30-year fixed mortgage rates still ‘keeping some people away’ from buying a house: Realtor
Kinloch Partners Co-Founder and CEO Bruce McNeilage joins Yahoo Finance Live to discuss the continued impact of mortgage rates on homebuying trends, housing concessions, and rising housing markets to watch in 2023.
Video Transcript
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- Homebuilders are feeling a bit better about the housing market, albeit just a bit, as sentiment ticked up in December for the first time in a year. Let's talk about where housing is headed and where it's hot in '23 with Kinloch Partners Co-founder and CEO, Bruce McNeilage. Bruce, good to see you back here. Broadly speaking, how do you characterize what you're seeing out there in the market to start this year? And is the worst behind us?
BRUCE MCNEILAGE: So I don't think it is. I think we are going back and forth. I think the market is still finding itself. And I think builders have really adjusted to things to increase sales, to increase traffic in their models. But I don't think the worst-- I think we've got some ways to go before we start ticking back up in the housing business.
- We are seeing homebuilder stocks up pretty much across the board. KB Homes, Toll Brothers. Lennar, D.R. Horton-- all of them up between 5% and 11%. Now granted, that's after a tough 2022. But are you optimistic for the homebuilders? And what are you hearing from them?
BRUCE MCNEILAGE: So I've taken a poll and talked to many of them here in the last few days. And they're seeing more traffic, but traffic doesn't necessarily equate to sales. And so people are coming in. They're looking at the houses.
The builders are doing a great job with concessions and some incentives, buying down the mortgage rates, the interest rates. And so we're starting to see some things turn. But high interest rates, the 6 and 1/2% or so range for the 30-year fixed mortgage. That rate is still keeping some people away from buying houses.
- Where do you see that mortgage rate heading in 2023? And where do you see it flattening out? Will that be enough to kind of thaw things out?
BRUCE MCNEILAGE: I think if we can get to 6% sometime to the middle of the end of this year, that will really help builders and also buyers of homes. The people that are most affected are the entry level buyer. And I think with the incentives, maybe reduction of prices a little bit, and the easing of these mortgage companies to give mortgages I think will really, really help.
- You talked about concessions. It's remarkable how many of them-- that has really been the theme of 2022, which continues into '23. 42% of all transactions in Q4 had concessions. That's almost double from earlier in the year. What types of concessions are you seeing the most and where?
BRUCE MCNEILAGE: The two most popular concessions are not only the reduction in price, but giving large builders credits or buyers credits. It might be refrigerators. It might be blinds. It could be closing costs, title insurance.
But they're also offering incentives that I really think is the best incentive. If rates were 6 and 1/2%, 7%, 7 and 1/2%, these builders are buying down the rates to 4.9%, 4%. And that really helps buyers because buyers are buying a payment.
That's what they're looking for. What will their monthly payment be? And so if builders can buy down that interest rate, that's really what's going to drive people to the models. And then some inventory that hasn't sold, some standing inventory, I think will-- people have a good opportunity to pick up some good deals if they're looking to buy a home.
- Good stuff. All right. The National Association of Realtors put out the Top 10 Housing Markets for '23.
All of them, all 10, in the South, the majority in the Southeast, with Atlanta taking the top spot. Raleigh, North Carolina, number two. Why are those markets so hot? And is that where the majority of investment is also happening?
BRUCE MCNEILAGE: So my firm exclusively invests in the deep South, both in Tennessee, Georgia and throughout the Carolinas. We are seeing that's where migration is going from the Northeast and the Midwest. We're all seeing manufacturing jobs. There's an awful lot of automobile companies and manufacturing jobs going to the Southeast.
And quite frankly, it's the cost. When you can buy a house for $275,000, $300,000, $325,000, a four or five bedroom house, that's also really going to be something that drives people to that city. And the jobs are also there. So those two things are really making it very positive for the Southeast.
- Yeah. Redfin says today a record 25% of users look to move in Q4. That is a record. And apparently, they are moving to the South.
Finally, Moody's has new numbers out today showing a record high 30% share of spending going towards rent in this country. Will you see that improve, do you think, in 2023? That is a massive number.
BRUCE MCNEILAGE: It's a big number. And here in Nashville, I've seen it as high as 40% and 45%. Of course, San Francisco, Los Angeles, that number is higher. But no, that number is not coming down.
Now rents this year will not have the robust increase that they've had last year of over 10%. I think we're going to see that relatively flat. And also, home rental companies like ours are starting to give incentives that make it more affordable for people to get in a house. But the high payments are still there.
- Are you offering rental incentives?
BRUCE MCNEILAGE: We are in a couple cities in the Southeast. We are offering one month rent with a one year lease. Or we're offering a two year lease where you're not going to get an increase in the second year.
We've had a very good response from that program. And we see more and more companies doing that. And I think that's really helping ease things with the consumer that might not be able to buy right now, but is still looking for a high quality house for them to rent and their families to enjoy.
- And is the inventory story changing for the positive in the rental space this year?
BRUCE MCNEILAGE: So inventory is still tight. However people were building into that cycle in the downturn. So there seems to be a little bit more in the market. That's why we have a flattening out of what's going on as far as rental prices.
And I don't really see that changing. There's been a lot of spec houses, inventory has gone up for some of these builders. And because individuals haven't been able to qualify or have been a little gun shy to buy a house, builders are selling their houses at discounts to rental operators like us throughout the country.
- That trend continues. Bruce McNeilage, excellent observations. Good to see you. Thanks again.
