The Buying Window Could Be Closing in These States

Dave:We’ve been saying that it’s a buyer’s market, but is the buying window already starting to close? This is a key point to understand if you’re thinking about buying a new property in the coming months, are conditions better now or are there better deals to come? Today we’re going to find out. Hey everyone. I’m Dave Meyer. I’m a housing market analyst and the head of real estate investing at BiggerPockets. Joining me today on the show is Dr. Kara ing, a senior economist on the economic research team at Zillow. Kara is going to share some insights on some data Zillow recently released, which indicates whether the current buyer’s market dynamics are likely to remain steady or shift back towards sellers. And then we’ll discuss the impact of recent fed cuts on mortgage rates and also some really fascinating demographic data about US homeowners. This episode is going to be jam packed with information that will give you a leg up against your competition in the housing market. So let’s bring on Kara. Kara, welcome to the BiggerPockets Podcast. Thank you so much for being here.

Kara:Of course, I’m happy to be here.

Dave:Can you just tell us a little bit about what you do at Zillow?

Kara:Okay, so my name is Kara Ang and I’m a senior economist at Zillow, and basically I get prayed to nerd out on data and then share this insight with everybody.

Dave:Dream job. It’s kind of like my job. It is the best job for people like us. It’s so good. So tell us, what are the big picture things that you’re tracking? What are the big trends that you think are important for our audience?

Kara:Okay, so there’s lots going on today, but one thing I want to flag is buyers who are waiting until spring or until something happens in their life to be able to buy a home. So what we’re seeing in the data is that buyers have a lot of options right now. They have more time to decide and they have a lot of bargaining power compared to past Augusts and previous seasons. And so this might be an opportunity for a buyer if they’re looking to take a look again to see if they can find a house that fits their needs. And then the caution for this is if you want to wait until the mortgage rates fall more for negotiation power to increase more, that’s a riskier gamble because what we saw in August was that new listings fell, it was a lowest level of new listings for the month of August in the history of Zillow’s data. So I think what’s happening is that sellers are sort of picking up on the fact that they’re losing negotiation power and they might be thinking, I’m going to wait. And so they kind of pulled back on listing their homes.

Dave:I totally agree that this is the most interesting story in the housing market and for those of you who maybe not like Karen and me are looking at this every day, lemme just provide a little bit of context here. Basically for the last year or so, we’ve been seeing inventory going up really since it bottomed out in 2022 or so. It’s just been going up consistently. And that has been slowly the housing market from what has been a strong seller’s market more towards a buyer’s market. But eventually what happens in a normal investing cycle is sellers are like, well, I don’t want to sell into a bad environment and unless they’re forced to sell, they have the option to not sell or to wait or to do whatever. And that’s exactly what we’re seeing. And I want to get to what Kara mentioned in just a minute about what that means for buyers. But does this signal that we are in more of a normal correction than having risk of a crash because we’re sort of seeing the appropriate response from sellers, right?

Kara:We are seeing the appropriate response. So you brought a very good point. Seller is very different from the seller we saw before the global financial crisis, they’re usually in a stronger financial position. They are not forced to sell, so they have the luxury of saying, this is not a market I want to enter into. I’m going to wait a few months maybe into the new home shopping season before I try again. So I mean that’s kind of encouraging and it kind of attracts with what we’re seeing.

Dave:And do you think that will preserve prices somewhere near where we’re at because I’ve been following your predictions, Zillow’s updated home price forecast all year. I think it started mildly positive and it’s kind of drifted down a little bit to mildly negative for the year. Is that sort of where you’re thinking will wind up at the end of this year?

Kara:Yeah, flattish to mildly negative. I mean, we think prices are going to fall by a little bit, but it’s not very much. And I think a lot of that has to do with sellers are kind of putting a floor on how much prices can fall.

Dave:Right, exactly. And can you tell us about the regional differences in where we’re seeing sellers pull back the most?

Kara:Yeah, so sellers are pulling back in a lot of places where inventory has recovered by a lot. So it’s going to be a bill of roller rollercoaster, but okay, think to Texas and Florida. These are places that had a big boom in the first part of the pandemic where everyone wanted sunshine and affordable living.

Dave:No income tax.

Kara:No income tax. That’s pretty nice. And then builders flocked in because they wanted to capture some of this demand. So they started building and then inventory rose and then it got to the place where prices were falling. Now we’re seeing sellers pull back in these places where they realize like, oh, if I don’t have to sell my home right now, I might have to wait. I might want to wait because it seems like this market is just very saturated. The inventory is accumulating.

Dave:Yeah. That’s sort of why it feels healthy to me that this is happening because you would want to see sellers pull back in the markets where inventories going up and prices are declining the most. If we saw more people selling and piling onto that situation, that’s when I would worry about more significant declines, 5%, 10%, something like that. But you’re seeing the corresponding change, whereas the markets in the Midwest right in the northeast where selling conditions are still really good. That’s where we’re seeing new listings keep rising.

Kara:Right. Well, yeah, I mean it’s still a seller’s market over there and not only is it a seller’s market, I mean northeast is structurally underbuilt, there aren’t enough homes to go around. And so it makes sense that if you are a seller and you want to sell, you’re not in a place that’s disadvantaged.

Dave:What do you think this means for buyers? You alluded to it a little bit earlier that people can wait and there’s a chance that buying conditions could improve, but there’s a chance that they stay the same or they even get worse. Again, how would you approach this kind of market if you were a buyer?

Kara:I would just take a look at what I can afford at today’s market, at today’s prices, at today’s mortgage rates, and see if I can find a home that fits because I think that is the most important thing. Buying a home is not going to the grocery store and impulse buying a candy bar. You’re stuck with this home for a long time. So you want to make sure that it fits your needs for now until the foreseeable future. And so that to me matters more than whatever mortgage rates are, whatever the prices are. I mean, these things are important in that it’ll determine whether or not you can actually buy that home if you can afford to buy that home. So that’s the first place I would check if you were shopping earlier in the season and you held off because we’re like, oh, I can’t find anything that I can afford. Mortgage rates have ticked up a little bit, but there’s still a downward trend compared to May. So if you haven’t looked lately, check what listings you can afford now because it might be that a home that was out of reach before is now within reach and it fits your needs.

Dave:That’s great advice. I always recommend to people on our podcast, our audience, people who are mostly investing in real estate buying rental properties, but if you’re going to buy it for 3, 4, 5 year hold periods, just make, if it works today, that’s the most important thing that matters. Speculating about the future is really very challenging, and you and I do this all day and it’s still very difficult to forecast how this is going to happen. And I don’t know about you, but to me, the global economy is feeling less certain than ever and trying to forecast what’s going to happen in a given month, a given year is going to be even less accurate than it is traditionally, and it’s pretty inaccurate even during normal times. So I think that’s very wise advice

Kara:And the range of what we’re forecasting isn’t very large, so we’re expecting prices to either flatten or fall by a little bit. So that helps a little bit. In terms of affordability, we’re expecting mortgage rates to dip down a little bit by the end of 2026, but we still expect it to stay within that six to 7% range that we’ve seen for a long time now. It might end up a little bit closer to the six than the seven, but all that together combined, is it worth waiting if I’ve already found a home that I can afford that I like to see if there’s a better deal out there. I don’t know.

Dave:Yeah, it’s very unclear if that will happen. If rates do drop more than that, prices could go up and offset some of the affordability gains that come from a mortgage rate drop. So

Kara:Why would mortgage rates fall by that much? You have to think about that

Dave:Because the recession

Kara:And then at which time are you going to want to buy a home then?

Dave:Right? Right. Yes.

Kara:With mortgage rates, it’s a very tricky idea because mortgage rates falling helps with affordability. But what would it take for mortgage rates to fall? The most obvious thing is if there’s softening in the labor market, which hopefully it’s not your job that’s been softened, right? That would prevent you from being able to buy a home.

Dave:We got to take a quick break, but stick with us. We’ll be right back. This week’s bigger news is brought to you by the Fundrise Flagship Fund, invest in private market real estate with the Fundrise flagship fund. Check out fundrise.com/pockets to learn more. Welcome back to the BiggerPockets podcast. Let’s get back into our conversation. Everyone wants to talk about mortgage rates and you are echoing what I’ve been saying on the show all year that I think that rates are not moving down that much. I know a lot of people in this industry really want them to. It would probably help the industry, but I think it’s unlikely. Can you tell me why you think six to seven is the range going forward?

Kara:Well, because we’re fighting two opposing forces, so mortgage rates can take lower. If we have a low softening labor market, which we’re seeing signs of, we’re seeing the labor market cool. But at the same time, you also have inflation that’s relatively stubborn, and so these are two opposing forces that keep interest rates up and one keeps interest rates down. And so that’s why you’ve been stuck in this range. Unless something happens to break one of these forces to win this tug of war, it makes sense that mortgage rates will stay within this range.

Dave:I think that makes a lot of sense. Bond investors, the people who really have a big impact on the direction of mortgage rates, they’re as confused as we are. If there’s recession coming or if inflation’s going to win out, like you said, there’s these two opposing forces. And so until there is clarity one way or another, we’re not going to see mortgage rates move in much of either direction. Sure. Each data print we get, it moves a little bit back and forth, but we’re sort of settled in, I think a little bit with rates right now. And I think that’s true. Even if the fed cuts rates two more times this year,

Kara:Remember how many rate cuts the market is expecting, it’s going to be very hard for the Fed to live up through the expectations. If the Fed doesn’t deliver on all the rate cuts that the market is expecting, mortgage rates may go up rather than down.

Dave:Alright. That’s your outlook for mortgage rates looking at six to 7%, but how do you think that translates into buyer activity going into next year? As you said, people probably even mathematically shouldn’t wait, but people do. And we’re also at extremely low home sales volume relative, especially to the pandemic, but even compared to historical norms, we’re still pretty low. So where do you see overall buyer sentiment and housing market activity going in the next year?

Kara:So from Zillow surveys, people are sort of coming to terms that mortgage rates aren’t going to fall significantly. So in terms of transacting, that is not necessarily the barrier for people to hold off buying a home or hold off listing their home rather, a lot of the softening in sales activity has to do with other forces in the macro economy, the fact that job growth is just sort of stagnated and Zillow also finds that people move because they get a new job. And I think there’s kind of a rate lock situation going on, but for jobs in the labor market, because I mean people aren’t really getting fired or they’re not really getting laid off, but they’re also not quitting and you’re not forming a lot of new jobs, so you’re basically stuck where you are, so you can’t really get move up, you don’t want to move down, you don’t want to move out.

Kara:So it’s sort of rate rock for jobs. And anytime you have low job turnover, it means that residential mobility would also slow because again, Zillow finds that the number one reason people move is for a new job. So when people move for a job, there’s usually a strict timeline. They have to be in Dallas by October because they’re starting their new role. If you take out jobs as the reason for people moving and you’re just looking at the other life events like people getting married, people having a kid, people becoming empty, nester, these things do prompt people to move, but it’s less urgent. And so I think that may be another reason why you see sellers able to pull back if they can wait six months, it might be worth it for better conditions, but that’s not the case if they have to move for a new job.

Dave:Well, bringing up the better conditions and the idea of waiting till spring, which people have always touted as the home buying season. I guess I’ll just ask you straight up, is the housing market still seasonal? I feel like for prior to the pandemic, we saw very predictable patterns both in inventory levels, home sales, volume, pricing, every single year it was very seasonal. Now it just kind of feels a little bit different. Are you seeing the same thing?

Kara:Well, I think what you’re mentioning is sort of like mortgage rates create their own seasonality,

Dave:But

Kara:There is a reason why people list in the spring and then the season sort of tapers off before the holidays. Right. It’s because it’s a coordination exercise. You want a bunch of homes available so people can transact. If you’re a seller, you want to be able to list your home, have someone buy it, and then move into your new home. And that only works if there’s some kind of coordination. And it so happens that if you have a family buying a home in the spring, moving that home into the summer and getting settled before the school year, it’s just a natural place that makes it convenient for their lives. And also makes sense that it slows down before November, before December before the holidays because no one wants to eat Turkey in front of a bunch of pop.

Dave:Yeah, just off of the boxes. If you’re anything off

Kara:Boxes, there’s no table.

Dave:Okay. Well that’s super interesting. So as we move back to what you, I think it’s Ill are describing as a more neutral market, maybe we’ll start to see some of that traditional seasonality come back. And if you’re correct too, that mortgage rates are perhaps going to be a little bit less variable and I’m going to kind of stay in this range that we might start to see some of those normal patterns arrive. Again, we got to head out for a quick break, but we’ll be right back. Stick with us. Welcome back to the BiggerPockets podcast. Let’s jump back in. So Kara, I know you’re actually around the corner from me right now, and you were speaking at a conference on housing policy today. Can you tell us a little bit more about that?

Kara:Yeah, sure. So in this housing conference we were talking about some of the challenges renters are facing when they’re hoping to transition into homeownership. And we talked about the affordability challenges, so saving for a down payment and affording the monthly mortgage payments. And we talked about how homeownership gaps by race are persisting because of just some ways that generational wealth gaps are persisting. So for example, a down payment saving for down payment is very, very hard if you’re a renter because we know that compared to five years ago, the amount of income you need to make rent as a renter went up by $20,000. So that is a stretch on your budget, which makes saving for down payment very, very hard. And then if you are a first time home buyer, then you don’t have a home you can sell to leverage into your next home.

Kara:And then also, if you’re a minority household and you’re the first generation home buyer, it’s harder to tap into the bank of mom and dad for down payment help because likely mom and dad don’t have a home. And we’re finding that the majority of buyers are tapping into at least two sources for the down payment. So for these minority groups that are the first in their generation to buy a home, they don’t really have these avenues. And so we were talking about ways Zillow is helping to address this, and we talked about leveling the playing field with information. And so one of the ways we’re leveling the playing field with information is with down payment assistance programs. So on Zillow listings, you have down payment assistance information for the particular region you’re looking at. Oh, cool. So it’s just a way to maybe help those people who are buying a home for the first time, not just themselves, but in their family to be able to access housing.

Dave:That’s awesome. I was actually just a friend of mine who’s trying to buy a house for the first time called me this weekend. I was asking me for some advice and I was like, you should go and just Google every down payment assistance program, both in the municipal level and the state level. There’s all sorts of credits that almost not every state, not every municipality, but many of them do. So you say you’re aggregating that kind of stuff so people could see that right on Zillow.

Kara:And I mean, it’s such an underused resource.

Dave:That’s awesome.

Kara:And the thing is, if you’ve never bought a home before, if you’re the first person in your family to buy a home, you don’t know about these programs, word of mouth isn’t going to help you. So we’re hoping to just educate everyone and so that way everyone who wants to buy a home has the resources to work towards that goal.

Dave:That’s really cool. Well, thank you for sharing that with us and for anyone on this podcast who’s looking to either buy your primary residence or potentially even to house hack a property, a 2, 3, 4 unit property residential properties, a lot of times you can buy those kinds of properties with these types of programs. So definitely something you should consider. Now, Carrie, you mentioned affordability, which is to me the biggest issue in the whole housing market, and I applaud what Zillow is doing to try and help people understand resources. But from sort of an economic standpoint, if mortgage rates are staying close to where they are and prices, you said maybe they fall a little bit in real terms, how do we get back to affordability in the housing market?

Kara:Well, the answer, and you probably already know it, is by building more. I mean us as a whole is just structurally underbuilt still estimates there’s a housing shortage of 4.7 million units in 2023, the last available bit of data. So there aren’t enough homes for all the households that need a home. We know over the course of the pandemic there was a lot of building and that sort of helped in terms of slowing down the pace in which this deficit is growing. But it didn’t stop the deficit, it didn’t reverse the deficit and certainly hasn’t closed it. So really we as a whole just need to be building more.

Dave:That makes sense. And it’s what I often hear, but it is a long-term problem, right?

Kara:But we got here because we were structurally under building for decades. And so it makes sense that the solution to undo something that was built up over decades would take a long time. But there are steps we can do to help this one is to make it easier for builders to build with looser building regulations so that people would want to build in these neighborhoods where there’s still demand.

Dave:Yep. We’ve seen things on the federal level of opening up public land, for example. But do you think that will make a change or what level of deregulation do you think is necessary?

Kara:I think it was probably increasing density. So the issue is a lot of places with a housing shortage, you have geographical constraints. It’s hard to build out to meet the demand for all the people who want homes. So what you need to do is you need to build up or by marginally increasing density. And what we found is that there’s a lot of support. There’s growing support for residents in their own neighborhood to have middle density options. So these are not large scale apartment buildings, they’re not single family housing. So the things in between, so those are adu, those are town homes, those are duplexes, triplexes. And if you think about reason why, so the first time home buyer is older than before. It’s because of the affordability challenges, the hurdles with the monthly payment, the hurdles with the down payment. So they’re more likely to have a family. And so their first home, their starter home might not be a condo. They probably want a single family home. But geographically, I mean you can’t build enough single family homes for everyone who wants one. And so these options, these middle housing options, a D use town homes, triplexes, duplexes, that could be a compromise and solution for the housing shortage.

Dave:And because this is sort of like a longer term solution, how do you think the lack of affordability in the purchase market could impact rents and rental demand?

Kara:So across the rental market and for sale market, everything is a little bit softer, a lot probably because of lower job mobility. And so there’s lower residential mobility. So overall everything is softer, but what we found is that rents is relatively more resilient. And that’s because of relative affordability, right? It is cheaper in a lot of markets to rent than to buy. And so when the for sale market, you’re hitting up against these affordability ceilings, it means that these people will go into the rental market and then that gives rents a little bit more wiggle room in terms of growth. We’re seeing this struggle with rent versus buy showing up in the way that Zillow users are engaging with our listings. So what we’re seeing is a rise in what we call the dual shopper. They’re looking at for sale listings and then they’re toggling back and forth between for sale listings and rental listings and trying to optimize what works best for the finances.

Dave:It might be BiggerPockets community members just ruining your data because all of us landlords are out there just looking at the cost of properties and they’re like, oh, what would this property rent for? So then you go back and forth between selling and rent. So we’re probably just ruining all of your data.

Kara:Well, we have a piece coming out that might make it easier. We were looking at active for sale listings and how many of them have a monthly mortgage payment that is lower than rental estimate?

Dave:Oh, interesting. I will definitely be looking at that one very closely. Well, Kara, before we get out of here, I have one more question. We’ve talked a lot about the next year or two years, three years. And as an investor homeowner, it’s not the most exciting. It’s not bad either. It’s just kind of like a blah market, in my opinion. It’s very neutral. Do you have any thoughts on the long-term trajectory five, 10 years from now where the housing market is heading?

Kara:Well, a lot of that will be determined by us. So over the course of five, 10 years, that’s when you could possibly make a dent in the housing shortage. So if we are able to make it easier for builders to build, right, we might be able to shrink that gap and maybe five, 10 years from now, hopefully I’ll see you before then the next time on BiggerPockets, we’ll talk about how it’s so great that everyone wants a home can have at home because of all the building we’ve done over the last decade.

Dave:Well, I hope you’re right. That would be very nice. And if you have any evidence that that’s happening, please come back on. We would love to hear about it.

Kara:Of course.

Dave:Well, thank you Kara, so much for joining us. We appreciate it. And thank you so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.