LendingHome CEO talks homebuyer demand and inventory

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

Victoria Wickham: Hello, HousingWire listeners. Today I am joined by LendingHome CEO, Michael Bourque. Michael is a 20-plus-year finance industry veteran, and will be speaking to us today about the COVID-19-driven demand for housing that is continuing to rise across the country, and discuss the current factors that are shaping the real estate market. So, Michael, thanks for joining us today.

Michael Bourque: Thank you, Victoria. Happy to be here.

Victoria Wickham: Absolutely. Well, to set the scene here, I’d like to discuss the current state of the housing market and the increase in homebuyer demand we’ve continued to see over the past year. According to a recent Zillow survey, 1 in 10 Americans reported moving in the past 12 months either by choice or by circumstances. And Zillow researchers note that millions of additional households could enter the housing market this year. So with strong homebuyer demographics who are ready to buy, coupled with historically low mortgage rates, and more opportunities for folks to work from home, it’s not hard to imagine why we’ve seen rising homebuyer demand. So as someone who has been in the industry for more than 20 years, what stands out to you the most about these trends in the real estate market compared to the pre-pandemic market?

Michael Bourque: Yeah, no, it’s a great question. And we certainly have seen a tremendous amount of change. I think the biggest change, I think, your point too is what’s happened with the whole work from home dynamic. Really, for the first time you have people interested in things like extra rooms for an office or two. And that’s really driving a lot of demand for people whose jobs afford them that opportunity. Additionally, the dynamic has created a lot more flexibility in terms of where people work. No longer are you tied to kind of a one-hour radius of your office location. And so you’re seeing smaller cities, more rural communities, you know, having an influx of people. I think the other dynamic that’s changed generally is that we all want more distance from neighbors. So instead of people preferring, you know, the city centers, high rise apartments and condos, you’re seeing detached homes with yards becoming more appealing for both homebuyers and renters.

I think the other thing is from a macroeconomic perspective, just the amount of stimulus money released into the economy since the start of the pandemic has just put so much money to work in the system. I think by comparison, it’s something like two and a half times what the stimulus was coming out of the 2009 recession. And so all of this money is in search of a home and searching for investments. And that’s really driven asset values higher. In addition, I think the kind of extension of the money supply this way has provided people a sense that interest rates are going to remain lower for longer versus maybe where people thought they were heading pre pandemic. And so that’s generally favorable for housing.

Victoria Wickham: All right, well, at the beginning of COVID-19, Congress passed the CARES Act to provide economic relief for millions of Americans affected by the pandemic, as well as offer mortgage forbearance to homeowners. According to the Mortgage Bankers Association, an estimated 2.5 million homeowners are still in some form of forbearance. And although that number continues to slowly decline, with the extension of forbearance, moratoriums up to 18 months, in your point of view, how do you think borrowers in the housing market will be impacted when the forbearance extension comes to an end?

Michael Bourque: Yes, it’s tough to predict exactly how things will play out. But I believe both the act of the forbearance relief and also the duration of it has been very helpful for homeowners who need it. The duration in particular has given people time to just sort things out. And really, I think there’s kind of three big factors that have helped here. First is unemployment. You know, pre pandemic, unemployment was, I don’t know, about 4%. We saw it peak around 15% during the pandemic, and I think it’s close to 6% today. And so that means, you know, people have at least been able to find some income again.

Next is the savings rate. With so many communities closed during the pandemic, you saw the savings rate jump from like 6% before, to something like 20% over the last year, really making consumers stronger. And lastly, you have kind of the home price appreciation we’ve seen. And so while it may be that some people are behind on their home, the rise in property values has made it more likely that homeowners in difficult situations might have some equity in, and might be able to sell through more traditional means than a bit of a distressed exit, and even leave with some equity. And so I think that’s very different, and hopefully will be helpful for folks in those situations.

Victoria Wickham: That’s interesting. Well, let’s discuss inventory, as our nation’s inventory levels remain a question of concern. In your opinion, how does the country’s inventory level impact would-be buyers and sellers? And what changes do you believe need to occur in order to see inventory levels increase?

Michael Bourque: Yeah, this is… Look, for homebuyers, it’s really tough right now. There’s such little inventory out there in many ways it feels the deck is just stacked against you. And it’s forcing people to make very expensive decisions very quickly. You continue to hear stories of potential buyers losing out to all cash offers well above the asking price and it’s just discouraging. For people who are seeking homes in places with high homebuyer demand, like, you know, the Bay Area suburbs, Austin, Denver, Boise, it’s incredibly difficult right now to be a buyer. And I think that’s one of the reasons you’ve seen so many individuals more seriously, you know, consider moving away to some of these smaller cities that are a bit less frenzied.

I think for home sellers, look, it’s a great market. And really, it’s about making sure if you are going to sell your home, that you’ve got a good agent who knows the market, getting your property set up and staged well, and then letting the offers come in. I think I saw a stat last week maybe it was from Redfin, that on average homes last month sold in 21 days on the market, nationwide, which was incredible. And something like 60% of homes are getting multiple offers, and 40% are selling above list. And so this is just an incredible market. I think the other thing you’re seeing is all cash offers, almost no contingencies. And so it really plays to the to the seller’s advantage.

I think the tricky part of this, though, is that someone selling their home, presumably has to buy something on the other side. And so it’s important that people have a plan worked out there in advance so you don’t end up, you know, without a good situation. And I think, you know, from an inventory perspective and seeing an increase, you know, look, either demand needs to slow down, or supply needs to pick up. And so in terms of what could slow demand, I think, you know, my view is that demand is going to continue to remain strong. There’s something like 60 million millennials that are going to be entering their prime home-buying years over the next decade, which is going to continue to feed the homebuyer demand.

I think this will continue to push home prices up and at some point that might stymie demand, you know, in some locales. And eventually, I think interest rates, you know, have to increase as well. But I think demand generally remains strong. And really, from a supply perspective, it’s gonna take years, you know, for the building apparatus to catch up. And so it feels like we’ll be in a kind of an imbalanced real estate market for quite some time.

Victoria Wickham: Well, I’d like to discuss construction, as this is another sector in the housing industry that also has seen heightened demand and rising costs. And although the U.S. Bureau of Labor Statistics reported new gains in construction employment last month, costly materials and increasing homebuyer demand continue to affect home builders across the country. So if construction costs and lumber prices do not improve, do you see this as a factor that affects potential buyer’s pursuit of owning a new home?

Michael Bourque: Yeah, I do. You know, the construction industry is really trying to catch up to homebuyer demand. But the issue we’re facing is really decades in the making with household formations far outpacing housing starts. And so there’s really only so much builders can do quickly. And so you’re right, prices have increased, you know, we’ve seen input prices for things like lumber now double what they were just back in March of last year. And so, look, markets will correct. The timber industry, for example, is bringing on more sawmills, bringing them online, that will increase supply, lower the cost of those materials. But those things will take time. And so I believe the best option, you know, for somebody wanting to purchase a new home today is actually to consider a renovated home from one of our real estate investor customers. These homes are move-in ready, generally more centrally located than where some of the new construction builds are taking place today, and likely even cheaper.

And on that last point, like one of the things that we’re looking at at LendingHome with the team here is how the cost of one of our customer’s renovated homes compares to a new construction. And the numbers are still rough. But generally it’s about 15% to 20% cheaper today for a first-time homebuyer to purchase a renovated home from a real estate investor versus buying, you know, a newly built home. And that’s a big deal. And so, you know, really, it’s going to come down to where people want to live and what they can afford. But given that two thirds of the homes in this country are 30 years or older, there’s just a lot more supply of these types of older homes. And so we think renovated homes are just a more attractive option in the long term to fill the supply gap.

Victoria Wickham: Well, as we established, we are experiencing an incredibly hot housing market, and you mentioned renovated homes, but what should homeowners, homebuyers, or industry professionals consider during this period that they may not have last year?

Michael Bourque: Yeah, look, for everybody individually, I think the concept of home is a personal thing. And so depending on the phase of your life, you know, there might be opportunities to move, to upsize, to downsize. But it’s really an individual question for folks. I know for my family, we love the Bay Area. But after six months cooped up in a small home with our two teenagers and three dogs, we decided to make the move to Montana. And we’re fortunate to have that flexibility and have enjoyed kind of a change in our lifestyle, you know, as a result. And so really, I think it’s situational for folks. I think from a professional perspective, you know, the hot market aside, there’s tremendous change continuing to take place in the real estate industry generally, both with the introduction of new business models, more technology. And I think that ultimately, that’s going to be great for the industry as a whole, great for real estate investors, and certainly great for consumers.

Victoria Wickham: Yeah, a lot of great insight here today. But, you know, lastly, before we go, is there anything else you’d like to add or anything else our listeners should know?

Michael Bourque: Thanks, Victoria. You know, I think the one thing I’d reiterate maybe is just the size of the opportunity here. And I think the country really needs to consider addressing some of its housing challenges by thinking about improving the aged housing stock. You know, today, about two thirds of the houses in the country are more than 30 years old, and getting older. Collectively, they’re worth something like $25 trillion today, it’s just enormous. And I think in a given year, there’s over, you know, $900 billion of aged home real estate transactions. So to put it in perspective, that’s more than the entire used car market. And it’s almost as much as Americans spend on food every year.

And so I think our ability as a country to refresh those homes, make them move-in ready for another generation of families is really important. And so at LendingHome, you know, we stand alone in bringing technology and skill, you know, to the real estate investors focused on this challenge. We’re really proud to partner with them to refresh the housing supply and tend to homebuyer demand, you know, to create value in the aged homes across the country and to help bring the American dream to more people. And with that, just want to say thanks for having me here today.

Victoria Wickham: Thank you, and thank you for your time. We appreciate it. And thanks for joining us for “HousingWire Daily.”