Housing starts surged to end 2020, Yahoo Finance digs into if the sector can keep up the pace in 2021 with Tendayi Kapfidze, Chief Economist at Lending Tree.
ADAM SHAPIRO: We want to invite into the stream Tendayi Kapfidze. He is LendingTree's chief economist, and he knows more about the [AUDIO OUT] space than a lot of people with triplets. Two of them are already standing and about to start walking. So we invited you in to talk about housing starts. I can't think of anybody poised to need more space than you. So [INAUDIBLE] the housing starts makes you smile or worries you?
TENDAYI KAPFIDZE: It makes me smile. I think there's definitely a lot of demand for housing right now, both for reasons like my own, where I need more space because my family is growing, but also with the pandemic, we've had a lot of shuffling in people's requirements around the space that they live in. And we also had, because of the pandemic, some slowdown in activity last year. So there's a bit of catch-up in today's numbers. But yeah, it was a big jump, the strongest since 2006.
SEANA SMITH: We also had that homebuilder confidence number out yesterday. And the demand, obviously, is still strong there, but there are some issues. And you pointed this out in your notes, talking about material affordability and also a lack of labor. How do you see this affecting home construction this year?
TENDAYI KAPFIDZE: Yeah. So I think what it will do is, I think, it's going to add to cost, which is going to add to prices. I think in terms of volume, we're probably going to be getting a record year this year since 2006, essentially. We'll probably jump, I think, between 15%, maybe 20% over 2020's numbers.
So it's going to be a strong year. Builders are optimistic. Demand is strong. Mortgage rates, I think, are going to remain low. Even though they might drift upwards a little bit, I think they'll still remain under 3%, which is going to drive a lot of demand in the housing market. And then the final factor is that there's very little inventory in the existing home sales market, which makes new home construction even more important.
ADAM SHAPIRO: I'm glad you just mentioned that because we're getting home sales tomorrow. But right now, is this an income inequality story? Because who can afford to build a new home? Is it going to be the top 10%? Who is it?
TENDAYI KAPFIDZE: Yeah, so I think one of the things that everybody's been talking about is the K-shaped recovery. And it's really clear to see this in the housing market. At the same time that we're having these really high housing starts, we're getting a lot of home-buying activity, the Biden administration just had to extend the moratorium on foreclosures as well as on rental evictions.
So you really see this bifurcation in the marketplace where a certain part of the population is doing really well. They're able to work from home. They didn't get disruption to their jobs or their income, and they're benefiting from really low interest rates. And additionally, because of the coronavirus last year and the slowdown in the economy, they've been able to save a lot of money. So compared to a baseline year, last year, we saw about $1.6 trillion in excess savings for households. A lot of that is at the top of the income curve. And I think some of that is going to flow into the housing market.
So you do see this split in the marketplace between wealthy people who are able to afford housing, or the upper edge of the cake, and then the other leg of the cake where people are concerned about eviction, foreclosure. People have lost their jobs, and they're under a lot of pressure.
SEANA SMITH: One of the things that's driving the housing numbers that we've seen, obviously, is the low mortgage rates. How do you see the new administration, the Biden administration, affecting their direction at all?
TENDAYI KAPFIDZE: I think in terms of mortgage rates, the Biden administration doesn't necessarily have policies that directly affect the mortgage rate. Where it would pass through would be from the 10-year Treasury. So if we get this big stimulus package, some people are concerned about inflationary effects, which might raise the 10-year Treasury. I am not as concerned about inflationary effects.
One thing that we've been seeing with all the monetary and fiscal policy that's been going on is that things like the money multiplier have been decreasing. So I think we can get a lot of stimulus without generating inflation. And that should keep interest rates, I think, below 3% for the year.
ADAM SHAPIRO: [INAUDIBLE] when we're talking about real is local, local, local, some markets are going to be stronger than others. We see rents, for instance, drop in major metropolitan. areas. People have left that. Do you see the cost of purchasing dropping as dramatically, or [INAUDIBLE]?
TENDAYI KAPFIDZE: I don't think the cost of purchasing is going to drop just because we have these inventory challenges. In the existing homes market, people are actually locking themselves into their houses by refinancing at these record low rates. So that reduces the churn or the number of people who are looking to move houses.
So I think because of supply constraints, we're not going to have price drops in the purchase market. But yeah, in the rental market, I just signed a new two-year lease where I got seven months free. This was a ridiculous deal, and I just had to take it. But I think that's part of the bifurcation to difference in the rental market versus in the home purchase market.
ADAM SHAPIRO: Tendayi Kapfidze, it's always good to see you. All the best to your triplets and your other half, your wife, because you have your hands full. Tendayi is also the chief economist at LendingTree, and we appreciate your being here.