YouSaid · the spoken record

Alice

lines on the record: 31
first: 2024-03-12
most recent: 2024-03-12
sittings or episodes: 1
sources: podcast

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“Credit card delinquencies have certainly ticked up and it's made the news. And in other places, the subprime borrower who goes and takes out an auto loan. And the way I look at it is they tend to be the people most exposed to high interest rates. Again, credit cards, interest rates are floating. They're certainly quite higher right now. The subprime borrower is probably more levered than the average consumer, let's put it that way. These are the people who unfortunately weren't inflation or is really pinched them the most. And that's where we see some pickup in delinquency rates. But our economics team, they tend to think the bulk of high interest rates, the impact there is certainly behind us. And we would expect things to start to normalize the second half of this year.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Yes, that's correct. Now, when we look at delinquency rates across a range of types of mortgages that go to people, whether they're self-employed or a regular way, mortgage through Fannie Mae or Freddie Mac, there are some normalization of delinquency rates, but I think the one underpinning fact that we have to remember is that there's around 70% equity in the housing market. So we have about 14 trillion of mortgages, but the equity held by the market is around 70%. And that's certainly, there's a distribution there and a whole bunch of people own their home outright. But when you talk about credit performance, that's a lot of money to walk away from. As a result, we tend to see relatively low delinquency rates. The tight job market certainly helps. The level of foreclosures that we see in the market too are certainly very low, considering looking across even far longer history. Foreclosures are very low, so we don't see much distress in the market, where we do see some stress, again, when you talk about the consumer.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“But just to be clear, because if I think about the risks to the macro view, a lot of people are focusing on the consumer right now, thinking, is the consumer going to hold up? But at this point, you're not seeing much evidence, at least in the housing market, of consumer weakness. It's really more a risk than.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“More attractive than buying, and you might put off that life event even though you're looking forward to doing it and you think you need to do it, but maybe that economic calculation falls into play where you just say, you know what, I'm going to stay renting for a little bit longer. And then other regional issues, we certainly see that wealth effect is actually a pretty big driver of home prices. If we do see some weakness regionally, whether like I said in California, maybe that could impact home prices there as well.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Some of the big risks that we're really paying attention to are the underlying macroeconomic trends. I think everyone is tending to focus on it. If we do see inflation remain high for a period of time, that will keep the Federal Reserve from cutting rates and starting that beneficial chain of events, which would help lower mortgage rates and spur some more demand, rates staying restrictive is certainly a big problem. And then there's the out of our base forecast outcomes is that if we do see an economic shock that leads to job loss, right? If there's an income blip away from our two and three-quarters percent real income growth over the course of the year, that could create a vacuum of demand potentially and that would lead to lower home sales, lower home prices, and that's certainly a risk factor that we look at. Regionally, there is a lot of multifamily construction apartment buildings. There's an oversupply happening there where we are seeing rent growth actually slow down. And it could get to a point where rents look a little bit”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“So we see a moderate decline in mortgage rates, even though we see home prices remaining relatively elevated, mortgage rates come down as interest rates and just to clarify, like our Fed call is 25 basis point cuts four times this year.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Forward on interest rates is relatively known, we should see more bank purchase. Again, the two big buyers of mortgage-backed securities were the Federal Reserve, and they're not buying anymore, and banks who have definitely pulled back because of all those regional banking issues. So bank demand is definitely a critical part, which would help mortgage rates ultimately fall. And based on a lot of these rates forecast,”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“It's not a direct translation. The Federal Reserve, once they start to cut rates, that will have some knock-on effects with underlying interest rate markets and treasuries where we would see a drop in the volatility of interest rates and that would benefit the secondary mortgage market of mortgage-backed securities, where we would see an improvement of the yield and the spread of that yield over underlying interest rates. When you make a mortgage, you actually short interest rate volatility. So a drop in rate volatility will help the secondary market recover valuation-wise. So that's one of the fundamental reasons. And then ultimately we'll see a steepening of the yield curve, and that should overall benefit rate products broadly, but within mortgages, it will certainly help that secondary mortgage market recover in valuation. And then the technical aspect of Federal Reserve tightening is bank securities demand. Now that we've seen deposit outflows tend to stabilize and the path”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“If the Fed does start to cut rates this year, as is still widely expected, even if expectations have moved forward in the year, how might that transfer into mortgage rates? How long does it take? Is it a one-for-one move? Walk us through how that would translate into mortgage rates.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“I talk about geographic differences. I like to lean on our home price appreciation model. We try to project home prices on about 380 metro areas and then roll that up to a national projection, which is for this year, again, around 5%. But the model takes two steps. First, they try to decide what's an affordable home price in every metro area. And then we have some correction terms on the second step where there's a lot of technical factors like momentum. But the places where we see the most home price appreciation this year would be the older cities where we didn't have as much construction activity, let's say in the northeast, say like a Philadelphia. And the places where the model is most pessimistic are places like out on the West Coast where housing has tended to be expensive and remains expensive. And there's fundamental trends like migration. out of the state. And when we go to the southeast, it's more of a mixed result, right? We have certainly an affordability challenge because home price.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Interesting. We've mostly been talking about national averages, what we're seeing nationally, but what are you observing in terms of geographic differences? Are there some places glaringly tight and others much less so?”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Yes, that's right, Alice. And we are actually projecting home prices to appreciate around 5% this year. What we do with our home price model more recently is just we tend to pull forward some of this home price appreciation over the next several years into this year for a couple reasons, one of which is actually a price momentum. We were running in the neighborhood of 8% annualized home price appreciation heading into year end. And that's the time of year when we tend to see a little bit lower home price appreciation. People tend to move in the spring. kind of underpinning to that home price forecast is that there is a simple floor on home prices based on the low supply that's pervasive across the housing market”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Me take a step back, though, as you've been alluding to home prices are still quite high, and you actually don't see much reprieve, at least on a national basis. You've actually just recently raised your expectation for house prices this year. So walk us through why that is.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Originator of that loan, and they syndicate it in the secondary market. The demand for those securities is wide-ranging. They could be banks, it could be foreign investors, it could be money managers, hedge funds, and we tend to not just pull up the loans, but then actually carve up those loans into different cash flows. But now the supply and demand, though, is largely driven by bank purchases. Banks demand for those bonds right now is actually relatively low. Banks faced a lot of regional banking issues and potential capital rules. So the demand has certainly dried up. And now the incremental buyer of those loans and those bonds are actually money managers, hedge funds, some foreign institutions. So it's kind of a development of the financial crisis that institutional ownership.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“That's correct. It was a very popular development that happened in the post financial crisis period. If you looked at the yield on a home and you looked at that yield relative to underlying interest rates pre-financial crisis, in other words, 2004 and earlier that spread was actually a negative relative to underlying treasury rates. In the post-financial crisis during the zero interest rate policy regime that spread actually popped up to around 250 to 300 basis points. And it was relatively consistent, right? Rents didn't go down as much as home prices did. So institutional investors, A, they started buying foreclosures and then B ultimately started purchasing homes in the secondary market because then you just simply apply some financial leverage to a consistent spread. You have a business. So if I go get a mortgage in America today, the vast odds are is it will end up in a bond at some point, which is guaranteed by a government agency. They collectively pool loans, collect insurance premium from the”
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“To put it in context, I think the Harvard Joint Center for Housing Studies put out an annual rental report. And in 2001, they estimated that the non-individual investors, so that's like a real estate investment trust or a nonprofit, which is a little bit broader than a very specific private capital raise to buy houses. They represented about 18% of the single family homes, the ownership of those homes. And more recently, their estimates based on last year was around 25%. So to give you a sense of the holdings across the board”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“It is definitely a sustained demand for housing. The demographics in America tend to put a floor on the demand tapping out, right? Like those life events you talked about, if you look at just the census projections on the population, right, that 25 to 44 year old part of the population.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“We've talked a lot about the supply side, but when you talked about the factors behind the tight housing market, a lot of them had to do with the demand side. And this demand for housing seems to be persistent. Do you think that sort of strong demand for housing can be sustained?”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“A little bit, they are seeding a lot more order flow. So there is some positive tone in the market when it comes to new home sales. The problem is, though, that supply chain is still loosening. And some builder commentary in their earnings releases that are starting to show that we're back to pre-COVID levels. But yeah, we think about new homes, though, in a single family home environment. There are about 15% of home sales, which is actually around the long-term average, the mix of used homes and new homes. I think the post-financial crisis lows, we were running around 7%. There was a significant amount of underbuilding during that time period, which is, again, leads to that supply constraint that we're looking at today.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“So let's talk about the other source of supply, which is ultimately new home builds. And you would think that with such a tight housing market today, you would see a lot more new builds coming into the market and easing some of this tightness. Are we seeing evidence of that today?”
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“Could happen, or be like you said, people could really hold out and say, maybe we'll wait a little bit longer. It's a tricky psychology home sales and home buying and selling is a very personal and highly emotional transaction. It's probably the largest transaction most people undertake financially. But you're right. It's not totally clear to me.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“There was one more follow up I wanted to ask you about, which was it feels to me like coming into the year, there was so much expectation for rate cuts, for mortgage rates to come down that it almost seems like sellers were sort of waiting for a better moment. They could probably get a higher price for their house and or a lower rate facing themselves on the other side. But as we all know, the expectation for Fed cuts has been pushed later. Could we just see sellers giving up essentially? They've been holding on, waiting for these Fed cuts, waiting for the mortgage rates to come down. We had this little moment of seeing some reprieve and mortgage rates later last year. That's reversed. At some point, can sellers just say, you know what, I got to bite the bullet and sell.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“We look at turnover. That's exactly right it's death, disability, divorce. But when I think about those things, looking at our projections for employment in the country, we only expect an unemployment rate to tick up just very slightly to high 3%. Also, the job worker gap we talk about in economics, that's about a 2.4 million job openings in excess of unemployed people. Job market's relatively tight. Divorce rates tend to be a little bit low. People are living longer too. Theoretically, the death rates are low. And a lot of the older folks in America, they tend to own their home outright and simply moving actually bumps up your cost of living potentially. And it seems like the migration patterns are starting to slow down where people were moving to the southeast. But you're right. I mean, that natural level of turnover would hopefully normalize at some point.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“I just saw a headline that questioned whether sellers could be starting to lose their leverage because of life events, things like divorce and having kids and retiring and other factors that motivate people to move into new homes. You can only push off some of those things for a period of time before you just feel like, you know what, I can't wait. I'm ready to move. Do you see any type of trends or any evidence that effect is happening?”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Certainly, mortgage rates coming closer to the average mortgage rate in the market right now. I think the average borrower in America, if you look at like agency mortgage-backed securities, which is the largest share of the market, the average mortgage rate there is about 3.8%. So in order to scare some of those people off the sidelines, we would certainly need mortgage rates to get down closer to that area. I wouldn't say we will likely see that anytime soon. But you're right, when we talk about the supply of homes on market, we tend to measure it in months supply. In other words, at existing home sales run rate, how many months will it take to burn off all the inventory in the market? That's remaining at relatively depressed levels. It's like a three and a half to 3.7 months of supply. At the post-pandemic, kind of mad dash for housing, it was around two months. So it's really tight inventory back then. The long-term average is more like five.”
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“And if we think about that locked in effect that you just mentioned, people are not wanting to sell their homes. So the supply of homes available has been very low. We hear a lot about the inventory of homes for sale is low because they don't want to be forced into a higher mortgage rate. So what will it take to change that? Are we just going to have to see mortgage rates coming down substantially?”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“You make your purchase. Yeah, and the last impact from, again, low home sales is the lack of people moving, right? We have this thing in mortgages we like to call the lock-in effect. In other words, if I go buy a house down the street, it's going to cost significantly more, a much higher mortgage rate. Around 97% of the mortgage market right now is out of the money to refinance their loan and likely not thinking about moving anytime soon.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“People wanted to change their housing situation for a whole bunch of reasons. So that pull forward of demand has to be given back at some point. And that's also part of it on top of interest rates. And we have some examples that happened over the course of the past 10 years and the post-financial crisis period, we instituted tax credits, first time buyer tax credits. And again, you could measure a big spike in home sales and then a subsequent give back.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Thanks, Alice. And yeah, the existing home sales figures are running around $3.7 million per annum. And that's certainly low relative to history. And how we got here, I boil it down to three factors. One, mortgage rates. When we look back over the history of mortgage rates over the past few years, in 2021, we had a 3% mortgage rate. And by the end of 2022, we had about a 7% mortgage rate. By the end of 2023, it was about 7.8%, almost eight percent. Currently, it's around seven. So that big shock in interest rates and the impact on the mortgage payment is just forced demand out of the market. When you think about the average mortgage being made right now, it's around $450,000 at a 3% mortgage rate, that's $1,800 a month. But at a 7% mortgage rate is $3,000. So the affordability shock that happened certainly dried up a lot of the demand. The second factor is the fact that during the post-pandemic period, we had a mad dash for housing.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“Roger, as I just said, the market for new home sales is exceptionally tight today. If I'm not mistaken, home sales last year dropped to their lowest levels in nearly three decades. That's pretty remarkable. So walk us through how we got here.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT
“You think about the average mortgage being made right now, it's around $450,000 at a 3% mortgage rate, that's $1,800 a month. But at a 7% mortgage rate is $3,000. So the affordability shock that happened certainly dried up a lot of the demand.”
2024-03-12 · Goldman Sachs Exchanges · High mortgage rates, limited inventory continue to challenge the US housing market · IDENTIFIED FROM THE TRANSCRIPT