'Mortgage rates are probably going to remain attractive for probably a long time,' maybe a bit into 2022: Lending Tree's Kapfidze
Lending Tree Chief Economist Tendayi Kapfidze joined Yahoo Finance Live to share his thoughts on the state of housing.
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ADAM SHAPIRO: So we saw housing starts, the Commerce Department informed us that in May they were up 3.6% compared to the previous month to a seasonally adjusted annual rate of 1.57 million. But it wasn't quite what Wall Street expected. You could say it was actually a little wrong.
So let's get into it and what it means and open a door to the future when we bring in Tendayi Kapfidze. He is the chief economist at LendingTree. It's good to see you Tendayi. And I mean, that's not - there won't be any relief in the future, whether it's about starting construction or people trying to buy a house based on those numbers for people who are being priced, right?
TENDAYI KAPFIDZE: No. Unfortunately there is a huge deficit in terms of runtime [AUDIO OUT], you know, in new builds and in the supply of apartments. In fact, a study by the National Association of Realtors just came out, and it estimates nearly 6 million deficit in new construction over the past 20 years.
So we have a huge gap in terms of the apartments available. And unfortunately it will go on for a while. There is a labor shortage. There is a lack of wood. And all of this, of course, leads to higher home prices.
SEANA SMITH: So Tendayi, what does that mean for residential construction? Because yes, we saw an increase. It wasn't what the street expected. But is that enough to continue this upward trend at least for the next few months?
TENDAYI KAPFIDZE: Yes, I think so. If you look at builder confidence, that's still pretty high, even though it has fallen to a 10 month low. The drop in home builder confidence has more to do with some of those supply chain issues that hopefully will subside when the world returns, you know, with the success of vaccination programs in the US and around the world.
So I think if builders can get supplies and manpower, which hopefully will improve over the course of the year, we should see another upward trend in the construction industry. And it's important never to look too closely at the month-to-month fluctuations. It's more of a long-term trend, and has been an upward trend for several years.
ADAM SHAPIRO: But when you look to the future, especially with wood, when we talk about the delivery bottlenecks, I mean that the delivery dates are down quite dramatically compared to the end of May. So when I might be thinking of building a house, is it perhaps time to wait? Because we are waiting for the labor market to turn in September. We see supply chains opening up and prices falling. Would a delay be in my interest?
TENDAYI KAPFIDZE: I don't think so. And the reason I say this is because it takes a really long time to build a house. You probably want to get started and get going. And second, I mean, when you're almost trying to tell the market when to build the house, it's really difficult, right.
What I usually suggest to people, be it building a house or buying a house, is that you really want to make a lifestyle decision first, and not necessarily try to get into this interest rate game, what are wood markets? will do? You know, the people who deal with these markets on a daily basis cannot predict these markets. So really make a lifestyle choice and then you will be a price taker in the lumber market and a price taker in the mortgage market and simply get the best possible deal by getting involved in those markets.
SEANA SMITH: So certainly still a lot of demand for houses in the suburbs, but in some of these crowded cities, New York, we're seeing a bit of a resurgence. We see that the prices of some of the apartments and houses sold in this city are far from the lows we saw in the middle of the pandemic. Is that something you expected? Or is the comeback we are experiencing a little earlier than we originally thought?
TENDAYI KAPFIDZE: Yeah, I think the comeback is directly related to vaccination rates and simply the phenomenal success of these vaccines, success rates in the high 90s for most of the different vaccines that are widely used in the United States. So I think surely no one could predict or expect vaccines that quickly, and vaccines that are just such an absolute hit in terms of their effects on this virus, which really makes people much more comfortable again, in this kind of crowded, denser one Inner city areas. And so these areas are coming back relatively strong and relatively fast compared to what I think people expected at that time last year.
ADAM SHAPIRO: Tendayi, we hear you loud and clear, many of us, when you say it's a lifestyle choice and aren't trying to time the markets. But given what we've seen today over the 10 year period of rising yields, I mean that mortgage rates will gradually follow suit, don't I?
TENDAYI KAPFIDZE: Yeah, I think mortgage interest rates definitely tend to follow the 10 year Treasury, right. But there are also many industry-specific factors that affect interest rates. For example, if we get a general rate hike, it means that refinancing activity will slow down significantly, but lenders have kind of increased staffing for a lower mortgage rate environment.
That means they have a lot of capacity. And typically, they will lower their profit margins on mortgage purchases in order to gain volume and market share from their competitors. So you can see an environment where the 10-year government bond is actually going up and mortgage rates are not going up as fast, or in some cases even staying the same.
That really has a lot more to do with the competitive dynamics in the mortgage industry, including, you know, what we get from the 10 year Treasury Department. So I think mortgage rates are likely to stay attractive for a long time, probably all year through 2022. They may not be the lowest mortgage rates we've seen lately, but I think we'll still get great rates for someone trying to get into the market.
ADAM SHAPIRO: Someone who might have triplets, one opening a door, another just starting to walk. Tendayi Kapfidze, it's always nice to see you and all the best for your young family. Tendayi, we should remind you, is LendingTree's chief economist. Thanks for joining us.
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