tv Public Affairs Events CSPAN June 3, 2022 6:16pm-7:01pm EDT
7:00 p.m. eastern on c-span, with our free video app, c-span now, or online at c-span.org. sheehan is back at our -- lawrence u.n. is back at our table to talk about the housing and rental markets. let's begin with the overall state of the housing market. what does it look like now compared to a year ago? guest: good morning. thank you for having me. the housing market has been extraordinary the past two years. the covid environment completely made the housing market boom. one of the reasons was exceptionally low mortgage rates. when the fed cut rates to zero, mortgage rates fell along with that. the second big reason was covid itself where people said work
from home is a possibility or maybe i need a new home with extra bedrooms to turn it into office face prayed that also fueled the housing demand. everything changed. we are in a transitional space. sales are coming down. home prices are still hitting new highs but the pace will inevitably begin to slow down. host: let me give some numbers behind what you were talking about. purchasing a home now is 55% more expensive than a year ago. new home sales fell 17%. this is april of 2022 creek pending home sales fell 20%. the highest on record at an increase of 15% from a year ago.
median home price was 620% higher than 2021. 19% of sellers dropped their price in april-may. what do you think with the last point happens to prices of homes if it was 55% more expensive than a year ago but people are starting to drop prices? guest: first, we have to clarify what the dropping of the price means. people are looking at the local market conditions and listed their home essentially 20% above one year ago. now they are saying we don't see so many buyers so we have to do a price drop. some people are doing a 5% price drop, maybe 10%, but it is still above one year ago. the fact that the cost to buy a home for people taking out a mortgage is up more than 50% from one year ago. with a combined factor of higher
prices and mortgage rates, people have a mortgage calculator, punch in the number, and they will be shocked at how much extra monthly payment is required on a 3% versus the current 5.5% mortgage rate. that is pushing up costs, especially for first-time buyers. host: the vice chair of the federal reserve said yesterday they do not see a case for a pause in raising interest rates. what is the impact of that? guest: mortgage rates are the lifeblood of the housing market. given the broader economy, consumer prices running at 40-year highs, one has to address that. the federal reserve is raising interest rates and will continue to do so. if one looks at the difference between what the fed has already done which is essentially one percentage point increase in interest rates, versus how
mortgage rates have responded, more than two percentage points in mortgage rates. the mortgage market has priced in all of the future action by the fed, so it is possible mortgage rates may be topping out right now. they could certainly go up a little or down a little. i think most of the rate increases by the fed plan have already been priced in. host: was this cool down needed in the housing market? the fed raising rates and cooling things down because you have seen prices go up all over the country. guest: and has been all over the country. some people ask which market is the hottest, and i say it is the whole country. specifically, the rocky mount time zone areas, superhot, along with southern states because of migration patterns.
the market has been superhot. one has to look at people's income. people's incomes are rising 3%, 5%. this morning, it is showing 5% wage growth, which is good. it is getting wiped away by higher inflation. home prices rise at 40% at a time when incomes are rising at only 5%. but is not sustainable. some degree of calming in the housing market was clearly needed. we are seeing this adjustment. sales are coming down, but it is coming down to pre-pandemic activity in 2019 before the pandemic. host: how would you describe that activity in 2019 before the pandemic? guest: in hindsight, it was somewhat boring. at the time, i thought it was healthy and moving along nicely. now we are retreating back to
2019 in terms of sales, but prices are at record highs and still inching higher. i hope the pace of the price increases can slow down. we have a housing shortage. we have to address that. anything to boost supply, whether through funding, rehab, disused property, and empty commercial shopping malls or office buildings can be converted into residential units, and maybe some kind of block grants to say here is money to build more affordable housing. rents are rising very fast. it is not only about buying homes. people are renting. they are also facing large increase in housing costs. host: where are we seeing the housing shortages? guest: predominantly in the hot real estate markets. places like utah. when i speak with realtors there, they said i have only
three homes on the market. if we had 100, we could sell 100 based on the demand out there. now that things have transitioned a bit, it may not be 100 people wanting to buy, maybe it is 50, but still not enough supply to match that condition. generally in the midwest, it is much more affordable because the supply has been more adequate in the midwest. if one looks at the expense of markets, one has to say these are the areas where there is an acute housing shortage. host: are there areas where there is a housing glut? guest: not really. one area that suffered for decades was a company factory town where factories shut down and jobs. youngstown, ohio, prices did not move for 20 years. affordable median priced homes. but during covid, many people
said i can work from home. i don't have to live in cincinnati or new york. i want to go to my hometown of youngstown and buy a mansion. home prices are beginning to rise respectably in youngstown. the housing glut would be related to local job conditions. host: what has been your experience? have you bought or sold? are you trying to rent? what is your rent price? this is how we divided the lines, if you are a homeowner, call 202-748-8000. all others, 202-748-8002. what is the trend? guest: the first few months of the lockdown, rents begin to
decline in major cities. new york city, san francisco. people were going to the suburbs or exiting. we did not know about the nature of covid. people wanted to take precautions exit the big cities. rents declined. nationwide, rents were still rising but at a very slow pace. we have to remember, there were major job cuts during the lockdown. as the economy began to reopen and job creation came around, good news today on the job market, another 300,000-plus jobs, so with each passing month, more job creation means increasing rental demand. now those rents which had been decelerating have moved upwards, accelerating. according to government data, rents are rising 5%. according to private sector data, rents are rising at
double-digit pace, 10%, 12%. this is a burden for renters in current housing markets. host: why? guest: because there is a housing shortage not only about buying a home but the rental vacancy rates at historic lows. america has been under producing housing of all kinds. single-family, multifamily, apartments. we have been under producing for the past 15 years. the cumulative effect is we have a housing shortage with home prices rising fast and rents beginning to accelerate. host: talk about your proposal of taking malls that have closed down, huge amounts of property, and turning that into housing. guest: anytime there is a disused property, i think it is good to consider, can we make it more useful? like the emptying out of some shopping malls, can it be
converted into an educational facility or medical facility? maybe one third could be housing, whether an apartment, condominium, anything to boost additional housing units will relieve the housing shortage. the office market is still wobbly with the work from home flexibility hybrid model. people really do not know what the equilibrium would be. some companies began to downsize square footage usage and put it on the market so we may have more empty office buildings, known the market in the future. rather than let it be empty, can we consider repurposing it to residential units? host: is that a concern for commercial realtors? guest: it is not a concern. it is an opportunity.
the big obstacle is financial. when you do the financial numbers trying to repurpose a building, it does not work. all of the issues require money. this is where the federal government can help with funding or tax credits so the numbers work better for the private investors to consider repurposing those empty buildings. host: let's get to calls. peter, in lakeland, florida. good morning. caller: good morning. i am glad you have discussed on. i am going to give you a list of issues because florida is a nightmare for people trying to buy a house or people renting. we are losing our workforce in florida because they cannot afford rent if you are paying $13 an hour. the elderly people who are renting are being evicted if they don't have family to go to, they are sol.
i would like to ask your guest, let's talk about blackrock and blackstone. these folks are catalysts that can take $10 billion and buy houses all over florida at $10,000 over asking prices and just park the houses and watch everybody else scramble. that is what is happening. foreign corporations are buying any house. somebody passes away, they are buying it. they will let it sit empty. that is what is happening. disney, british papers are doing layouts on all of the homeless in florida congregating around disney. it is every city in florida right now. politicians do not even talk about this. host: let's take your points. lawrence yun, are you hearing about investors buying properties and letting them sit empty? guest: definitely, the wall
street money is flowing in. they are looking at accelerating, rising rents and chasing after that. wall street has much more financial power to purchase above asking price, as the caller mentioned. they are buying single-family homes to turn it into rentals or they are buying apartment buildings and raising rents. the housing shortage. for the long-term, we have to see how to bring about more supply so the rents do not rise so fast and wall street will back away because they are chasing rents long-term. host: how do you do that? how do you lower rates? guest: by increasing supply. it takes time. it is not an overnight situation. the short-term possibility is they have seen a great inflow of new residents coming in from other states, which is the
reason for the additional housing shortage. in the short-term term, one of the considerations and we are speaking to congress is there are many mom-and-pop investors in florida owning property. wall street is gobbling up. why don't we incentivize some of the mom-and-pop investors to release the property onto the market? the reason they are unwilling to release it is rents are good. if they want to sell, they are hit with capital gains tax. maybe lower the capital gains tax temporarily so we have more supply coming onto the market so florida residents would have a better chance to buy and rent. the mom-and-pop investors said i have cashed out and i am doing fine. host: what is the capital gains tax on selling your rental property? guest: i think the long-term capital gains tax would be the federal rate.
one can even hone in more specifically to say if it is sold to a first-time buyer, the rate will be much lower, say 10% rather than the current 20% or 25%. host: would you consider prohibiting a large investment firm or foreign investor from buying that property? guest: that is more difficult given america has a free-spirited idea to say the market is responding to financial incentive. certainly, wall street is responding to the increase in rent growth. we have very few foreclosures. those that do come to the market, especially in f.h.a. mortgage which means the government would take over the property temporarily, hud is saying we will not sell it to wall street investors. we will keep it for first-time investors. those inventories are very limited. we have to consider more impact. i think mom-and-pop investors
will be willing to bring additional supply if the capital gains tax even temporarily were to be lowered. host: leon in fayetteville, north carolina, homeowner. caller: good morning. my concern as a homeowner is what the gentleman mentioned in florida with blackstone and wall street purchasing these homes and then they turn them into rentals. i have been noticing a person's mortgage around $1600 in north carolina, if you rent a home, you will pay more than $1600 and possibly go up to $3500 or $3200 just to rent a home which is sloshing the middle class, the
mom-and-pop's, because your home is your bank, your investment, your equity in your home. i really am concerned about the fact that this scheme is that people may not be able to rise up and develop generational wealth for their families. turning properties into rentals also adds to crime because they are not invested in the community. host: lawrence yun? guest: the gentleman is correct. homeownership provides the opportunity to build wealth over time. we are finding for a typical homeowner, the net worth they
have accumulated is about $300,000 including recent buyers, longtime buyers, averaging that figure. for a typical renter, is less -- it is less than $10,000. there is a staggering difference in wealth build up from homeowners to renters. part of the american dream is i want to be a homeowner, i want to build wealth. if wall street is gobbling it up, it provides less opportunity. a way to temporarily boost supply that would be helpful is to lower the capital gains tax for mom-and-pop investors to sell their properties, especially to a first-time buyer. host: eric in las vegas, what is it like there? do you own a home? caller: yes, i do. it is wonderful now.
in 2004 when my wife and i purchased it, we paid about $440,000 for a home. by 2008, it had gone down to $210,000. we got wiped out. we lost everything. we got back into the housing market in 2017 and paid $240,000 for a house. now it is worth $500,000. it is cyclical. i'm sorry institutions have driven up the market, but i have benefited from it. host: when you say you were wiped out, did you lose the home? caller: at the same time, two, i lost my job, my wife lost her job. it was a bad situation. if we had held onto the home we purchased in the beginning, that home now sells for $900,000. i was not able to ride the wave unfortunately. host: lawrence yun? guest: the gentleman makes a good point. there are winners and losers.
the winners is people who are owning the property. i'm glad he purchased in 2017 to enjoy the good home prices. that is the wealth build up for the owners. the bad news is people who want to be owners are getting priced out, making it very difficult. let's consider this to-year housing market boom we experienced, homeownership rates did not change. it was falling in california where homes are super expensive. if it is unattainable,, the owners join the wealth, but renters, it feels like the possibility of ownership is out of their reach. we have to address more supply, including possibly re-examining some laws and some regulations that go into homebuilding may be
too excessive. in california, they say just to get a permit is $100,000 or more just to get a permit. naturally, that will boost home prices. we have to look at all angles. how do we remove obstacles to bring more supply? host: remind our viewers why there was a housing bubble in 2005, 2006, 2007. what was the cause of it? are we in a similar situation? guest: those are questions everyone is asking. what happened in 2005 in the bubble period and subsequent painful crash was massive closures, price depressed for four or five continuous years, what happened was the subprime mortgages, people said don't worry about it.
mortgages for people not financially qualified with funny characteristics so you get a 1% mortgage rate but after two years, it will be 8%. obviously, people cannot adjust to those changes. it was a very strange mortgage product at that time. in addition, homebuilders went wild. they said everyone wants to buy, so they overproduced back then. when the market crashed, the situation was that we had housing surplus. we have a housing shortage today, but back then, it was a housing surplus, and we had the crashing of the mortgage market. today, it is fundamentally different. we have a housing shortage, accumulation of multiple units of under production. second, we do not have those funny mortgages thank goodness. people getting mortgages have to meet strict underwriting criteria. one of the hottest markets, boise, idaho, i spoke with realtors.
prices have risen so much. how are the buyers able to buy? they are saying we are not sure where they getting the money but they have to meet tough underwriting standards. but when they meet it, they have the necessary income to make the mortgage payments. that is implying to me that the market is on a solid foundation now compared to the wobbly, risky situation of 2005-2006. host: matt in dallas, texas, you rent. what is the rental situation like? caller: good morning. it is tight. i talked to my friends who want to live near downtown dallas. they are willing to pay the higher rent because they make good money and the job market is strong. i was able to find an apartment where my rent decreased, but it was in a neighborhood that was not my first choice.
with utilities, i still pay the same as before. i lucked out because a realtor had access, so i was lucky. i had a question for mr. yun. the fed is starting to raise interest rates. i think jay powell is saying the rate will go up .5% the next couple of meetings. at some point, it will filter into the mortgage market for rates. wouldn't that bring prices down? if the cost of borrowing goes up, it seems like that has to go down. i understand there is a housing shortage could how do you see interest rates figuring in two home prices with the cost of borrowing going up? guest: rising interest rates means it is a higher required monthly payment. therefore, the pool of eligible buyers shrinks. we are seeing that.
your home sales transactions. some of -- fewer home sales transactions. people quickly realize they are priced out. mortgage rates are too high to qualify. we are already seeing that impact. consequently, the home price growth of 40% from one year ago, those days are over. we should only anticipate price growth of only around 5%, which is currently the wage growth. if we can maintain this level along with bringing more supply, and homebuilders are volatile, but the overall trend appears to be they are producing more homes this year compared to the recent prior years, so we will get more supply. the combination of the shrinking pool of buyers because of rising mortgage rates and increased supply will moderate prices.
as to the price decline, it is less clear. home prices, some people have been waiting for prices to drop in 2016. now, they have missed out on the boat. price increases from this point will be more modest. but the price decline based on mortgage underwriting standards, people are homeowners in a tight job market where they are able to make their mortgage payment, it is implying it is unlikely. could it happen in some markets? sure. could it happen in phoenix where prices have risen by 30% in a single year? price adjustments in phoenix may occur. it will not have any damaging impact to the banking system. homeowners may view some price decline as a second chance opportunity with fewer buyers.
some people view it as a second chance opportunity. host: ana in california, you own a home there. what has been your experience? caller: we can no longer become mom-and-pop owners because there is such competition with investors, with foreign buyers, and with just foreigners who come here and get other family members and groups and they purchase homes. i was trying to purchase a second home just for a little additional income in retirement. it is almost impossible to compete against these investors here in california. they offer cash.
anyone selling a home now, there's all kinds of commercials. your house does not have to be nice. they say we will come and look at it and buy it, almost the same day. how can an average person, average american, compete with that? i feel that this country is being out. it is being purchased by corporations and foreign investors. host: how can that not potentially be a bubble? guest: there is huge excess demand. if it is an all-cash purchase, there is no chance of foreclosure because the home is owned outright. in california market, there is a more acute housing shortage which is the reason it is very elevated. for the caller looking for the
second property, investment property, maybe for retirement purposes, to get the study rental income, it is difficult and expensive markets like california or boston because home prices are very high. she finding investors -- we are finding investors are widening the geographic search where the next county is more affordable. it is a competitive market out there. last year, a home is listed, 30 offers. by definition, that means one winner and 29 losers. they were very unhappy about that situation. now maybe the intense multiple offer situation is winding down. but there is still to some degree ongoing multiple offers.
when we steadily boost housing supply, rents will begin to stabilize. if rents stabilize, wall street will not have that incentive to chase after the properties. host: what do they do with the properties they own? guest: they say let's find the rents. the rents will cover the wall street borrowing money. two years later, their intent will be to sell the property. host: if the rents come down. guest: if the rents come down or they reassess the factors with tom price conditions. right now, there are institutional investors in the market. they are not a heavy player. most of the homes are still being purchased by owner occupancy, whether for first-time buyers, trade up, trade down buyers. investor activity is around 25%. wall street may comprise 5% rate there are many mom-and-pop investors.
also, there are many mom-and-pop investors, we can give them incentive by lowering the capital gains tax, and then we will have additional supply. host: michael, go ahead. caller: just in the way of background, i am a senior citizen, i am disabled. i was in the u.s. during the vietnam war, and i just purchased this house in february of 2021. mr. yun, your organization is very much responsible for this debacle that we have. you are not the only player, but my real estate person lied to me, misrepresented thanks, steered me to a house inspector that said this place was ok. and then my furnace, my air
conditioner, and all of my appliances broke down in the first year i was here. the electricity is bad. and just about everything else. now, here is the solution. massive, massive government control of what your people do and what householders do because they are just couching people left and right. the competition for this property that i bought was a brand-new development in plano, illinois, which is 25 miles to the west of me. you know what? a brand-new house, what do they do? it went up from the basic 1, 100 $70,000 in the summer of 2020. by the fall, in december, it was already up to $234,000 starting price.
there was no time for there to be any shortage in building materials because that particular market is massive. it takes about nine months for them to respond to anything. there is so much inventory in the system. those kind of jobs people were working during covid. there is no excuse for this, except the fact the government has sold out to the 1%ers. and all they do is they sit there, and they want these high-priced houses so they can get more property taxes. host: ok. lawrence u.n.? -- lawrence yun? guest: i'm very sorry to hear about your extremes. i would be very angry. we have 1.5 million realtor members fit they are competing among themselves for the next
client. when consumers choose realtors, sometimes they get the wrong recommendation from friends and colleagues. about 80% of consumers when we take a survey say i love my realtor, 20% were not satisfied. we are very concerned. people come into the industry, people go out of the industry. i am very sorry to hear about your experience. when i mentioned about the housing shortage, you may look at the field and say they are building, what i mean by housing shortage is america has a population growth every year. based on the population growth, we need to produce about 1.5 million new housing units, apartments, single-family. we did not do that in the past decade. we have been well under that figure.
with each passing year, you add up the gaps and we find we are short roughly 5 million homes in relation to the population growth that occurred in the country. consequently, when you have a housing shortage, that means home prices will be higher, rents will be rising. we are reaching a point where building activity is picking up. at some point, we will have adequate supply. it will still takes some time. my view is the equilibrium market is still 18 to 24 months away. in the meantime, can we get temporary housing supply? the capital gains tax reduction may be a way to bring additional supply. host: the central bank is trimming asset holdings by not reinvesting proceeds when securities mature.
what is the impact of that? guest: what happened during the early months of covid, when everything was uncertain, was the economy going to go into depression, the federal reserve said we will buy mortgages. a consumer takes out a mortgage. generally, they are backed by freddie and fannie. there was something called quantitative easing, purchasing of those mortgages. now they want to reverse that process. by reversing it, it makes the interest rate a little higher. not to be too technical. the 10 year treasury borrowing rate is currently at 3%. the mortgage rate should be about 4.5% normally. today, it is 5.5% because of the policy you mentioned, the undoing of the quantitative easing. host: what is that extra
percentage about? guest: it means there are less people willing to buy mortgages. the fed said with small additional interest, we will buy it. the federal reserve was buying all the mortgage products. now that freddie and fannie cannot sell it to the federal reserve, they have to find other buyers. is it goldman sachs, wall street companies, the illinois teachers pension fund? they have to find other buyers. they have to offer slightly higher interest rates to attract the buyers. host: greg in illinois, you own a home in your town. what is the name of your town and what is the market like? caller: south malloy, everything is high. i guess as far as what my house is worth from what i bought it from, i'm doing good. i am 64, some going to retire.
-- so i am going to retire. it feels like we are repeating from one house and collapsed from when wall street was buying all of the mortgages. and now, we are going through that again. they dropped all the rates down so that lit everything back up. housing prices go up. it was not that many years ago when you can drive through subdivision and there were for sale signs and foreclosures all over the place. what are we really talking about now? we are kind of doing the same thing we did 10 years ago. what started that was congress was going to sue all of the banks because they were not giving the money to the people that could not afford it, so they've threw all the money out there, gave it to them, and they could not, they realize i cannot afford it.
now, everything is getting jacked back up so interest rates are going back up. now, we are worried about it. it is kind of the same thing today that we had back then. you are complaining about rents going up. you cannot have it both ways. everybody cannot live in a 3000 square-foot house. when i was young, you lived in a 1000 square-foot house. everybody was happy, everybody got along. mom and dad took care of you. you went to school preview did what you were supposed to. now, they feel entitled. host: greg, i'm going to have lawrence yun respond to what you said. guest: it is somewhat different. we don't have the risky mortgage products. people have to meet strict
underwriting standards. a second part is the housing shortage today versus the surplus back then. they were overproducing thinking it would always be there. for several years, we have been under one million production. now we are back to over 1.5 million. those are just averages. for people concerned this is a repeat of 2005, a bubble crash and they want to unload, i would say that right now the market is welcoming inventory. there is a massive inventory shortage. any inventory that appears, even by people who have concern about the market and want to unload, the market needs more inventory. people make their own decisions regarding that. we need more supply. host: from boulder, colorado, you own a home, go ahead. caller: i'm wondering what
affect the climate crisis is having on migration rates and what result the description -- destruction of 1000 homes in boulder and the wiping of towns off maps in california to the coastline, and in the midwest. host: we are short on time. we saw lots of stories in recent days about the homes on the north carolina coast falling into the ocean. climate change question. guest: when we ask consumers, do you consider climate change in making the decision, many people say, yes, climate change is an important factor in my decision. people say that in a survey question. in terms of their actual actions, waterfront properties
are carrying a huge premium which says people want to be at the waterfront property even though there is more risk related to climate change. in some of the wildfires in california or the west coast, that has led to a great increase in property insurance. some people are saying i can make the mortgage payment, but i'm not sure i can make the insurance payment. sometimes, it is not even available. we also have to address the insurance availability. we need to assess the risk criteria to determine what the appropriate premium should be. host: were you watching for in the coming weeks? -- what are you watching for in the coming weeks? guest: a turn in inventory. i think that is coming. that is for multiple years of falling inventory. that will stabilize and begin to slowly increase. we will still have some housing shortage.
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