Zillow’s Matthew Speakman on latest existing home sales

Victoria Jones: Hello, HousingWire listeners. Today, I’m joined by Zillow economist, Matthew Speakman. Listeners, today, Matthew will be examining NAR’s latest existing-home sales report. So, Matthew, thanks for joining us again on “HousingWire Daily.”

Matthew Speakman: Yeah. Thanks for having me.

Victoria Jones: Yeah, absolutely. Well, I want to get started by discussing the latest existing-home sales report from the National Association of Realtors indicating that existing-home sales are down for the fourth consecutive month, falling 0.9% from April to a seasonally adjusted rate of 5.8 million. So, what does this slowdown tell us about market conditions at this time?

Matthew Speakman: Yeah, you’re right. It was another somewhat disappointing month for the existing-home sales report. You know, what it says to me is that, well, some would-be homebuyers are maybe growing a bit frustrated by sharply rising prices and, you know, this persistent elevated market competition. In general, measures of demand remained very high, very strong, bidding wars are still extremely common. Price cuts are less common than they were this time last year. And we’re seeing, you know, the share of homes that are selling above their initial list price at…you know, it’s occurring at a rate more than twice the rate this time last year, more than 3 times the rate this time in 2019. So, you know, there’s this enduring demand for homes driven by a number of factors. On the supply side is where the constraints are and that’s what’s, you know, contributing to this fourth consecutive monthly decline.

You know, we’re seeing some improvements on a month to month basis from an inventory perspective, but, in general, there are just, you know, so few homes out there compared to this time last year, and it makes it difficult for many buyers who are looking to take that next step on their housing journey. So, you know, we’re hopeful that the supply side constraints will start to ease and we are seeing some signs of that in recent weeks and months. But it says to me that it’s the supply side of the market that’s contributing to another slowdown in sales volume.

Victoria Jones: Yeah. It definitely sounds like it’s still an incredibly competitive market out there, but let’s discuss the nation’s median existing-home price. And according to NAR, the median existing-home price in May was $350,000 and saw a record year-over-year increase of 23.6%. That’s a significant increase. So, I’d like to get your perspective on what factors are contributing to these increasing prices.

Matthew Speakman: Yeah. You’re absolutely right. It’s very significant. You know, our measure of home values, which is a little bit different than NAR’s is up at an annual pace that’s stronger than any that we’ve seen in our previous records that go back to 1996. And it’s really the same story as what I was mentioning before, this, you know, balance…or imbalance of supply and demand. People are still really eager to buy homes, bid up prices, whereas supply just isn’t there to keep up and maintain that balance. You know, and this demand is being driven by a few key factors. One is what we’re calling the great reshuffling, this idea that the pandemic has sort of allowed people to reconsider what they need from their home, where they can live, where they want to live, how much space they need. And that’s driving this increased demand and desire for something different, you know, for a lot of people when it comes to housing.

Another is just underlying demographics. There are a ton of millennials and older members of the generation Z generation that are now aging into, you know, that time in their life when people typically buy homes. And you know, that’s sort of this natural demand that isn’t gonna go away anytime soon. So, really it’s, yeah, these factors contributing to a lot of desire for homes, supply not really keeping up, and that combined is pushing prices up at a record pace.

Victoria Jones: Yeah, that’s interesting. Well, as we talk about demand, I’d like to discuss inventory because according to the NAR, housing inventory at the end of may amounted to 1.23 million units and was up 7.0% from April, but down 20.6% from 1 year ago. And NAR’s data also indicates properties typically remained on the market for 17 days in May, which was unchanged from April, but down 26 days a year ago. You know, we’ve seen over the past year, strong homebuyer demand like we established and limited inventory, but I’d like to get your thoughts on whether you think that current inventory levels may be a sign that inventory constraints are going to start easing up.

Matthew Speakman: Yeah, that’s the hope. And, you know, in our data, Zillow data, we found that for the first time since last summer, overall for-sale inventory ticked up in May from April. So, the first monthly increase in the overall number of homes for sale in a given month since last July. So, you know, we think that’s an encouraging sign. It’s the sort of thing that’s not going to be solved overnight. Inventory is still down more than 30% from our measure at least year over year. So, but you know, any improvement in a market like this that’s starved for more supply is encouraging. And you know, I think that there’s a way in which these improvements will compound. So, a lot of our survey work that we do over here at Zillow, firstly showed that, you know, there was a fairly large share of people who are would-be home sellers, homeowners that would consider home selling, but maybe weren’t quite there yet.

And one of the reasons for that was they were apprehensive about selling their home just due to uncertainty driven by the pandemic. You know, so many facets of the pandemic introduced some, you know, fear and concern and uncertainty in a lot of people’s lives. Of course, it goes without saying. And as the economy improves, as case counts continue to fall, you know, things start to reopen, the school year ends, we think that some of that uncertainty will lift and those who are sort of on the fence about listing their homes will become more confident and sure of themselves when considering doing so. Yeah. So, hopefully, and then other people are sort of on the fence about, you know, “I can’t sell my home right now because there aren’t any more to buy.” Right? But as more homes come on the market, as inventory continues to improve, those people, hopefully, we believe they will be encouraged to list their homes as well. So, it’s a sort of thing as I mentioned before, it’s not going to be solved overnight. Inventory…tight inventory conditions, you know, will remain in place for, you know, at least the next couple of months, but we are seeing some improvements of late. And that’s a good sign for the market going forward.

Victoria Jones: All right. Yeah, that actually goes into my next question. You touched on would-be home sellers. What about would-be homebuyers? You know, there are going to be homebuyers that are looking for a home this summer. So, what challenges could they possibly be facing in the months ahead regarding just supply specifically? And is there any data from Zillow that’s indicating more homes are going to be potentially put onto the market?

Matthew Speakman: Yeah. Yeah. So, I touched on it a little bit just a minute ago, but yeah, just to reiterate, you know, we’re seeing some signs of improvement and we believe that these improvements will compound going forward just due to the nature of what was holding some people back in recent months, you know, as things improve in the broader economy and individual people’s lives, of course. Every housing transaction is ultimately a personal one. So, that’s an encouraging sign for the market and for would-be buyers. You know, as we mentioned before, it’s just really competitive out there. A lot of people are still super eager to move, take that next step in their journey, whether that means moving across the country or to a new city or state, or just moving within their existing neighborhood or city or town. So, yeah, I mean, it’s not going to be… It’s still going to be competitive for buyers for the foreseeable future, but you know, we’re confident that some of this balance will start to come back in the market in the months to come.

Victoria Jones: All right. Well, before we go, I’d like to discuss mortgage rates. In the week ending on June 24th, 2021, Freddie Mac claims the average U.S. mortgage rate rose 9 basis points from the week prior to 3.02%. So, Matthew, do you expect rates to continue to rise going forward?

Matthew Speakman: That’s a really interesting question, and it’s a super interesting time for mortgage rates. I follow this quite closely. Yeah. By and large, rates while having risen last week and sort of up from their historic lows, have remained really low despite, you know, the economy showing many improvements, the firmest inflation figures that we’ve seen in decades, and generally, inflation tends to put upward pressure on mortgage rates. And yet mortgage rates remain very low, you know, by historic comparisons, you know, very, very low. I believe that, you know, the pressure on mortgage rates going forward will be to the upside. That is, it’s more likely that mortgage rates will increase in the coming months than decrease. Firstly, just because they’re so low to begin with. But also, you know, the economy is going to continue to improve. Things are going to continue to reopen. People are going to be more comfortable spending.

And so, you know, I do think that largely, the pressure on mortgage rates is to the upside and the risk is to the upside going forward. That said, I don’t expect a significant increase in the coming months at all. I mean, there are a lot of factors at play, the Federal Reserve, how financial markets digest some of their narrative, and what decisions they make. But I just think due to the nature of, you know, a number of factors, including the Federal Reserve and market conditions, I don’t expect a sharp uptick in mortgage rates in the near future though I do think that they’ll sort of generally trend upward in the months to come.

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

Matthew Speakman: Yeah, thanks for having me. I think we covered a lot. I mean, one thing…you know, one topic that maybe doesn’t get as much attention as others and maybe it should be is the rental market. And what we’re seeing in our data, you know, nationally, the typical rent across the country, growth rate fell pretty dramatically at the beginning of the pandemic, though rents did, you know, technically still increase. But they did fall on an annual basis in a lot of large markets. So, rental market really sort of slowed down, whereas the for-sale market, you know, as we’ve discussed, started to ascend to new highs, well, at least when it comes to prices. Recently, though, we’re seeing a sharp reversal in rents. Our measure of rents in the month of May was up 2.3% in the last month alone as the fastest monthly increase since 2015. And there are now just five markets, five major markets, that is across the country, where rents are lower now than they were a year ago. So, you know, while the for-sale market gets plenty of attention and for good reason, the rental side of the market has a lot of action going on as well. We’re keeping a close eye on that going forward.

Victoria Jones: All right. Well, Matthew, thank you so much again for your time today. We appreciate it. And thanks for joining us on “HousingWire Daily.”

Matthew Speakman: Thanks very much for having me.

Victoria Jones: Absolutely.