With home sales beginning to drop, some experts believe that we may be headed towards a housing recession. Nick Bailey, the president and CEO of RE/MAX LLC, joined Cheddar News to discuss the current housing climate and whether or not buyers are starting to see some relief. "I think the most important thing to note of what's happening with this market is we're really returning to some level of balance.”

Closing Bell

What the Signs Are for a Housing Recession

Thanks Christina America's housing market was flourishing amid the pandemic and now some economists believe the US has entered a housing recession. Home sales have started to drop when not accounting for the pandemic existing home sales in July reached their lowest level since November of 2015. And fear is growing that this decline could negatively impact the broader economy. Joining me now is nick bailey president and Ceo of the real estate company Remax. Thank you so much for being here. My first question for you is what do you think do you believe we are in a housing recession? Well, thanks for having us. Um First off, I think the most important thing to note of what's happening with this market is we're really returning to some level of balance. I mean the reality is we've had 100 and 25 consecutive months of run up in pricing. We've had a an extreme seller's market like we've never seen in history, double digit pricing appreciation across most of the country and that's not sustainable year over year over year. And so buyers have put been been put in a position to have a lot of pressure in the last couple of years competing offers multiple bids and buyers are starting to see some relief. There's more inventory and as sales slow a bit it is allowing buyers to have more choice and the competitive bidding is not as strong. So it's actually providing a little bit of relief for buyers but we're gonna return to some level of equilibrium. Yeah, you make a good point because I think it's true it is tough comparables and there are a number of factors that were unprecedented when we think about the pandemic and the effect that it's had on the housing market. But recent data shows there has been a pullback in new home listings. So what do you think has led to this? And what advice would you be giving to would be home buyers and sellers in this moment? Well, I think the favorable rates over the last couple of years is there were people that maybe didn't have to buy or sell but chose that they wanted to because the scenario was advantageous for them. What we're looking at today is regardless of the economy, inflation interest rates up and down. There's something that happens every single year which is houses are bought and sold. And so we feel very confident that that will continue to happen. It's just people are looking at some of the details around affordability and look at interest rates as an example. We've only been talking about the 30 year fixed rate right now at around 5.5% up a little bit over last week. But yet at the same time there are alternate mortgage products. And so if you're a buyer out there, don't just look at the 30 year fixed, it depends on your situation, adjustable rate mortgages like the 51 R 71 arm, those are great options with a lower rate that's more competitive F. H. A loans first time Homebuyer and so what we're seeing now is products like that in the mortgage market where more than 35% of the market pre pandemic. They dropped to single digits during the pandemic because the 30 year fixed was so competitive. So there are other options out there that we need to talk about that are typically part of a more balanced market. I'm glad that you mentioned mortgage products that are alternatives right now because affordability is a big topic. Whenever we discuss this, mortgage rates also still remain high although not as high as they were during their peak. Earlier this year rates were at historically low levels in 22 20 and 2021 during the pandemic. How do you think the current mortgage rates play into fears about a housing recession and could the rates ever drop down to where they were at the beginning of the pandemic? And I kind of know what you're going to say before you say it but I just had to ask no it's a good question. I think two things are happening with buyers and rates. One is buyers are saying I need to get in now and purchase before maybe they go up even further and then I think that there are some buyers that are saying let's wait and see certainly as far as the economy is concerned, every lever is being pressed to slow down inflation And housing is generally between 15 and 18% of GDP. And so there could be a scenario in which inflation uh comes under control at a much faster rate, which there are early signs that that's happening and rates could even go down to be more competitive. But we have to also look at a four or five or 6% rate on the scale of over the last 20 or 30 years is still competitive. And here's what we find at the end of the day, buyers are less concerned about the exact number of the rate and they're really worried about do I have enough down payment? Uh And can I afford the monthly payment? And so there is going to be um Buyers taking a look not only at rate, but just affordability. And that has thrown off buyers with the huge jump in price appreciation over the last couple of years, their rate was certainly more competitive, but they were having to over pay $50, more than ask price on a home. And that changed their payment. And so ultimately, I think we're seeing buyers are getting a realistic look of, do I have the right down payment. Can I afford the monthly payment? And there's alternative mortgage products out there than the 30 year fixed? And that's going to continue to be a big driver of the housing industry moving forward well and to piggyback on that, what do you see for the future of the housing industry when we look, you know, year three years, five years down the line, are you seeing data coming in that's showing that a lot of these buyers are moving to other states and kind of spreading the wealth in order to find more affordable options. We are seeing that. And you look at some of the home sale search sites even last year, approximately 30 for 36% scent of people were searching for homes outside of their state. That's up to 40% in the first quarter of this year. It's, it's gone up even over the last two years. And I think what that data indicates is that that People have choice on where they live and where they work. And the idea of having flexibility of working for a company that's not just 30 minutes from where you live, is here to stay. And I think as long as that's the case, it is going to offer people more options to find some more affordable markets, but we're going to return to real estate is local. I was asked last year what mark, it's hot and it's the first time in my nearly three decades. I said almost every market was hot and I think what we're looking at now is we are going back to a very much localized market where you see the Midwest sits in generally a 2-5% price appreciation. You see some of the coastlines that come up faster. They cool faster. But we're returning to parts of the country, are returning to more stabilization and well, we will see house prices adjust accordingly. So interesting. That's Nick, bailey president and Ceo of re max. Thank you so much for joining us here on cheddar News.