November 11, 2023Nick McLean, Reside Platform co-founder, interviews Lance Lambert, co-founder of ResiClub, a U.S. housing market media company. They discuss the interplay between low inventory and deteriorating eligibility, stabilizing prices. Lance explores “the Churn” in mortgage rates affecting the housing market, reasons for individuals having 100% equity, the rise in average age of homeowners, and the impact of Covid on short-term rentals. They delve into the “Tale of Two Markets,” addressing supply issues, millennial involvement, and the evolving affordability landscape.
Video Contents:
00:00 – Introduction
02:00 – Lance Breaks Down the Current U.S. Market
06:16 – What is “Churn”?
10:20 – The Reason Most People Today Don’t Have A Mortgage
14:54 – The Effect of AirbNb’s and Influx of New Landlords
24:02 – The Tale of Two Markets & Millennials in this Market
31:40 – The Wrong Information About Housing Market
36:10 – Zoning Restrictions Impact on Supply
Episode breakdown: reading a market with no churn
Reside Platform co-founder Nick McLean usually interviews broker owners and team leaders. For this episode he brought on Lance Lambert, co-founder and editor of ResiClub, a media and research company that tracks the U.S. housing market. Nick’s goal was simple: give team leaders a clearer read on the market so they can pass it on to their agents. Lance’s explanation starts with two forces pushing against each other and works down to what that means for the people still buying and selling.
Watch the two forces, not the headlines
Lance frames the market as a tailwind and a headwind of about the same size. The tailwind is tight resale inventory, which pushes prices up. The headwind is affordability that has deteriorated to levels not seen since the early ’80s, after a price shock followed by a rate shock. Many people aren’t just stretched thin. They’ve lost mortgage eligibility altogether.
In his view, nearly everything else trickles down from those two things. Existing-home transactions took the biggest hit. Builders, with bigger margins, used price adjustments and rate buydowns to meet the market, so new construction recovered faster than resale. Prices wobbled in some western boom towns and then stabilized, but Lance still calls it an unhealthy market because affordability hasn’t recovered.
Understand churn, and who still has to move
Lance defines churn as the owner who sells one home to buy another. When the market rate for a mortgage sits far above the rate people already have, the cost of trading homes gets steep, even for those who could still qualify. So that owner stays put unless they have to move. For an agent, that’s the lost double-end: one listing and one purchase from the same client.
Nick’s answer was to look for the moves that happen anyway. He listed the life events that make staying painful: going from one kid to two or two to three, a family member moving in, a kid moving back from college, or a split-level that no longer works for an owner’s knees and back. Lance added that once the shock fades and buyers accept that ultra-low rates aren’t coming back, some of that churn returns on its own.
As real estate agents and team leaders we have to look at these behavioral things now.
Nick McLean
Look for opportunity in the short-term rental correction
During the pandemic, travel shut down and remote work took off, and demand for short-term rentals surged. Investors rushed to buy properties to turn into rentals. Once cruises and international travel came back, that new supply hit just as demand eased. Lance calls what followed a short-term rental correction, uneven by market and submarket. Hosts who raised nightly rates during the boom now have to bring them down, and some will decide between selling and converting to a long-term rental.
Nick runs a property management company and sees owners going straight to long-term rentals without even considering a sale. Lance agreed that a low locked-in rate makes owners hold on. Both still see an opening for agents who want to shake the tree. Nick’s suggestion is to look for investors who own more than one rental and may be willing to sell a couple of non-performers. Those homes tend to sit at higher price points, not entry level.
Expect a weaker top and a stronger bottom
Lance ties the “tale of two markets” back to churn. Without move-up sellers, less inventory reaches the lower half of the market. Without move-up buyers, demand at the top softens. Buyers also adjust their expectations when the payment math stops working, so they shop lower. Nick said he’s seeing the same thing on the ground, with older owners downsizing into lower price points that need little maintenance and no stairs.
The top of the market always takes a deteriorated rate environment harder in theory than the bottom.
Lance Lambert
The split shows up among millennials too. Lance points out that the decade from 2010 to 2020 was one of the most affordable housing markets on record nationally. Millennials who bought then did well. Those who waited are now facing a market that went from one of the most affordable to one of the most unaffordable in three years.
Answer “it’s unaffordable” with real numbers
Asked why consumer coverage of housing is so often wrong, Lance gave two reasons. People compare nominal dollar prices, and they carry a built-in belief that things are always unaffordable. He recommends looking at inflation-adjusted figures and affordability indexes that combine mortgage rates, incomes and prices.
People always have this bias to thinking things are unaffordable.
Lance Lambert
Nick heard a talk track in that. Leads who say they’re “just looking” often believe the market is out of reach, and the relatives they ask for advice remember lower prices. His approach is to acknowledge that belief first, then sit down with the client and look at the actual numbers. He also flagged zoning and building regulation as a long-term limit on supply that agents should understand in their own market.
Key takeaways for team leaders
- Teach agents the two forces: tight resale supply pushing prices up, and affordability pulling buyers out.
- Prospect around life events, since growing families, relatives moving in and aging owners still have to move.
- Look for investors holding several short-term rentals who may sell the weakest ones.
- Expect the top of your market to soften first and the lower price points to hold up better.
- Give agents a talk track for “it’s unaffordable” built on inflation-adjusted figures and affordability indexes.
- Use longer client relationships to have data-driven consultations that set you apart for years.
