Tendai Kapfidze, chief economist at Lending Tree, joined Yahoo Finance Live to share his thoughts on the state of housing.
ADAM SHAPIRO: So, as we saw new housing starts, the Commerce Department told us that they were up 3.6% in May from the previous month to 1.57 million. But that was not quite what Wall Street was expecting. You could say that it was actually a small blunder.
So let’s get to this and what it means and open the door to the future when we introduce Tendai Kapfidze. He is the chief economist at LendingTree. Nice to see you, Tendai. And I mean, this is not … there will be no relief in the future, whether it be new housing or people trying to buy a house based on those numbers for people who are underpriced, right?
TEENDI KAPFIDZE: Not. Unfortunately, there is a huge deficit in terms. [AUDIO OUT] you know, new building and housing submission. In fact, a study by the National Association of Realtors just came out and they estimate the shortfall in new construction at nearly 6 million over the past 20 years.
So we have a big gap in terms of affordable homes. And, unfortunately, this will continue for some time. There is a shortage of manpower. There is not enough lumber. And all this, of course, leads to higher housing prices.
SHAWNA SMITH: So Tendai, what does this mean for new housing construction? Because yes, we did see growth. This was not what Street expected. But is this enough for us to continue to see this upward trend for at least the next few months?
TEENDI KAPFIDZE: I think yes. If you look at the confidence of home builders, it is still quite high, although it has dropped to a 10-month low. The decline in confidence from builders is more to do with some of these supply chain issues, which will hopefully improve as the world returns, as you know, with the success of vaccination programs in the US and around the world.
So I think if the builders can get the materials and manpower, which hopefully improve later this year, we will see construction continue to grow. And it’s important to never look too closely at monthly fluctuations. It is rather a long-term trend, and it has been an upward trend for several years.
ADAM SHAPIRO: But when you look to the future, especially lumber, when we talk about supply constraints, I mean that delivery futures have dropped quite sharply from what they were at the end of May. So if I’m thinking about building a house, maybe it’s time to wait? Because we are waiting for the labor market to change in September. We see supply chains opening up and prices falling. Is it in my best interest to postpone?
TEENDI KAPFIDZE: I do not think so. And the reason I say this is because it takes a very long time to build a house. You probably want to get started and get down to business. And secondly, I mean it is really difficult if you are almost trying, I think, in time to determine the market when to build a house, right.
What I usually suggest to people, whether it is building a house or buying a house, is that you really want to make a lifestyle decision first and not necessarily try to participate in this game of what interest rates will be doing, what the lumber markets are. going to do? You know, the people who work in these markets every day cannot predict these markets themselves. So really, make a lifestyle decision and then, you know, you take prices in the lumber market and you take prices in the mortgage market, and you just get the best deal you can when you participate in those markets.
SHAWNA SMITH: So there is certainly still a lot of demand for suburban homes, but we are seeing some resurgence in some of these crowded cities, namely New York. We see that prices for some of the apartments and houses sold in this city are well above the lows we saw at the height of the pandemic. Did you expect this? Or is the return we are seeing now a little earlier than we originally thought we would see?
TEENDI KAPFIDZE: Yes, I think this comeback is directly related to vaccination rates and just the phenomenal success of these vaccines, the 90s success rate for most of the different vaccines that are widely used in the United States. So I think that, of course, no one could have predicted or possibly expected a vaccine so quickly, and vaccines that are so overwhelmingly successful in terms of their impact on this virus, that it really makes people much more comfortable being in this form. more densely populated, denser areas in the city center. And so these areas are coming back relatively quickly and relatively quickly compared to what I think people might have expected at this time last year.
ADAM SHAPIRO: Tendai, we hear you loud and clear, many of us, when you say that this is a lifestyle choice and not trying to time the markets. But given what we have seen today in relation to 10-year-olds with higher yields, I mean mortgage interest rates will start to rise, or not?
TEENDI KAPFIDZE: Yes, I think mortgage interest rates tend to match the 10-year treasury to some extent, right. But there are also many industry factors that affect interest rates. So, for example, if we get a general increase in interest rates, it means that refinancing activity will slow down significantly, but lenders seem to be staffed, right for an environment with lower mortgage rates.
This means they have many opportunities. And what they usually do is they cut their margins, perhaps on purchase mortgages, in order to attract volume and gain market share from their competitors. So you can see an environment in which you can actually increase the 10-year treasury, and you can have low mortgage rates or, in some cases, even kind of stay the same.
It actually has a lot more to do with the dynamics of competition in the mortgage industry, including, you know, what – what kind of data we get from the 10-year Treasury. So I think that mortgage rates are likely to remain attractive for a long time to come, perhaps this entire year, all the way up to 2022. will still get great rates for those trying to enter the market.
ADAM SHAPIRO: Someone who may have triplets, one of whom opens the door and the other is just starting to walk. Tendai Kapfidze, I am always glad to see you and all the best for your young family. As a reminder, Tendai is the chief economist at LendingTree. Thank you for joining us.