Why Low Mortgage Rates Can’t Solve Our Affordability Crisis

Dave:
It often seems like there are no houses on the market to buy, but what is actually going on with housing inventory right now? Will it remain low due to the high amount of equity homeowners have locked in? How does this impact affordability in the long term? This ends so much more on today’s episode.
Hi investors. I’m Dave Meyer. Welcome to your bigger news episode this week. Today we’re talking to Andy Walden, who’s the Vice President of Enterprise Research at ice. You may have heard of this company before, if you’re like me, and just follow every news story that comes about real estate to data. But if you’re not, you might have heard him on our sister podcast on the market. And every month Ice and Andy and his team put out a mortgage monitor report where they look at the housing market, the major forces impacting it, and help us understand what all of the most recent activity means for our investments and our investing decisions going forward. In our conversation today, Andy and I are going to talk about what’s happening with home prices and why they’ve stayed so high despite higher interest rates. We’ll talk a lot about inventory and whether there’s any hope that we’re gonna see more of it in the near future. And lastly, we’ll talk a lot about affordability, which is plaguing the entire real estate industry. Before we jump in, our bigger news episode today is brought to you by Rent app. It’s the free and easy way to collect rent, and if you wanna learn more, you can do that at rentapp/landlord. With that, let’s bring on Andy. Andy Walden. Welcome to the StuffsEarth Real Estate Podcast. Thank you for joining us.

Andy:
I appreciate you. Thank you for having me back.

Dave:
Yeah, I’m excited to have you here. We’re gonna be talking about many of the important indicators, factors impacting homeowners and investors alike, but I wanna start with the big one, which is, of course, home prices on everyone’s mind right now. Can you give us a little context on where home prices and growth rates stand today? And just for everyone’s context, we’re recording this in the middle of May, 2024.

Andy:
Yeah, absolutely. So if we look at our latest ice home price index and what happened in the month of March, which is our latest reading right now, still above average in terms of home price growth across the country, but you are starting to see things ease just a little bit as we move later into the spring. Obviously, elevated interest rates this spring have been putting a little bit of a damper on demand, allowing inventory to grow a little bit and allowing home prices to cool. So right now, home price is up to about 5.6% from where they were at the same time last year, down from 6%, uh, the month prior. And the same goes when you look month over month. You’re seeing a little bit cooler price environment in these later months of the spring than what we were seeing. Uh, early on 80, uh, 85% of markets seeing more inventory than they had last year. 95% of market seeing stronger prices than what we were seeing, uh, at the same time last year. And about 75% of markets at record highs right now. And it kind of pushed above where we were in 2022.

Dave:
Let’s jump into some of those regional, uh, stats that you just cited there, because first of course you were talking about the national housing market, which is helpful for understanding sort of broad trends, but as we often talk about on the show, real estate performance is all regional. So you said 75% are at all time highs. Can you give us some context there? Is that normal for that many markets to be at all time high or is it low?

Andy:
Well, it, it really depends. It’s hard to call anything normal in the housing market, but typically you’re, you’re wanting to see real estate, you know, pushing and kind of gradually, uh, rising. So a little bit unusual that it’s not more than that, that quite frankly are at record highs. We went into that corrective environment in, in late 2022, specifically hit some of those western markets, your California region, some of those pandemic boom towns are still below where they were in 2022 and haven’t quite recovered from that little correction that we saw late in 2022. So unusual that maybe it’s only 75%, but to your point, there’s some very, very different trends going on across the country right now. And a year ago, if we were having this conversation, it was kind of that east coast, west coast kind of split at the Rocky Mountains. East was hot, west was a little bit cooler.
It’s a lot more granular and localized than that right now. Um, the northeast and Midwest continue to lead the way. The Northeast is just seeing these massive, massive inventory deficits. Hartford, Connecticut’s kind of the, the poster child for that, where you’ve got 80% less or 80% fewer homes for sale than you traditionally should, and it’s leading to double digit home price gains still out there in parts of the northeast. And you’re seeing in that in many northeast markets, Midwest is still holding strong, more affordable as we know, all know compared to the rest of the country and looking a lot better even compared to their own long run averages in the Midwest. And so you’re seeing Milwaukee and Chicago and many markets in Ohio near the hop, the, the, the top of the heap in terms of home price gains and then California whole different dynamic, right?
Extremely low home affordability. And I think we’ve talked about this in the past, but if you look at Los Angeles specifically, it takes twice the normal share of income to afford a home in la Wow. It’s very, very unaffordable for meeting homeowners. But the rate lock effect that we’ve all talked about, right, folks being locked into very low interest rates is stronger in California because they have higher loan balances because they have high, lower average interest rates in in California. And so they’re more of a kind of bouncy middle of the road area. Texas very weak right now. Those, those are some of the areas. Austin specifically the furthest below it’s pre pandemic level than, so you’re seeing more inventory and softer prices. And then Florida is this unique market in and of its own right now where you’re seeing some of the largest inventory gains in the last year in Florida, you’re seeing some of those softest prices. In fact, every major market in Florida saw prices ease a little bit in March. And so, you know, you can look at and have a podcast in each one of these different areas of the country on exactly what’s going on in dynamics, but very different trends being seen depending on where you look across the country right now.

Dave:
Thank you for providing that context. And just a reminder to everyone, we do provide these national level stats to help you understand what’s going on broadly, but you should be looking up these individual stats and market conditions in your own market. Which brings me sort of my next question. Andy, you hit on this a little bit, but can you tell us a little bit about what some of the metrics or indicators are that would tell you whether a market is hot, cold, likely to continue growing or may see some weakness like you alluded to earlier?

Andy:
Yeah, I, I think if you’re just looking at prices in real time and you’re trying to understand what’s going on on the ground month over month, seasonally adjusted gains are, are my go-to metric, right? A lot of folks talk about year over year metrics in the housing market that gives you a good indication of what you’ve done over the last 12 months. It doesn’t tell you what’s happening on the ground right now. So I look like to look at our ice home price index and, and what’s going on in month over month, seasonally adjusted trends that’ll tell you what, what’s currently happening beyond that. I like to look at what’s going on with inventory levels, what’s the, what’s the deficit? That’s kind of how we’re measuring it right now. Deficit versus pre pandemic levels. A lot of what you’ve seen in terms of home price, trend heating and cooling is being driven just by the inventory levels that are going on in different areas of the country.
And so we’re watching those very, very closely, not only what the deficits are, but how are they moving. And that’s, that’s what we’re seeing there in Florida is a lot of those upward shifts, um, in inventory. And then obviously we’re watching home affordability very, very closely and demand metrics, and you can watch both of those in a number of different ways. On the demand side, we like to look at our, uh, ice market trends, uh, data there and look at what’s going on with rate locks, what’s the mortgage demand in specific areas. You can look at purchase applications and, and see similar trends as well, but all of those individual factors will give you that kind of supply and demand dynamic that’s gonna lead to where prices are going.

Dave:
Let’s dig into one or two of those and, and four, the non-data analysts out there, <laugh>, can you tell us what month over month seasonally adjusted data is? Like what does that literally mean and why is that better than looking at housing prices in some of the other ways that are commonly reported?

Andy:
Yeah, so month over month seasonally adjusted just means how much home price growth did you see in a particular month compared to what you traditionally would see on a seasonal basis. So as we all know, the, the vast majority of home price growth in a given year happens from February through August, right? It’s a very, very seasonal market. And so what we really wanna understand is not how much growth was there in that month, but when we adjust for typical seasonal patterns, subtracting that outta the market, what did we see on an adjusted basis? And that’s, that’s what I’m talking about. And the reason that that’s, in my opinion right now, a better indicator of what’s going on with prices is, again, those year over year trends tell you what’s happened over the last 12 months. Well, when you look at the pandemic era, we’ve seen a lot of kind of heating cooling based on what’s going on with interest rate dynamics. So for example, late last year we were seeing very low year over year gains, but they were actually driven by what happened in late 2022 and the corrective environment there. Um, and so it gives you more real time insight into what’s actually taking place in a given month rather than what’s happened as a whole over the last 12 months.

Dave:
That’s great insight. And just for anyone who wants to start doing their own analysis and looking into these things, when we talk about looking at different metrics, there’s sometimes things that we call a lead indicator, which is a metric that helps you predict something in the future. That’s sort of what you’re talking about here, Andy, right? Like month over month, seasonally adjusted helps you get a sense of, obviously no one knows, but gives you a good sense of what may happen in the near future. Yeah. Whereas looking at year over year data is what is called a lag indicator. It’s sort of a metric that summarizes something that has already happened. Both are useful, but to Andy’s point, you have to sort of know which metrics to be using for which applications. Andy just explained that very well.

Andy:
Yeah, that’s exactly right. Yeah. And that, that month over month is gonna give you insight into where that year over year going, right, that’s just telling you where we’ve been over the last 12 months. That month over month will tell you what’s happening right now.

Dave:
So let’s move on to something you said earlier, Andy, which is that you think prices will soften over the next, uh, you know, throughout the rest of the year. Why do you think that?

Andy:
Well, you know that that’s not my individual forecast. If you look at Mortgage Bankers Association, if you look at Fannie Mae, that’s their expectation is that interest rates will ease and that, that really jives with what you’re seeing out there in terms of interest rate dynamics, in terms of home affordability, in terms of demand out there, um, in the market as well. And so if you look at the number of purchase applications that are taking place, April was actually one of the weakest months that we’ve seen so far in the pandemic. In fact, again, on that seasonally adjusted basis we were talking about it was the softest, even even softer than what we saw last October when mortgage rates got up near 8%. And so with inventory building, inventory’s now at its best level that it’s been since the middle of 2020, still in a deficit, but the be the most inventory that we’ve had on an adjusted basis since the middle of 2020 and affordability is still a challenge. Interest rates above 7% tells you to know less, less demand versus supply in a softer, softer price environment.

Dave:
Got it. Okay. And just to, to reiterate for everyone listening, basic supply and demand tells you when there is building supply and demand either stays steady or starts to decline, that’s gonna put downward pressure on pricing. And it sounds like that’s the situation that we’re experiencing right now where due to a confluence of factors, but largely high interest rates, we are starting to, you know, demand is staying steady or is declining by some metrics, meanwhile inventory another word or in the housing market, that’s often what we use as a proxy for supply that is going up. And so those two things combined, we’ll put some downward pressure on housing prices. Alright, so we do have to take a quick break, but when we come back, we’ll get into the nitty gritty of inventory and affordability and what Andy expects to see for the rest of this year.
Stick around. Welcome back investors. I’m here with Andy Walden of Ice, formerly Black Knight talking about their latest housing market data. Let’s just jump back in now, Andy, the interesting dynamic that has been going on for years now is that s is really the supply side in my mind. Um, I think it’s super interesting that we saw this evaporation of supply, even with interest rates going up, a lot of logic would’ve made you think the opposite was going to happen. So why right now is inventory starting to go up to, as you said, the highest point it’s been, I think since you said April, 2020. So in four years, why is it at its highest point right now? Well,

Andy:
A lot of it has to do with that affordability, right? So we’ve, we’ve seen this kind of seesaw event with inventory, and if we go all the way back to, you know, the great financial crisis era in the decade following the great financial crisis, we were really underbuilt as as a housing industry, right? And so we were already starting to see some pressure on inventory even before the pandemic. But in the early stages of the pandemic, we saw the Fed reduce interest rates to 0%. We saw them buying mortgage backed securities, which put further downward pressure on interest rate. And you just saw this massive surplus of demand. And at one point during the pandemic, we had 70% less inventory than we traditionally should have. And you know, as we know, folks are kind locked into their homes from a an interest rate perspective as well, in terms of why have we started to see it build?
Well, we’ve, we’ve sat in a plus 7% interest rate environment for a number of months here, and you’re simply seeing this constraint on the demand side that’s now superseding the, the deficit that we’re seeing in supply. And so it’s allowing that inventory to kind of gradually build back. So now instead of 70% short, we’re 36% short, still not where we want to be nationally. We’ve gradually started to see that inventory come back as sellers have come back a little bit, buyers continue to be a little bit more kind of iffy on the market and you still kind of see this, uh, this lack of demand out there, for lack of a better word, and it’s allowing that inventory to build, especially this spring.

Dave:
This is a really important distinction that I wanna make sure everyone understands when we say the word inventory in the housing market, that is not a measurement of how many homes get listed for sale. That’s a different metric that we call new listings in the housing market. And so inventory is a measurement of how many homes are for sale at any given point. And to Andy’s point here, there are different ways that inventory can climb. One of them would be if sellers all of a sudden decided, hey, we’re all gonna sell because for whatever reason, that would sort of flood the market with inventory. But inventory can also rise with new listings staying the same. So even if the same amount of people are selling, if demand goes down and there are less buyers in the market, that means that the properties that are on the market are likely to gonna sit there for longer and that accumulates over time and that can push inventory up. So, as Andy was saying, what it sounds like, Andy, correct me if I’m wrong, what you’re saying is that the reason inventory is going up is not because we’re getting a lot more sellers, it’s because demand is actually pulling out of the market and that’s, uh, just shifting the balance of supply and demand right now.

Andy:
Yeah, I mean it’s, it’s a little bit of both, right? So if you look at the number of new listings that you were mentioning, they’ve gotten a little bit better, right? And especially if we look at Florida specifically, you’re seeing those sellers come back, they’re, they’re closer to pre pandemic levels. The bigger, the bigger difference though right now in what’s going on is the interest rate environment and the demand component, the demand side of the house, that’s a little bit easier this spring than it was last year. Um, and it’s allowing that inventory to grow. So yeah, you’re absolutely right, right? We’re still running a little bit of a shortage in terms of new homes coming onto the market, but that that lower level of demand is allowing that inventory to build. And that’s, that’s to me the key difference this spring versus what we’ve seen the last few springs, the last few springs, we’ve hit this interest rate cycle where interest rates have fallen in the spring, and so you’ve had some surplus demand happening when there’s already, you know, traditionally a seasonally elevated level of demand.
And we’ve gone through these big, kind of almost rollercoaster events in the market where we get these pump fix where it looks like inventory’s coming back and then spring hits and, and we get spot down again. What’s, what’s interesting about this year is that demand is growing during those spring months where we’ve been on the downswing of the rollercoaster from an inventory perspective in recent years. You’re actually seeing inventory build this spring, uh, in the time where it had been falling. So a little bit different dynamic than what we’d seen in past years, which is what makes it interesting.

Dave:
One of the big questions I personally have is where new listings might come from. And again, this is basically, are we gonna start to see more sellers start to sell? And as you to your point, it is starting to tick up, but in my mind, to get back to even close to where we were, like pre pandemic levels, something else has to shift. Is it foreclosures? Is it new construction? Is it interest rates going down and breaking the lock in effect? Do you, do you have any ideas on what would have to happen for us to see new listings substantially increase?

Andy:
Yeah, I, I agree with your thesis there. I mean, I think those are, those are the areas that we’re looking, right? Where, where does this come from? Foreclosures likely not this source, right? If we look at foreclosure activity, first of all, it only typically drives less than 5% of the market. 2012 through 16 was a bit of an anomaly, but that’s, it’s a lower ranking item in terms of where inventory comes from. And right now, foreclosure sales, half their pre pandemic level, and we’ve got fewer seriously delinquent mortgage holders than we’ve had since 2006. Then we could talk about that one for 20 minutes on, you know, why performance is so strong, but that doesn’t look like the likely culprit in the near term here to bring inventory to the table. Um, existing homeowners traditionally drive about 85% of the market, their existing home sales.
And so that’s, that’s the big dynamic here. That’s the big potential needle mover. And, and when those folks return to the market, if you look at current state of affairs, you know, the average mortgage holder has about a 4% rate. Wow. The average going rate right now, if you look at our ice origination channels and what’s being offered to the average borrower by lenders out there across the industry, about 7% on a conforming loan. So there’s a three percentage point delta between what you have and what you can get. And, you know, we’ve, we’ve done a, a, a large bit of research around what the cost is for folks to, to move across the street or to trade up to a home versus what it is, what it has been historically. The nuts and bolts of it is, it’s, it’s, it’s still pretty locked in right now in a 7% rate environment.
And so I think, uh, I would expect to see below normal levels of existing homeowner sales for the near future, right, throughout this spring and summer selling season, uh, undoubtedly. So, you know, that really leaves you with the, the new build stock. And that works well in some markets, right? In areas where you’ve got land and it’s relatively affordable to build that works. Um, in other areas, California specifically, that creates significant challenges because it’s, it’s more challenging to build in, in California because of restrictions and costs than other areas. And so that’s where you’re seeing some of these inventory differences, uh, across the country as well. But that new build is, is the more appealing, the more optimistic area where we could get, uh, get some volume, especially among multifamily homes. If you look at units under construction, you know, five plus units, there’s a big backlog out there that’s being built right now. Single families are still okay as well. So I think a lot of eyes are on that new construction space to pick up some of this gap that we have in inventory.

Dave:
Got it. Well, thank you that, I mean, it’s not the most optimistic outlook <laugh>, I’d say for new listing for those of us who are hoping for, for some more new listings to come up. But I think it’s the right, in a very accurate, uh, analysis of what’s going on, there’s this narrative that I continue to hear, at least in the real estate investing circles that I run in. And a lot of people believe that if and when mortgage rates start to come down, that home price appreciation is going to take off again. You know, we might start to see 5, 6, 7, I don’t know, double digit types of appreciation here. And the theory is that what’s holding back price growth right now, and for the record prices are going up more than their historical average, as Andy said. So it’s not like they’re that constrained, but the idea here is that affordability is what’s really damaging the market. And as soon as rates come down, you know, it’s gonna be a free for all. But in contrast, given what’s happening with supply, do you think it’s possible that when rates come down, we’re gonna see a corresponding increase in inventory so that the balance of supply and demand essentially stays the same and maybe prices will keep growing, but it’s not gonna lead to this like outsized appreciation event that I think a lot of people are predicting?

Andy:
Whew, there’s, there’s a lot to unpack there, right? <laugh>, that’s, that’s a loaded, that’s a loaded question. So I

Dave:
Could break that into a few questions.

Andy:
Yeah, let’s break that into chunks and talk about it a little bit. Let’s talk about interest rates coming down and whether that impacts supplier demand more. So if we look at what’s happened in our observable past here the last couple of years and, and what’s happened when, when rates have come down, when rates have come down, you’ve seen a very clear impact on demand in the market, right? So look at purchase application volumes versus mortgage interest rates. When mortgage interest rates have come down, you’ve seen an equal response in terms of demand. So buyers are returning to the market relatively quickly when those interest rates are coming down. When you look at new listings hitting the market, you have not seen that same direct correlation, right? Interest rates have gone, they’ve, they’ve been a little bit of everywhere from 6% to near 8% over the last couple of years when we’ve gotten down into that 6% range.
You’ve seen a surge in demand, you have not seen a surge in sellers willing to sell, uh, their homes. And those are the times where you’re seeing that inventory being bought down and prices heat up. So in the short term, those folks that are telling you if interest rates come down, housing, housing prices will likely heat up because demanders, uh, buyers are gonna come out and sellers aren’t as much and prices will heat up. I think that’s true in the short term, right? That’s, that’s what we’ve seen in the past, and that’s what I would expect to see. You know, if rates fell to 6% overnight, you’d see this little, uh, you’d see a boost in demand and, and prices heat back up. That being said, let’s, let’s segue to the next parcel of that, <laugh> of that question, right? So what does that look like over the long run?
And is a affordability a, a, a long-term hindrance to home price growth? Well, if you look at home affordability and where it stands right now, right? And we just triangulate incomes, interest rates, home prices, and if you’re an average earner buying an average home, what share of your income are you having to allocate to that home purchase? It’s 36% right? Now that doesn’t mean much to the average person, but it’s, it takes 30% of your, 36% of your income right now, as of April, it traditionally takes a quarter of your income, right? So we’re significantly outta balance from a home affordability standpoint, and that’s not an easy hurdle to climb over or resolve, right? So if we look at those three movers, incomes interest rates, home prices, and how much they would need to move to bring affordability back into balance, interest rates would’ve to go from 7% where they are today to three point a half percent and a half.
Whoa, that’s not, oh my god. Yeah. That’s not on anyone’s baseline forecast. If you look at Mortgage Bankers Association or Fannie Mae, they’re saying maybe 6% mortgage rates by the tail end of next year, take that with a grain of salt. It’s hard to forecast interest rates a year and a half out, but that’s what they’re saying, right? So interest rates aren’t gonna solve the affordability equation in and of itself. If you look at incomes, incomes would need to rise by 50% to bring that equation back into balance. That’s a decade plus worth of income growth. Home prices would need to fall by a third if that was the only needle mover, right? That’s not in baseline expectations because of inventory, uh, shortages that we’ve talking about as well, right? So in the short run, yeah, if interest rates come down, you could see demand return more than supply could heat up the housing market. But we’re at a point where we’ve seen that happen for the last four years where home price growth has outpaced income growth that cannot go on for an infinite period of time, right? So at some point that dynamic breaks down and we have to see an environment where incomes outpace home price growth in order to bring affordability back to the more normal levels.

Dave:
Wow, that was the best possible explanation I could have asked for my question, <laugh>, thank you so much for, for explaining that. And can you just explain to us a little bit why you think affordability needs to come back down to historical levels? Like what will that do to the housing market and, uh, why do you think that’s sort of inevitable?

Andy:
I, I mean, I think that’s, that’s what we’ve seen in terms of a stability point, right? If you look at what’s happened in the past, anytime we’ve broken above some of these barriers in the past, it always reverts in some kind of reversion to norm, right? We saw it in the late seventies, early 1980s. We saw it during the 2000, uh, six era as well where affordability broke above certain thresholds and then reverted to long run averages. Does it absolutely have to, may maybe not, right? But if that’s the case, then other spending outside of housing likely needs to shift to make up that ground because if you’re spending more on housing, you have less to spend elsewhere. So is it possible that we live in an unaffordable environment or a historically unaffordable environment for extended period of time, potentially, right? And we’ve seen in the past where it can stay unaffordable for a number of years, but history has shown that, you know, that typically reverts to norm in some form or fashion, whether it’s the Fed easing interest rates and that relieving some pressure, whether it’s, you know, home prices going dormant for a period of time.
It can happen in a number of different ways, but historically we’ve always seen that kind of reversion to norm type of activity.

Dave:
Alright, we’ve gotta take one last break, but when we come back, Andy and I are gonna talk about the unique factors that are specific to this market cycle. Stay with us. Welcome back to the show. Let’s jump back in. Okay, great. Well, I do wanna ask you a little bit more about, um, the reversion to, to norm, but first I just wanted to ask why do you think it hasn’t reverted yet? I mean, we’ve talked about inventory and that sort of thing, but is it mostly from this demographic boost from millennials? Like the, there’s just sort of like some tailwinds that are pushing people to still want houses beyond just the dollars and cents of it?

Andy:
Yeah, I mean, there, there’s a number of things that are all coming together and converging at the same time. There’s the, the baby boomers aging in place. There’s, uh, millennials entering the, the, uh, home buying process that are demographic impacts. You have the interest rate ident, uh, dynamics that we haven’t really seen in the past, uh, where, you know, we elevate interest rates and folks have outstanding mortgage stock at significantly lower interest rates than we’ve had in the past. That dynamic probably would’ve been in, in place in 2006 outside of the for foreclosure crisis that brought a lot of inventory to market and other, uh, and other facets. But we’ve also seen a decade plus of extremely strong mortgage lending that’s leading to very low default activity. I mean, you could just layer all of these dynamics on top of each other. The under building that we saw for the decade following the great financial crisis, I mean, put all of those on top of each other and it, it feels like every lever is kind of pushing in that same direction in terms of low inventory.
And that low inventory is, is really what’s keeping that upward pressure on, on prices out there in the market right now. And when we look over the last couple of years, and I think two th late 2022 is a good timeframe or an interesting timeframe to look at when you saw markets get close to normal levels of inventory, you saw home prices soften, right? We saw it out in California. We saw in some of the pandemic boom towns, each market that we saw getting anywhere close to, to pre pandemic levels, it allowed prices to actually soften and come down. But it’s that just lack of inventory and lack of a, a good source of inventory as we’ve been talking about that are, that’s keeping that upward pressure on prices.

Dave:
Let’s bring back to this idea of, uh, of affordability and the three variables that go into it. And just as a reminder for everyone, home prices, interest rates and real wages are generally what we think of as the inputs to home price affordability. Hopefully that makes sense to you. Obviously, home prices, how much you have to pay for a house because the majority of people use debt to purchase a house. Mortgage rates are very impactful in affordability. And then real wages, basically how much money people have to afford that debt and to afford those home prices. Andy, do you have a theory or any theories on what paths to restore affordability? There are, is it through a home price crash? Is it through mortgage rates declining a combination? What, what do you think is most likely here?

Andy:
Yeah, I mean, when you talk to folks in the industry, I don’t think there’s anybody that’s forecasting significant price declines right now as their baseline forecast. Doesn’t mean that it’s completely off the table, but that’s not the baseline expectation for the industry. I think the baseline expectation when you talk to experts in the housing industry, right? And we had a, a big panel at our latest ICE conference and, and gotta talk to some of those key folks. The thought process is, you know, it’s, it’s likely some combination of gradually easing interest rates, right? It’s happening a little bit slower than I think all of us housing market folks would, would like to see it happen in terms of interest rates coming down. I think that’s going to help. And then real wage growth, right? W wages growing and outpacing income growth for a period of time is kind of the expected path to, to normalcy. But maybe a, you know, uh, again, there’s near term volatility in home prices, but maybe a little bit, you know, lower than average home price growth at some point here in the future to allow, uh, in, uh, incomes to catch up.

Dave:
Got it. Okay. So not expecting huge declines, but some combination of things going on here. Um, yeah, could, could be a path back to affordability. Andy, before we get outta here, and this has been super fascinating, thank you for all of your insights here. Before we leave, is there any other data you’re tracking or your team’s tracking that you think our audience should be paying attention to?

Andy:
Yeah, I think one piece that’s interesting is just the amount of equity that homeowners have right in, in this dynamic between existing homeowners and the benefits that they’ve received throughout the pandemic versus folks that are trying to enter into the, the, um, housing process and home buying process. And we all know the challenges that those potential home buyers are facing, but existing homeowners have, have reaped phenomenal benefits throughout the pan pandemic, and they’ve been able to lock in record low interest rates that they’ll, they’ll probably never see again in their lifetimes or at least aren’t expected to see again in their lifetimes. When we look at the equity that they have and the equity that they’ve gained, it’s incredible, right? We just hit a new all time high in the first quarter of this year in terms of what we call overall equity, right? Equity on mortgage properties, it’s $17 trillion right now.
And then when we look at equity available to borrow against relatively safely, but there’s $11 trillion of equity that could be borrowed against in, in the mortgage real estate world while still keeping a 20% equity cushion, which is also a record high. And that equity’s held by, you know, two thirds of those folks have seven 60 plus credit scores. They’re very highly, uh, qualified borrowers. They all have very low interest rates. And so there’s that equity dynamic and that benefit to existing homeowners that continues to be gained even, even as we sit here today and home prices continue to, to push higher.

Dave:
Got it. Well, thank you so much, Andy. I appreciate you sharing all your, your insights with us. This has been a, a fascinating conversation and for everyone listening, if you want to download or check out any of Andy’s reports that he and his team publish, we will put that all in the show notes below. Andy, thanks again for joining us.

Andy:
Awesome. Thank you for having me. Appreciate it.