dad always used to say if you wonder how the economy is doing, look at how many new rooftops are going up, how's that coming along we're definitely under building wehave under built For the last decades, since the end of the recession to the tunes of millions of homes, is the bigger, broader problem in the housing market today isn't what's happening in terms of sales today or tomorrow. It'S that you know relative to the number of households out there. There'S a huge shortage of housing in the united states, which means for home builders. It'S ultimately a good thing, because how do you increase the housing stock by building more homes? We see that in california we do polling shown us. The number one issue in the state of california is costs of housing for young families, because existing families that have been longtime california residents havebought in long time ago know that their kids cannot buy a home in california and so they're separating to go to places like Arizona, texas, where these same homes cost half the price, and where does the building happening in arizona in texas in atlanta? Not in places like? Are you expecting prices to come just to say you, you think? Probably home prices will go up. All of this demand is coming into the market today, a relatively housing stock shortage we've seen prices slow down, but i expect in the next couple of months, keep in mind. House price indices lag significantly. We just saw a february last month, so we see the march and april homeprice indices. They might actually show an increase or acceleration and growth again. My none of the problems is that people are asking too much for their homes that, because of where interest rates are and incomes in this country, home prices in your major metropolitan areas are all overpriced and people who have inventory on the market or trying to sell Their homes are living in, i don't know 2005, and they think that and the prices that they're asking are absurd. Is that part of the problem? Well, you have to remember that the price is really often a function of the interest rate, and so prices go up because interest rates go down.

My monthly cost ofbuying that million dollar home is actually relatively low. When we look at, we call our real house prices. Housing is significantly less of expensive today than it was even in the year 2000 18 years ago, not because the nominal level isn't higher its higher million dollars million v in many markets. But an interest rate of 4 % means my monthly payment to be able to buy that home, it's relatively low. So i love you a bullish outlook on the economy, but what about trade and tariffs? Do you think that cuts into growth well 75 years of economic research shows that you know higher tariffs are bad for the global economy, and so you know i ithink. That definitely is something the oecd actually just came out today and and reduce their global growth estimates. I feel like there's a but coming it's the housing market resilient enough to handle it. Possibly so you just took away. I she sorry, the government just took away a huge tax incentive for buying a house. That'S one of the things: that's whether it's the reduction in the mortgage, the the lowering of the mortgage interest rate deduction and then also the capital and salt deductions. We see we have a really hard time finding evidence in the data of meaningful impact of that sort of broadly macro. Now, when we focus on certain markets - and i know aroundhere in new york places in miami parts of southern california - there's definitely there's the new housing growth is not in cap.

It'S not on the coast right, it's more in other states that aren't affected by this. We'Re talking about six million dollar homes in greenwich or in newport beach. You know, that's, that's not gon na move, my macroeconomic number needle right, so you think things. Can we have a three percent year, three percent for economic growth? Maybe you know the economists say: on the one hand, you know the other i'm trying to think through all the possible things that could go home. Thank you. Thank you. Mark fleming joining us there.

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