| Speaker | Time | Text |
|---|---|---|
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unidentified
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Access to their government in ways that they did not before the cable industry provided C-SPAN access. | |
| That's why I like to come on C-SPAN is because this is one of the last places where people are actually having conversations, even people who disagree. | ||
| Shows that you can have a television network that can try to be objective. | ||
| Thank C-SPAN for all you do. | ||
|
unidentified
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It's one of the reasons why this program is so valuable because it does bring people together where dissenting voices are heard, where hard questions are asked, and where people have to answer to them. | |
| Democracy is always an unfinished creation. | ||
| Democracy is worth dying for. | ||
| Democracy belongs to us all. | ||
| We are here in the sanctuary of democracy. | ||
| Great responsibilities fall once again to the great democracies. | ||
| American democracy is bigger than any one person. | ||
| Freedom and democracy must be constantly guarded and protected. | ||
|
unidentified
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We are still at our core a democracy. | |
| This is also a massive victory for democracy and for freedom. | ||
| Lawrence Yoon is back at our table this morning. | ||
| He's the chief economist for the National Association of Realtors here to talk about the state of the U.S. housing market. | ||
| Mr. Yoon, let's begin with the Federal Reserve and their decision to keep interest rates unchanged. | ||
| What does that mean for the housing market? | ||
|
unidentified
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It's not good because mortgage rates or broad interest rate environment today is very, very high by historical standards, certainly highest in 25 years. | |
| And that has really hindered the potential buyers. | ||
| So there's still eagerness when we take a survey of renters. | ||
| Do you want to buy a home? | ||
| Do you desire to be homeowners? | ||
| An overwhelming majority wants to be homeowners at some point in their life. | ||
| But the financial capacity is extremely difficult at this high interest rate environment. | ||
| And consequently, we are seeing historically low home sales activity. | ||
| But in the meantime, homeowners are all smiling. | ||
| They are seeing very high home prices, record high wealth gain over the past five years. | ||
| So it's a mixed picture in the housing market, but high interest rate is clearly hurting potential buyers. | ||
| What is the interest rate right now? | ||
|
unidentified
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The average mortgage rate is roughly 7%. | |
| And I would say that if it was to go to 6%, and the Federal Reserve, in my view, could possibly broaden their horizon in terms of the factors that could lead to some calming inflationary pressure. | ||
| I know that Chairman Jay Powell has constantly mentioned about uncertainty related to tariffs, rightly so. | ||
| But there are other disinflationary pressures, such as the rent cost, which is a very big component of the inflation, that is coming down. | ||
| There's a temporary oversupply in the apartment sector. | ||
| Rents are coming down. | ||
| So I think just looking at the broad factors, we'll see that inflation is moving in the right direction and one could cut interest rates sooner rather than later. | ||
| Here's the Federal Reserve Chair, Jerome Powell, on Wednesday when he was asked about whether he's concerned about cracks in employment and housing. | ||
| I think if you look at the overall picture, you know, what you're seeing is 4.2% unemployment and an economy that's growing at a rate hard to know given the unusual flows in the first quarter, but it appears to be one and a half, two percent, maybe a little better than that. | ||
| Sentiment has come up off of its very low levels. | ||
| It's still depressed. | ||
| So, you know, you can point to things. | ||
| The housing market is a longer-run problem and also a short-run problem. | ||
| I don't think it's indicative of, I mean, basically the situation is we have a longer run shortage of housing and we also have high rates right now. | ||
| I think the best thing we can do for the housing market is to restore price stability in a sustainable way and create a strong labor market. | ||
| And that's the best thing we can do for the housing market. | ||
| Lawrence Yoon, did he just say he wants housing prices to come down? | ||
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unidentified
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Well, I'm not sure that was his remark. | |
| Right now, at the moment, home prices are rising roughly 1%, 2% nationwide, which means that possibly, you know, half of the country may be seeing some price declines currently, modest, modest, after a 50% run-up in home prices. | ||
| So this is nothing, you know, it's not anything like correction. | ||
| It's just that home prices have risen so much. | ||
| But now that the incomes are rising, people's wage growth rising at 4%. | ||
| So people are gaining some ground on the housing affordability. | ||
| But the big impact to the housing market will be changes in mortgage rates. | ||
| If the mortgage rate comes down, it will be quite sizable rush of buyers going into the market. | ||
| And as Jay Powell, Chairman Powell mentioned, right now, you know, job market is still cranking out jobs, new jobs. | ||
| In fact, we have 7 million more jobs today compared to pre-COVID, yet home sales are much lower. | ||
| So there's a misalignment, and that misalignment is essentially due to high interest rates. | ||
| We're going to divide the lines this morning by homeowners, renters, and all others. | ||
| So if you're a homeowner, dial in at 202-748-8000. | ||
| Renters, we want to hear from you at 202-748-8001 and all others. | ||
| Your line this morning, 202-748-8002. | ||
| Remember, you can text as well, include your first name, city, and state, to 202-748-8003. | ||
| Lawrence Yoon, during the pandemic, we saw 50% appreciation on homes. | ||
| You just said that we could see appreciation at 1-2%. | ||
| Is that flat? | ||
| Is that going to beat inflation? | ||
|
unidentified
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You know, certainly you look at all the local market variations. | |
| So like the state of Maine actually had the top price appreciating condition over the past five years, 75% price appreciation. | ||
| And then you have like West Virginia or Louisiana where the price appreciation was more modest, 30%, very respectable, very good news for homeowners across the country. | ||
| But at the moment, we are seeing roughly flat prices while people's incomes are rising much faster. | ||
| Consumer price inflation, the latest reading is showing 2.4%, maybe 2.3%. | ||
| That's almost calm normal inflation. | ||
| With a normal inflation, if we were to go back to normal interest rate environment, one is looking at possibly six rounds of rate cut. | ||
| So when that begins, maybe it's later this year. | ||
| But once the Federal Reserve begins to cut interest rate, one is looking at possibly five, six rounds of rate cuts all the way through next year. | ||
| To get to normal, what is normal? | ||
|
unidentified
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Normal. | |
| One looks at the historically average Fed funds rate, the interest rate the Federal Reserve directly control. | ||
| In the past 20 years, it has averaged roughly 2.5%. | ||
| One looks at longer time horizon, you know, it would average maybe 3.3%. | ||
| Currently, it is 4.3% on the Fed funds rate. | ||
| Now, for consumers, it's about mortgage rate or auto loan rate or credit card rate, which is all pretty much based off the Fed funds rate. | ||
| But right now, high interest rate is really hurting the housing market, home buying activity. | ||
| The housing market slump is getting worse. | ||
| That's a headline from Axios. | ||
| And inside, they're reporting a long-time slump in the new housing sector is getting worse. | ||
| Why it matters, the broader economy held up during a rolling recession that hit the housing industry in recent years. | ||
| That might not be the case this time if other sectors slow concurrently. | ||
| The issuance of building permits, an indicator of the appetite to build homes, also hit a five-year low. | ||
| Sentiment among home builders dropped to the lowest level since 2022 in June. | ||
| And Lennar, one of the nation's biggest home builders, reported weaker than expected quarterly earnings, citing a soft housing market. | ||
|
unidentified
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All these slumps immediately go away if the mortgage rates was to come down. | |
| And even modestly, one is not looking at, say, under first term President Trump, it averaged 4% to 5% mortgage rate. | ||
| Today, it is 7%. | ||
| I don't expect we are going to go to 4% mortgage rate, but even coming down to, say, 6.5% or even 6%, given that there are some people on the fence who wanted to go to the market, they're just trying to qualify for a mortgage. | ||
| One sees some early indicator for potential home buyers, mortgage application to buy a home. | ||
| So, this is not an approval, but the desire to go into the market. | ||
| Right now, we are running about 20% higher compared to one year ago. | ||
| Just a high interest rate is preventing that mortgage application from becoming a reality. | ||
| Are we in a buyer's market? | ||
|
unidentified
|
I would say in some markets, like Florida and Texas, where there is a temporary oversupply, I use the adjective temporary because, interestingly, the places where home prices are declining-Texas, Florida, Arizona-these are the market with the strongest job gains. | |
| So, anytime there's a job gain, these are potential homebuyers that cannot go in because of high mortgage rate, but the potential is there. | ||
| And just one other example is: Idaho had a huge run-up in home prices, and they actually experienced price decline last year. | ||
| But when the prices fell 5%, 8%, well, people rushed in because the job market was good. | ||
| So, as long as there is a local job market creation, whether it is improvement in affordability due to some price decline, temporary price decline, or lower mortgage rate, people immediately go in. | ||
| And in Boise, now their home prices are rising again. | ||
| So, you see all these dynamics at play. | ||
| But one good thing about this current housing market is we don't have those risky subprime loans in the market. | ||
| Consequently, historically low mortgage default rate, low foreclosure rate. | ||
| This is keeping the housing home prices pretty much very stable. | ||
| You gave Boise, Idaho, as an example. | ||
| So, in Boise, you said that you're seeing the prices rise again. | ||
| Does it have to do with the semiconductor chip company Micron saying that they're going to spend $2 billion on investing in manufacturing, and they are based in Boise? | ||
|
unidentified
|
Oh, yeah, yes. | |
| The Idaho Realtors are very excited about Micron expanding the production activity there. | ||
| The realtors in Columbus, Ohio, Intel, computer chip manufacturer, they're expanding. | ||
| And the housing market, they are seeing some very interesting development. | ||
| The buyer interests, so you see where the job market is strong, immediate demand arises, even though mortgage rate still remains unfavorable. | ||
| We'll go to calls. | ||
| Kevin in Florescent, Missouri, a renter. | ||
| Kevin, what is your situation in Missouri? | ||
|
unidentified
|
The situation in Missouri is you have a lot of madness with the financial thing. | |
| You have people that are red lined discriminated against for a loan. | ||
| Now, my question is: what is the alternative to the Federal Reserve? | ||
| And I believe that Black Rock and Blackstone are the cause of the housing Trouble. | ||
| All right. | ||
| Lawrence Yoon? | ||
|
unidentified
|
Oh, yeah, very good question. | |
| Because in some markets, like St. Louis, Missouri, Kansas City, along with Memphis, some degree, Dallas, Jacksonville, Florida, Atlanta, this is where many institutional investors like BlackRock has really gone in buying up single-family properties to turn it into rental properties. | ||
| And consequently, any potential first-time buyer is essentially saying you don't have a chance. | ||
| So I want us to look at what kind of advantage do they have that ordinary buyers do not. | ||
| For example, right now we are finding that many consumers, they like the fact that mortgage interest deduction is available, but they don't utilize that because of a larger standard deduction. | ||
| But BlackRock, they are able to immediately deduct that large borrowing they did. | ||
| So that's putting at a disadvantage in terms of how the first-time buyers can compete with these institutional Wall Street investors. | ||
| So I want us to look at that in terms of possible policy arena. | ||
| And also regarding some of the discrimination, I mean, something certainly is difficult for many, many people to get mortgage at a high interest rate. | ||
| Lower interest rate will open up more opportunity for minority buyers to come into the market. | ||
| But I found it very interesting that in the state of Washington, they passed a legislation to address some of the past discrimination pre-1965 to say there's some down payment assistance program, but it's only available for those individual families who can trace their roots back to the 1960s. | ||
| So it would not be available for, say, recent immigrants, minorities who are just coming into the country, but for people who actually experience some discrimination and some down payment assistance would be available in the state of Washington. | ||
| What are some other tax benefits that these large investor groups are taking advantage of, bonus depreciation, others, that give them a leg up and why they want to be in the real estate market in the first place? | ||
|
unidentified
|
Well, we have a housing shortage. | |
| So in some markets, temporarily, it may look like it's a surplus. | ||
| And the surplus is only temporary because of high mortgage rate. | ||
| Mortgage rate goes down, we have a rush of buyers coming in. | ||
| But if one looks at the population growth, the job growth that has occurred in the country, people need some place to live. | ||
| And by that metrics, we're looking at maybe 4 million housing unit shortage. | ||
| And the Wall Street is looking at that and say, oh, if there's a housing shortage, we're going to gobble it up, knowing that we can make that shortage even more intense. | ||
| And at a later point, they can try to release those property onto the market. | ||
| Now, some are really concerned also about possible market manipulation. | ||
| You look at again, like Memphis, Atlanta, they come in and they go, and it makes the home prices much more volatile than otherwise. | ||
| So you have to look at other tax benefit you mentioned that the Wall Street investors are getting that ordinary home buyers are not getting. | ||
| And what are they? | ||
|
unidentified
|
Well, things like the bonus depreciation, certainly all the interest borrowing to purchase this property, they can deduct immediately, while the homebuyers, they're not deducting mortgage interest deductions. | |
| Bonus depreciation, how does it work? | ||
|
unidentified
|
Well, you know, you just buy a property and then you said, well, how long will the property last? | |
| And then essentially they said, well, if it's going to last for a certain number of years, one try to account for some of the maintenance costs, how the property will depreciate over time, but you take that depreciation cost immediately, so it shows up as lower profit for these Wall Street investors, so they don't have to pay so much taxes. | ||
| They're taking the depreciation from all those years that they say the property will last and they're taking it all at once. | ||
|
unidentified
|
Well, I don't know the very specifics. | |
| So bonus depreciation would accelerate, whether it shortens a lifespan from say normal 30-year schedule to 20 years, but certainly things like interest deduction along with bonus depreciation. | ||
| But the reality is that ordinary consumer like the caller from Missouri, hard to compete against Wall Street investors. | ||
| We'll go to Michigan. | ||
| Tim is there, homeowner. | ||
| Tim, good morning to you. | ||
|
unidentified
|
Hi, good morning, sir. | |
| I have a question about home equity. | ||
| The Federal Reserve puts on like a 4.5% interest rate, or I believe it might be 5% or something. | ||
| But then my bank turns around and adds like 2% on top of that. | ||
| So it's 7%. | ||
| Now, who makes all that money back? | ||
| How does that, so if the Fed creates that 5% and then the bank takes 2%, then how does that, you know what I'm saying? | ||
| So the money's. | ||
| So let's break it down, Lawrence, you and break it down for Tim and others. | ||
| How does this, the interest rate work? | ||
| Who's getting what from this interest rate? | ||
|
unidentified
|
You know, the Federal Reserve, they set Fed funds rate, which is around 4.3% currently. | |
| That is not for you and me or for the consumers. | ||
| That is for the banking system. | ||
| It's a temporary borrowing rate among the banking system, which the Federal Reserve set. | ||
| Now, if they cannot borrow from each other, they can go to the Federal Reserve to borrow from it. | ||
| Now, the mortgage rate is a longer-term interest rate, not short-term interest rate, and would generally follow the bond market, like a 10-year treasury. | ||
| 10-year treasury is currently at around maybe 4.4%, and the mortgage rate would be maybe 2% point above that. | ||
| So in a sense, banks are in the business of Arsa earning money. | ||
| But as long as there's competition, we want competition. | ||
| So the competition means excessive profit disappear. | ||
| So whatever they are able to borrow, they can charge a little more to gain profit. | ||
| But as long as there is competition, one would assume those excess profit would go away and provide competitive interest rates for the consumers. |