Real Estate Market Update

(SPEECH)
[MUSIC PLAYING] 

(DESCRIPTION)
Text, Wednesdays with Woodward (registered trademark) Webinar Series. Logos, Travelers Institute (registered trademark). Travelers. 

(SPEECH)
JOAN WOODWARD: Hi there. Good afternoon and thank you so much for joining us. I'm Joan Woodward, President of the Travelers Institute, which is our public policy and educational arm of Travelers. Welcome again to Wednesdays with Woodward, our last of the year. 

This webinar series, as you know, we stood up during the pandemic. And we've continued, because of your demand and your ask of us to talk about really relevant topics to your business and your personal life. We're going to have some amazing programs in 2024 already lined up for you. So please feel free to have an amazing holiday season without us, and we'll see you back in January.

So for today's session, we want to share our disclaimer first, of course.

(DESCRIPTION)
Slide, About Travelers Institute (registered trademark) Webinars. Text, The Wednesdays with Woodward (registered trademark) educational webinar series is presented by the Travelers Institute, the public policy division of Travelers. This program is offered for informational and educational purposes only. You should consult with your financial, legal, insurance or other advisors about any practices suggested by this program. Please note that this session is being recorded and may be used as Travelers deems appropriate.

(SPEECH)
And then I'd also like to thank our webinar partners, CBIA, the UConn Master's in FinTech Program, and the Insurance Council of Connecticut. So thank you, all, for being here. 

(DESCRIPTION)
Slide, Wednesdays with Woodward (registered trademark) Webinar Series. Text, Real Estate Market Update with National Association of Realtors (registered trademark) Chief Economist Lawrence Yun.

Logos, Travelers Institute (registered trademark). Travelers. Master's in Financial Technology (FinTech) Program at the University of Connecticut School of Business. Insurance Association of Connecticut. C.B.I.A. 

(SPEECH)
Today, we're tackling one of our most requested topics, the state of the housing market. The residential real estate market has been really strained over these past couple years by higher prices, low inventories and, of course, mortgage interest rates stuck at more than 7%. So we all want to know, where is this headed in 2024? And what is the signal for the broader economy, if at all? 

(DESCRIPTION)
Slide, Speakers. Photos of the two speakers. Text, Joan Woodward, Executive Vice President, Public Policy, President, Travelers Institute, Travelers. Lawrence Yun, Chief Economist, National Association of Realtors (registered trademark). 

(SPEECH)
So today, I'm thrilled to introduce our guest, the National Association of Realtors Chief Economist Lawrence Yun, back again with us. Again because of your ask to have Lawrence back, we asked him to come back, and he's agreed. He's going to share his outlook for the residential and the commercial real estate market. 

So, in addition to his role as lead economist, he oversees the research group at the National Association of Realtors, which I imagine is very busy these days in research. He also supervises and is responsible for a wide range of research activities, including NAR's Existing Home Sales statistics, the Affordability Index, which we're all interested in watching, and the Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.5 million realtors, who are members.

I might also note that he is very active on LinkedIn, as am I. If anyone's following Lawrence or I, you're going to get a great person to follow in real-time insights. He really does do a great job on LinkedIn, so please do connect with him or me or both of us.

So Lawrence, welcome. We're so thrilled that you're taking time out of your busy schedule at the end of the year here to join us, and we're really interested in hearing what you have to say. So we did give Lawrence a good chunk of time to go through some of his analysis. And then we'll be back for a moderated discussion. So drop your questions in that Q&A. All right, Lawrence, again, the floor is yours.

LAWRENCE YUN: Oh, great. Thank you, Joan, for inviting me back. Well, 2023 is winding down, and it's been a challenging year for first-time buyers, given the affordability challenges. It's been a tough year for our members, where the business activities have come down. So naturally, they only get paid if they successfully complete their client's interests, and the deal goes through. So it's been a very interesting year out there.

So, let me spend 30 minutes on how I see the market playing out in the upcoming year. And then we will have good interaction with you. So, let me put the PowerPoint slide onto the screen. So, hold one second.

(DESCRIPTION)
Slide, Real Estate Market Outlook. Text, Lawrence Yun, Ph.D. Chief Economist, N.A.R. -- Logo, National Association of Realtors (registered trademark). Graph, Annual Existing-Home Sales: Likely 18% Decline, On track for the worst year since 2008 or since 1995. The chart has years on the x-axis from 1981 to 2023 forecast in increments of 2. The y-axis has seasonally adjusted annualized sale pace from 0 to 8,000,000 in increments of 1,000,000. The 2023 forecast bar barely hits a horizontal green line at 4,000,000, which all bars since 1997 are above except 2008. Source, N.A.R. 

(SPEECH)
All right, so let's look at the review of the home sales activity over the past history. So, we are looking at home sales from 1981 all the way to latest figure, which will be the red bar in 2023. We are still tallying up the final months of the data. And depending upon where it lands, it could be the lowest sales activity since 2008. That's when we had the foreclosure crisis. 

Thankfully, we don't have foreclosure crisis today, just our sales activity is low. Homeowners, in fact, are quite happy. Many homeowners have accumulated sizable housing wealth from the pre-pandemic to the latest in the past three years, quite a sizable gain in home prices. But the home sales or the business activity is the lowest since 2008. And if somehow the December number do not come in as we expect, it goes a little lower. Statistically, it may be down to the lowest since 1995, essentially, in two decades.

From media perspective, reporter perspective, they always like to look at the precise statistics. So if it goes to 1995, they like to play up that figure. But, again, homeowners are doing fine. It's just that business activity has been down.

(DESCRIPTION)
Graph, New Home Sales Up 4.5% year-to-date to October. On track for the 3rd or 4th best year since 2008 foreclosure year. The x-axis has years from 2008 to 2023 in increments of 3. The y-axis has sales from 0 to 1,000,000 in increments of 200,000. The 2023 bar is one of the highest. Source: N.A.R. forecast and HUD. 

(SPEECH)
But something different is occurring for homebuilders. These are newly constructed home sales. So the newly constructed home sales, first, is a smaller market share compared to existing homes. Because for most of us, we walk down our neighborhood. There's home. And if it gets listed and sold, well, there will be the existing home, while the newly constructed home is completely newly constructed. 

And what we are anticipating is that in 2023, so far, their sales are up from last year. Furthermore, it could be their third or fourth best year since 2008, again, 2008 being foreclosure year. But this is quite a nice figure for the builders. In fact, you can say the builders are back on their feet, even though the realtors are still trying to recover.

In fact, some of the publicly listed homebuilder stocks, KB Homes, Lennar, Toll Brothers, if you had purchased their stock price 12 months ago, and you compare to today, the stock price would be up 60%, 70%, 80%. So it would have been a very good return if you had purchased homebuilders stock.

So what explains for the fact that the realtors are challenged, trying to recover, while the builders are back on their feet? Well, here it is.

(DESCRIPTION)
Graph, Single-family Housing Starts Trying to return to normal after a decade of underproduction. The x-axis has years from 1981 to 2023 in increments of 2. The y-axis has numbers from 0 to 2,000,000 in increments of 500,000. Between 2007 and 2009, the height of the bars drops from roughly 1,500,000 to about 500,000 and slowly climbs until about 1,000,000. There is a red box around the years 2007 to 2023. Source: N.A.R. forecast and HUD. 

(SPEECH)
First is that the figure time frame that I showed you is in that red box. So if we were to look at the deeper history, all the way going back to 1981, you may actually say the builders activity is actually below the normal activity, even though we had the recovery. 

Because what you see is that once the foreclosure crisis began in 2008, builders never came back. In fact, they did not come back for 10 straight years, 10 straight years of underproduction, which was the reason why we had the housing shortage before the pandemic hit in 2019. Now they are coming back. So in a sense, the prior chart is somewhat deceiving in this time frame. But nonetheless, builders-- home builders' stock prices, have really skyrocketed in the past year because it is the third or fourth best year since that time period in 2008.

(DESCRIPTION)
Graph, Existing-Home Inventory and New Home Inventory. The x-axis has years from 2017 to 2023 in half-year increments. The y-axis has inventory from 0 to 2,500,000 in increments of 500,000. A red line for new home inventory rises slightly from around 250,000 to 500,000. A blue line for existing home inventory zigzags down from around 1,600,000 to around 1,200,000. Source, N.A.R. and HUD. 

(SPEECH)
Now, the builders are recovering, even though the existing home sales are not recovering, because of the inventory availability or non-availability. The red bar shows the newly constructed home inventory. So you can say right now, they are at their cyclical high levels. In fact, you may even say, back in 2017, essentially, three years before the pandemic-- so I'm looking at three years past the arrival of the COVID and three years before. You can say the builder inventory has doubled. 

But if you look at the existing home inventory, you can say existing home inventory has been cut in half. So we have a very different dynamics on availability. Which is the reason why builders are able to get the sales done because of inventory availability, while on the existing home sides, multiple offers are still happening on one-third of the listed properties out there, which means not all demand is being satisfied.

So the fact that we have low home sales for the realtors is partly attributed to lack of inventory. Not all demand is being satisfied for the simple reason there's not that many homes on the market for sale. So inventory is also a big, important factor.

(DESCRIPTION)
Graph, 30-year Mortgage and Fed Funds Rate ... Likely Peaked. The x-axis has years from 2019 to 2023 in two-month increments. The y-axis has interest rates from 0 to 9 in increments of 1. A blue line starts around 2.5, drops to 0 in March 2020 and stays until March 2022, then rises to around 5.5 by November 2023. A red line begins at around 4.5, drops slightly, then rises to around 7.5 by November 2023. Source: U.S. Treasury and Federal Reserve. 

(SPEECH)
In less than one hour, Federal Reserve will be coming out with their new policy decision, based on the discussion of yesterday. So at 2 p.m. today, they will say, most, most likely, that they are going to keep the interest rate stable, meaning that the blue line, which is the Federal Reserve controls, to be stable. So you can see that from the summer months of this year, the Federal Reserve has held their interest rate steady. 

If you look at the orange line, which is the 30-year fixed-rate mortgage, the average rate-- some consumers a little above, other consumers with better credit, a lower interest rate. But the average rate is on the orange line. So you see that towards the end, it's beginning to come down a bit. So even though the Federal Reserve has not changed their policy decision, the mortgage rates are beginning to come down.

And in fact, to some degree, it could be a measurable change. It was 8% just five, six weeks ago, 8% mortgage rate. Now is approaching 7% mortgage rate. So for a $400,000 mortgage, one is looking at, I believe, $150 savings purchasing now, versus, say, six weeks ago. Of course, it is much higher monthly payment now compared to what it was in two thousand-- 2020 or 2021.

But we have set a new reference point. Consumers saw that 8%. And now I think some consumers will begin to compare today's mortgage rate with that high 8% rather than that 3 or 4% that happened a couple of years ago. So mortgage rate beginning to come down.

(DESCRIPTION)
Graph, 10-year Treasury yield drops ... Telling the Fed to Pivot. The x-axis has years from 2021 to Early December 2023 in quarterly increments. The y-axis has interest rates from 0 to 6 in increments of 1. Bars rise from around 1 to around 5 in Late October 2023, then begin to fall, nearing 4. Source: U.S. Treasury. 

(SPEECH)
Now, part of the reason why the mortgage rates are beginning to come down is that mortgage rates are driven by the 10-year Treasury yield, the benchmark interest rate for anything long-term interest rate. And it has already pivoted downward. So late October, 10-year Treasury was at 5%. But now, I think this morning, it is at 4.1%. That is a 90 basis point drop in the 10-year Treasury, which also means the mortgage rate will be similarly declining. 

So the bond market is telling the Fed, start to pivot. Start to cut interest rate next year. Or you can say, the bond market is anticipating that the Federal Reserve will be cutting interest rate next year. So right now, the interest rate, at least, appears to have already topped out and is on the path of a decline. And I think that could be an opportunity for even further decline.

(DESCRIPTION)
Graph, Monthly Job Gains Softening. The x-axis has years from 2021 to 2023 in quarterly increments. The y-axis has jobs in thousands from 0 to 1,000. Bars zigzag but follow a declining trend, from around 800 to around 200. Source: B.L.S. 

(SPEECH)
Now, the reason for the pivot in the bond market-- bond market, the interest rate coming down-- is the labor market is beginning to soften. GDP number was strong, but there’s some irregularity in some of those GDP number. Like, inventory growth is counted as GDP, meaning that all this widgets and gadgets companies produce, that's part of the GDP. But if they're piling on the shelf, well, that's not necessarily going to help the economy in the future if you keep adding to the shelf. And that's part of the reason for the strong GDP, that we produce more, but we are piling on on the warehouse and on the shelf; but the job market, key economic indicator, monthly job addition beginning to show softer gains with each passing month. 

(DESCRIPTION)
Graph, Unemployment Rate ... Highest in near 2 years. The x-axis has years from 2021 to 2023 in quarterly increments. the y-axis has rate from 3 to 6.5 in increments of 0.5. A line drops from around 6.3 to a zigzag around 3.5 starting in April 2022, and rises slightly to around 3.8. Source: B.L.S. 

(SPEECH)
If we look at the unemployment rate-- I forgot to include the November figure. November unemployment rate declined somewhat. But in October, it was the highest in two years, so a slight decline from October. So you may say, but still nearly the highest in the two years' period. It is still a tight labor market, 4% unemployment rate. Many of you have taken Econ 101, and Econ 101 textbook say, 4, 5, even 6% unemployment rate will be considered as being full employment. Well, today we are at 4%, so still tight labor market condition. But it is above from 3.5%.

(DESCRIPTION)
Graph, Higher Unemployment dampening Wage Growth ... Weakest in 2 1/2 years. The x-axis has years from 2021 to 2023 in quarterly increments. The y-axis has percent change from a year ago from 0 to 7 in increments of 1. The line begins at around 5, drops sharply to below 1 in April 2021, then climbs to close to 6 in April 2022 before falling to about 4. Source: B.L.S. 

(SPEECH)
The other data point is that wage growth is also beginning to calm down. So, of course, we want workers to have good, solid wage, improve their standard of living. But last year, when they were getting 6% increase in salary, well, their standard of living was falling, because inflation rate was 9%. So people made more money, but they went to the grocery store, and it got wiped away. 

Well, today, their wages are rising at 4%, but the inflation is below that. So even at lower wage growth, the standard of living for the workers are beginning to rise. But this also helps the Federal Reserve to consider cutting interest rate. The cost push inflation would be less of an issue as the wages calm down, so calmer inflation, calmer wages, improving standard of living, and giving opportunity for the Federal Reserve to cut interest rates.

(DESCRIPTION)
A map of the United States titled, Job Gains Since Pre-Covid Record High Payroll Employment. (Percent change from March 2020 to October 2023). States range from negative 3.3% in Hawaii to 11.6% in Idaho. Most are positive and shaded blue, a handful are negative and shaded yellow. Source: N.A.R. Analysis of B.L.S. data. 

(SPEECH)
The 50 states-- so now you can hone in on your state. So you see the figure, the percent. So that what that percent means is that how much job addition in the latest available data, which is October for the state-level data, compared to March 2020 right before COVID. So March 2020 was when every state had about peak employment. Only couple of states were still on the decline, like Michigan, Ohio, auto industry restructuring. 

But every state were at record high in March 2020. And now we are comparing with the latest information. So everyone can identify Florida. So let's look at Florida-- 9.1% more jobs in Florida over the past three years. Texas doing well. Rocky Mountain state doing well.

Dark blue is good. Light blue is positive, but only a little bit, lightly positive. If you see orange color, brownish color, they have not fully recovered, including New York state. So New York state is still down compared to pre-COVID employment condition. So all 50 states showing-- most states showing positive, but you see the variation across the country.

(DESCRIPTION)
Graph, Payroll Jobs in Florida State versus Michigan. The x-axis has years from 1980 to 2022 in 2-year increments. The y-axis has jobs in thousands from 0 to 12,000, in increments of 2,000. A blue line begins around 3,500 and rises to about 4,200. A red line begins around 4,000 and rises to around 10,000. 

(SPEECH)
Just for the long-term time frame, I put here from 1980 to the latest. And the red is Florida. I just put Florida state. With the NCAA, the football playoff, maybe Florida state got cheated out, while Michigan is ranked No. 1. Maybe they would have been a good matchup. 

But look at their job market performance over the past 40 years. So Michigan barely grew. But look how the Florida-- I mean, they have more than doubled in terms of population, more than double in terms of job growth. So as a wealthy retiree who is moving to Florida, they're not looking for a job. But they still need jobs in terms of retail stores, restaurants, hospitals. So the fact that Florida is gaining so many new residents, you see how this has changed the dynamics. You can't even say that in 2024, presidential election year, the electoral college map has changed because of this type of pattern over the long term.

(DESCRIPTION)
Graph, Multifamily Housing Starts 3 years of cyclical highs. The x-axis has years from 1981 to 2023 in two-year increments. The y-axis has numbers from 0 to 800,000 in increments of 100,000. The bars have three peaks, in around 1984, around 2001, and around 2022. Source: N.A.R. forecast and HUD. 

(SPEECH)
Another development in the housing sector related to now to the rental sector, because multifamily housing start, today is mostly about apartments. Very little amount of that is condominiums. Nearly all are apartments. 

And for the past three years, we have had a cyclical high construction activity in the multifamily apartment construction, so so much construction happening.

(DESCRIPTION)
Graph, Housing Rent Rising at 6.8% or 1%? The x-axis has years 2022 to 2023 in quarterly increments. The y-axis has percents from 0 to 12 in increments of 2. A red line labeled unofficial private sector data falls from 11 to 1. A blue line labeled official government data rises from 4 to about 6.8. Source: N.A.R. Analysis of B.L.S. and CoStar data. 

(SPEECH)
And the interesting part was with so much empty new apartments coming onto the market or will soon come onto the market.

The government data on housing rent is still showing strength, the blue line. So that's the official government data, part of the consumer price index, something that the Federal Reserve will be closely monitoring, rising at 6.8% above one year ago. But when I ask people in the apartment industry or look at the private sector data, we are finding that rents are actually rising only by 1%. Charlotte, North Carolina, rents are declining. Austin, Texas, rents are declining. 

Job growth is solid in Austin and in Charlotte, yet rents are declining because supply is outpacing demand, so much apartment construction, so so many competition. So maybe there’s a lag time between government data and the private sector data. So maybe in the upcoming months, the blue line will tilt lower, meaning that the rent increases would be much calmer. And if that is the case, then one can anticipate that overall consumer price inflation will be even better behaved, even lower inflation in the upcoming months as the blue line begins to follow the red line.

(DESCRIPTION)
Graph, Official Consumer Price Inflation at 3.1% in November. Unofficial Consumer Price Inflation at less than 2% ... Time to Cut Rates. The x-axis has years from 2019 to 2023 in four-month increments. The y-axis has percent change from a year ago from 0 to 10 in increments of 2. A blue line hovers around 2 until 2021, then rises to around 9 by May 2022, then falls to around 4. Source: B.L.S. 

(SPEECH)
In fact, this is the official consumer price inflation data, came out-- was it early part of this week? Maybe Monday when it came out or yesterday-- 3.1% is not that 2% of desired inflation rate. So 2% is the Federal Reserve desired target rate. 

But if we were to use private sector apartment data, the unofficial-- I just put it as unofficial. Consumer price inflation would already be at low 2%, giving the chance for Federal Reserve to cut interest rate. So looking at the official figures, without a doubt, that number will be coming down in the upcoming months. And maybe it will reach that 2% by spring, at which point if the economy continues to show little job growth, maybe the Federal Reserve would consider cutting interest rate.

Election year, certainly Federal Reserve is independent. But I think they will get a lot of political pressure, assuming the economy is weak, to cut interest rate during the election year. 

(DESCRIPTION)
A map of the United States titled, Home Price Appreciation since Covid Arrival. (percent change from 2020 Q1 to 2023 Q3.) The states are shades of blue ranging from light blue, 15.6%, in D.C., to dark blue, 65.3%, in Florida. Source: N.A.R. Analysis of F.H.F.A. Home Price Index. 

(SPEECH)
Let's look at home price appreciation. This is not part of the consumer price inflation, by the way. Just like stock prices are not part of the consumer price inflation, gold prices are not part of consumer price inflation. Home prices is considered an asset and not a part of the consumer price inflation.

But it's important for people. It's important for the realtors. And it has risen, as you can see, across the country sizably, 40% being normal in over the past three years. So you see some variation. But these are sizable increases. That's why we don't have any foreclosure crisis. Even people who lose their job, they can do just normal home sales without needing to go to foreclosures. 

And also, for insurance industry, how much of the additional insurance coverage is needed? Because to have an insurance for $200,000 home, well, it's different if it's $300,000 home. We understand, yeah, it's the same home. Maybe to repair, it will be the same price.

But the home prices have certainly risen. So as some of the policy renewal comes in, how do you measure the home value, the current home value, which has risen sizably?

(DESCRIPTION)
Graph, Wealth Comparison between Owners and Renters. Bars in 2019 and 2022 have blue for Renters and pink for Homeowners. In 2019, $7,300 and $295,500, and in 2022, $10,400 and $396,200 respectively. Source: Median Net Worth from Federal Reserve Survey of Consumer Finance. 

(SPEECH)
Because home values have risen sizably, homeowners have gained sizable wealth; so this data from the Federal Reserve showing that a typical homeowner has $396,000 in total wealth-- 401(k), their automobile, money in the bank, and their home value. 

So home-- I should say their housing wealth, which is home value minus the mortgage outstanding. And for most middle-class Americans, their housing wealth would be the biggest portion of their total wealth; renters, just spinning their wheels, barely making any traction in terms of net worth situation.

(DESCRIPTION)
A chart titled, 5-year Housing Wealth Gain by Race slash Ethnicity to 2022. Holding period, 2017 to 2022. White, $92,810. Black, $90,410. Asian, $141,190. Hispanic, $109,570. Source: N.A.R. Analysis of Census Data. 

(SPEECH)
My staff did some study, five-year housing wealth gain by race and different demographic groups. And you can see the figure. Asians are a little high because they tend to live in the expensive areas of New York, California. So small change in prices makes for big gains. 

Hispanics, interestingly, is high because they are concentrated in fast-growing states of Florida, Texas, Colorado, Nevada, [AUDIO OUT] condition; but even among white-Black comparison, very similar. But what is not reflected in this chart is that homeownership rate gap. So, homeownership rate for white Americans is 75%. For Black Americans, it is about 40%.

So this does not mean there is an equal outcome condition because homeownership rates differ sizably. So you see and, say, walk past some Hispanic person. Does not mean that they have this much wealth they have accumulated. So this is reflecting only among homeowners, and there is a sizable home ownership gap between different demographic groups.

(DESCRIPTION)
Slide, Mortgage Rates to Fall? Text, 30-year Fixed Rate to be 6% to 7% by the early spring. 1. Rents will calm down further ... Holds down CPI ... and make the Fed stop raising the interest rate. 2. Community banks are suffering from high interest rates. 3. Spread with government bond with a return to normal. 

(SPEECH)
Now, forecast is that I believe that the mortgage rate has further room to decline, for some of you who are in the market to consider. So the three reasons why I think the mortgage rate will decline is that rents, as I mentioned, will calm down, hold down CPI. And therefore, the Federal Reserve would consider cutting interest rates, once the overall consumer price inflation is well-behaved. 

The second reason is community banks are still suffering, for the most part. We still have 5,000 community bank. Maybe half are doing fine. But other half have some balance sheet issue because of this fast-rising interest rate, and their balance sheet is messed up.

Only way to help community bank is to cut interest rates. So since the Silicon Valley Bank collapse, the Federal Reserve put a special credit line that was to last until March of the upcoming year. After March, that credit line disappears unless it gets extended again. But if it doesn't get extended, we could see more Silicon Valley Bank-like collapses in the community bank. But one way to mitigate that is to cut interest rate to help the community bank.

And the third reason is a little esoteric. The spread between government bond and mortgage rate is abnormally high. And let me illustrate it by this.

(DESCRIPTION)
Graph, The Spread between 10-year Treasury and 30-year Mortgage (percent point difference). The x-axis has years from 2000 to 2023 in increments of 1. The y-axis has percentages from 0 to 3.5 in increments of 0.5. Three peaks, in 2009, 2020, and 2023 are circled, at around 2.5, 2.5, and 3, respectively. Text, Mortgage Rate (before the Fed Rate Cuts) could be 6.1% to 6.6%. Source: N.A.R. Analysis of Interest Rates. 

(SPEECH)
So, this is the spread between 10-year Treasury and 30-year fixed-rate mortgage. It is abnormally high. Anytime it is abnormally high, it eventually go back to normal. 

So assuming that it returns to normal, if the 10-year Treasury today is 4.1, today's mortgage rate should be 6.1% already. And then if the Federal Reserve cuts interest rate, well, you can even see a small possibility that we may even go under 6% in mortgage rate. So maybe we don't get back to normal, but some returning towards normal. So the gap not being so large, that will help lower mortgage rates as we go into next year.

(DESCRIPTION)
Slide, Pent-Up Sellers Cannot Wait Longer. Text, What happens over 2 years? 7 million new-born babies. 3 million marriages. 1.5 million divorces. 7 million turn 65 years old. 4 million deaths. 4 million net new jobs. 50 million job switches. 

(SPEECH)
Lower mortgage rate automatically means more buyers. All the realtors know that. They have consumers who say, well, if the interest rates were a little lower, then they can qualify. Right now, they cannot qualify. 

But what would be new next year, I believe, is some of the home sellers who have postponed listing will come back to the market. First, they have a new reference point. They saw the 8% mortgage. So many homeowners have 3% or 4% mortgage rate, and they don't want to give that up.

But life has changed over the past two years when they were not listing. What are some life-changing events over the past two years? Seven million newborn babies. So where are the newborn babies sleeping? I know surely, they cannot sleep in the kitchen. People need to trade up, even if they have to give up their low interest rate, so from starter home to trade-up homes.

Three million marriages-- some of the marriages are for people in their 40s, 50s. Maybe they have to sell one of their properties as they are getting married. There's 1.5 million divorces.

Seven million Americans have turned 65, the age of retirement. Maybe they want to trade down condition. Not everyone has paid off their mortgage. They have that 3%, but now they said, no, I have to look forward to my retirement years. So maybe they are willing to list. Four million deaths.

Four million net new jobs overall, but underneath that new job is 50 million job switches, which means that some households, their commuting patterns have changed, but they are still in their same home. Maybe it's time to switch home so they can get a better commuting situation. So we will have more buyers for sure, but I think some degree of increased inventory.

Because at the beginning, I mentioned about home sales being low. Part of the big reason was lack of inventory. So if we have more inventory, then we can get more sales done.

(DESCRIPTION)
Graph, Total Home Sales: Bottoming This Year Before Upturn Next Year. New Sales up 19% and Existing Home Sales up 13%. The x-axis has years from 2019 to 2024 forecast. The y-axis has sales from 0 to 8,000,000 in increments of 1,000,000. The bars are mostly pink with a bit of blue at the top of each. They zigzag around 5,500,000. Source: N.A.R. forecast and HUD.

(SPEECH)
So my forecast is essentially to say 2023 is a difficult year for realtors. The blue bar is newly constructed home sales. So, the blue bar is actually higher, compared to last year, if you just look at the blue bar. But as we go into 2024, I think the builders will continue to improve and the existing home sales finally begin to turn around, but not back to pre-COVID condition. 

(DESCRIPTION)
Slide, Risks. Text, Lawsuit on Buyer Representation. Government Shutdown. Community Banks. International Buyers. 

(SPEECH)
Some risk-- one is on-- NAR is getting lawsuit on buyer representation condition. So let me just quickly go into that. 

(DESCRIPTION)
A table titled, First-time Homebuyer Down Payment, with two columns, Down Payment and % of Home Price. 0%, 16% of buyers. 1 to 5%, 22% of buyers. 6 to 10%, 16% of buyers. 11 to 20%, 20% of buyers. More than 20%, 26% of buyers. Source: N.A.R. 

(SPEECH)
So if we look at the first-time buyers, how much down payment they are coming up with? If you look at the first two lines, most are barely coming up with down payment. 

So if you were to ask the first-time buyers to come up with additional funds to pay the buyer represent the realtors, which will be a change in the system, where sellers used to pay for the buyer realtors-- but if the court system say no-- they set up a new rule where the buyers have to come up with their own fee-- well, it's going to make it very difficult for the first-time buyers.

(DESCRIPTION)
A table titled, First-time Homebuyer Challenges, with two columns, Hardest Part of Buying (more than one answer permitted) and Percent of First-time buyers. Finding the Right Property, 61% of buyers, Saving for Down Payment, 38%, Understanding the Process, 38%, Paperwork, 23%, Getting a Mortgage and Appraisal, 17%. Source: N.A.R. 

(SPEECH)
And furthermore, the first-time buyers are saying they really want realtors’ help because they are saying, trying to understand the process, paperwork, all that was very complicated. And therefore, they are seeking buyer representation. But how do they come up with that additional fee if they are-- have to get that buyer representation?  

(DESCRIPTION)
Graph, Would Homebuyer Use the Same Agent Again or Recommend to Others? The x-axis has definitely, probably, probably not, definitely not, and don't know. The y-axis has percentage distribution from 0 to 80 in increments of 10. The definitely bar is 75%, probably 15%, probably not 5%, definitely not 4%, don't know 1%. 

(SPEECH)
Other part is, if we look at the consumer satisfaction-- because we are in the antitrust suit-- one of the antitrust theory is, that if the consumers are happy, leave it alone. So Amazon, should we attack Amazon as being big company, or consumers like Amazon, so just leave it alone? 

So one theory in antitrust is that if consumers are happy, leave it alone. Well, when we take survey of recently purchased homebuyers, you can see that the satisfaction rate is very high. Ninety percent would recommend same agent or recommend to other, either definitely or probably. Now, people who are renters, maybe they have a very negative view of realtors. Or maybe you have a very negative view of realtor profession, in general.

But if you focus attention on the realtor who helped you on that home buyer transaction, well, this is the survey. That specific realtor, people have high rating for that specific realtors who help them.

(DESCRIPTION)
Two tables, First-time Home Buyers and Home Sellers. First-time Buyers and percent breakout, White, 69%, Hispanic, 7%, Black, 7%, Asian, 6%, Mixed slash Other, 6%. Home Sellers and percent breakout, White, 89%, Hispanic, 5%, Black, 4%, Asian, 3%, Mixed slash Other, 2%. Source: N.A.R. Survey of Home Buyers and Home Sellers. 

(SPEECH)
And interestingly, for homebuyers and home sellers, different breakout. 

We know that if you go to kindergarten, the kindergarten students are very diverse demographically, compared to, say, high school seniors. It's just evolving society. We have more diverse community. So the first-time buyers are more diverse, compared to home sellers, because of the multigenerational wealth transfer. So if we, essentially, disadvantage first-time buyers, asking them to come up with additional fee, you can see the difficulty that many minority homebuyers would face in light of the lawsuit that is happening.

(DESCRIPTION)
A table titled, Flood Insurance ... Government Shutdown Risk. The table has columns for State, Residential Homes 2021, N.F.I.P. Policy Count 2021, N.F.I.P. Claim Count 2021, Total N.F.I.P. Claim Payout 2021, and Average Claim Amount. Grand totals are 142,149,454, 5,148,368, 55,807, $2,028,577,283, and $36,350. 

(SPEECH)
Other risk is government shutdown in mid-January. Let's see what happens. But without the flood insurance, homes cannot obtain mortgages. And like in Louisiana, which is towards the middle, about one-quarter of homes require flood insurance. So with government shutdown, that would not be available. 

(DESCRIPTION)
Graph, Downgrade of USA Debt and Continuing Resolution. Federal Outlay (blue bar) greater than Tax Receipts (orange line). The x-axis has years from 1990 to 2023 in increments of 3. The y-axis has dollars in millions from 0 to 8,000,000, in increments of 1,000,000. The bars rise from about 1,000,000 to about 4,500,000 in 2017, then jump to around 7,000,000. The line follows the trend but only jumps to about 5,000,000. Source: Congressional Budget Office. 

(SPEECH)
The other risk is that if they continue to kick the can down the road, continuing resolution, well, government spending in the blue bar, tax revenue in the red, you can see the large budget deficit. How long can this last? Because we are in this unusual time of 100% of national debt to GDP ratio. 

So I, as an economist, when I was studying for my degree, I remember anything above 60% would be considered banana republic financing. America is at 100% of debt to GDP ratio today.

(DESCRIPTION)
Slide, Special Credit Line after Silicon Valley Bank Demise. Text, Old Bond $1,000 with 2% yield ... Before rate hikes. New Bond $1,000 with 4.5% yield ... Better return for investors. Price of Old Bond is now around $500 ... to get 4.5% return. Community Banks are saddled with Old Bonds. Special Credit Line ... Old Bond will be purchased for $1,000 by the Fed till repo. Special Credit Line expires in March 2024 

(SPEECH)
Let me just, for the sake of time, just avoid that. 

(DESCRIPTION)
Graph, Fed Rate Hikes Have Hurt Small-Sized Banks ... Commercial Real Estate Loans by Small Banks greater than Top 25 Large Banks. The x-axis has years from 2017 to 2023 in quarterly increments. The y-axis has dollars in billions from 0 to 2,500 in increments of 500. A blue line stays steady at about 800. A red line grows from about 1,200 to about 1,900. Source: Federal Reserve. 

(SPEECH)
The commercial real estate, many community banks have exposure to commercial real estate loans. So the red line is commercial real estate loan held by small-sized bank, while the blue is by large banks. So any wobble in the commercial real estate means hurt to the small-size banks. 

(DESCRIPTION)
Graph, Commercial Property Prices Falling ... Below Pre-COVID. The x-axis has years from 2019 to 2023 in quarterly increments. The y-axis has index value from 100 to 160 in increments of 10. The line begins around 132, falls to around 120 in March 2020, rises to about 155 by September 2021, and falls to about 125 by September 2023. Source: Green Street. 

(SPEECH)
And what we are finding on commercial real estate prices is that it's falling. 

Residential prices are holding on, but not commercial real estate prices because of higher interest rate. Now, office, some places, like San Francisco, it may have fallen 50% in prices. But overall, you see the community bank exposure to commercial real estate is showing that they have less collateral value conditions.

(DESCRIPTION)
Graph, International Purchases by $ Volume. The graph has bars for years 2011 to 2023 with dark blue on the bottom and light blue on the top. Dark blue is non-resident (Type A) and light blue is resident (Type B). The light blue is mostly larger than the dark blue. Note: Based on transactions in the 12 months ending March of each year. Source: N.A.R. 

(SPEECH)
The other part is-- I guess, this is a positive risk, is that international buyer transaction has been very low since COVID. I think there is a little pent-up demand among international buyers to buy here in the U.S. So maybe this would be additional positive contribution to the U.S. real estate. 

(DESCRIPTION)
Table, Top Countries of Origin: China, Mexico, Canada, India, and Colombia. The chart has columns for China, Mexico, Canada, India, Colombia, All Foreign Buyers and Share of Top 5. The rows go from 2009 to 2023. All foreign buyers begins at 38.8 and increases to about 153 in 2017, then falls to 53.3 by 2023. Source. N.A.R. 

(SPEECH)
China is beginning to come back. Maybe they cannot buy in Florida because there's a new rule. If you are China, you cannot buy in Florida. But many other states are saying, yes, our inventory is available for any foreign buyers. 

(DESCRIPTION)
Table, Top Destinations by Foreign Buyers: Florida, California, Texas, North Carolina, and Arizona. The table has columns for Florida, California, Texas, North Carolina, Arizona, Illinois, New York, Ohio, Pennsylvania, and New Jersey, with rows for years from 2009 to 2023. Florida is the highest in 2023 with 23% and New Jersey and Pennsylvania are the lowest with 2%. Text, Top 10 list is based on the most recent year. Source: N.A.R. 

(SPEECH)
And then destination, while the Florida has been consistently on the top, but California, Texas, North Carolina, also getting their market share. 

(DESCRIPTION)
Text, Thank You! 

(SPEECH)
So, I have spoken plenty. And I know the question-and-answer session will be very interesting. And also, Joan always seem to come up with very unique set of questions. So now I'm going to turn it back over to Joan. 

(DESCRIPTION)
A split screen video call replaces the presentation slides. 

(SPEECH)
JOAN WOODWARD: Lawrence, thank you so much. Wow, that was really-- I love data. I love to slice and dice data and look at different aspects of the government data. And you do a very nice job of taking government data and extrapolating for the average person to understand. So thank you for that. That was really fantastic. 

We are going to get into a ton of questions. And we have a lot in the Q&A. So keep rolling them in, folks. We're going to get to as many as we can.

But first, we're going to turn the tables. I love to turn the tables on my audience. And we're going to ask an audience polling question. This is easy. Just take a look at the screen. And we're going to ask this question.

(DESCRIPTION)
The question does not appear on screen. 

(SPEECH)
Are you in the market to purchase a home? So one, I've stopped looking because it's too expensive. Two, I've stopped looking because there's not enough housing in the market. Three, I'm still planning to purchase a home and actively looking. Or four, I'm waiting for interest rates to go down. 

So, I like to do this poll with my audience to get a sense of what they're doing out there. All right, so the results are over 50% say, I'm waiting for interest rates to go down. OK, so that's good news, what you just talked about. Rates probably are going down.

The first one-- I've stopped looking because it's too expensive-- so that's over 80% of our audience saying it's too expensive or rates are still high. And there's only 19% saying I'm planning on a purchase actively now. So Lawrence, what do you make of these results?

LAWRENCE YUN: Well, this is saying that the affordability is certainly a barrier to many people out there, either home prices being too high or that interest rate having been high recently. So if somehow, either home prices come down-- and again, we have a housing shortage.

I know that in places like Austin or Boise have come down this year by 10% on the median price. But this is Austin and Boise were also the market that went up super high. So maybe the market that went super high is correcting just modestly somewhat. I mean, there's people in Austin who purchased their home five years ago that are continuing to smile big because of the accumulative impact.

But I don't really see any major drop in home prices. Now, all our local markets are different. Maybe you get plus five or minus five, but no meaningful changes in prices. So people are stop looking to buy because it's too expensive. Unfortunately, I think it's going to remain too expensive in 2024.

So the help is really coming from interest rate. So if the interest rate was to go down, some people are saying, I'm going to try to market time perfectly. Or they're just saying that 8%, I don't qualify; 7%, I barely qualify. But I want that little room for error, so I want to go into the market only if interest rates are 6%.

So if the 6%-- that's my prediction. Of course, my prediction may not come out. But I think the logic of why interest rate will be lower, I explained. The rents will be coming down, consumer price inflation much calmer, community bank troubles.

So I think the Fed will be cutting rates. So maybe we get to that 6%, 4% definitely not, 3% definitely not. 5%, it will be a very positive bonus if we get there.

JOAN WOODWARD: OK, so last time you were with us-- this is October 2022, so 14 months ago-- mortgage rates were around 6.5%. And this is what you said, quote, you called "7% interest rates an economic resistance point or wall," and told us that if rates crossed that barrier of 7%, they could go up to 8.5%. So 14 months later, it did exactly that, crossing 7% and hitting 8.5 earlier this fall.

So as of today, as you say, they've started to come down. You said this afternoon, you believe the Fed will hold rates steady. So what should we be looking for, let's say, in six months and, let's say, in 18 months? What do you think the 30-year will be in six months and then maybe 18 months?

LAWRENCE YUN: I think in six months, the average rate would be about 6 1/2. While in 18 months, because of the large federal budget deficit, I think it's going to actually keep the minimum at the 6%, 6 1/2, with the possibility that it could go up to even 7, 7 1/2. So we are in this new normal of 6 to 8%. So if you get anything closer to 6, I would say that's a good deal to get into.

JOAN WOODWARD: Yeah, and I guess, when I talk about the economy, I like to point out, that when Paul Volcker was around and Jimmy Carter back in the 1980s, we had people paying 17% 30-year rate. Isn't that right, Lawrence? I don't know how high it actually went. I don't know if you recall that. But people had to pay for their mortgage 17% for 30 years. So it's all perspective. if this is the new normal, we're sitting in between 6 and 7%.

Let's talk about inventory because that's the other-- obviously, our audience also said, the lack of inventory is another big problem. You said there's pent-up sellers. So what's it going to take for those pent-up sellers to put their house on the market? What are they looking for?

LAWRENCE YUN: I think they're just saying that they love their interest rate more than the baby. I actually made a little joke with our realtor audience. I'm not even sure if it's a joke, but I was just trying to use logic, that once the official divorce statistics come out for 2023, it's going to show one of the lowest divorce rate.

Because I think that people, spouses, getting into argument, that's probably the normal rate. But they will say, well, we cannot afford to give up that 3%, so you live in one side of the room. I'll live on the other side of the room until the interest rate goes down. Then we will sell the home.

Because just lower interest rate has really changed the normal, life-changing event dynamics, where you would say, well, maybe elementary school was fine. But we need to move to the other neighborhood to get into the middle school. But people do not want to move, because they are loving their 3% or 4%. But I think all these are not a permanent decision, but more of a delayed decision, that they will realize, yes, life moves on. We have to make the life-changing decisions.

JOAN WOODWARD: OK, so after the sticker shock wears off, then people go to do what they've been putting off, or pent-up demand. OK, let's talk about home values. So you shared that chart. That was my favorite chart, with the blue and the dark blue of incredible price appreciation since COVID.

So I want to point out three states that I saw the big increases, with Florida, Idaho and Maine had the largest jumps, with prices up more than 60%, in some cases, in just three years. Why those states? Obviously, we understand Florida. People move to Florida to retire. Why Idaho? Why Maine? Why some of the other ones that had such large appreciation, would you say?

LAWRENCE YUN: I think this is part of that seeking out the resort destination. Florida certainly has many options in Florida. But also, Maine, Maine is reasonably close from Boston or even New York City. So people who don't have to commute every single day into Manhattan or into Boston downtown, they said, well, I want to have a little fresh air, a little less hectic life. And we are actually seeing, if we look at the micro-level data, high-income millennials are actually renting in Maine, which also means that potential homebuyers also in Maine; so aside from the office remote work, interesting development that high-income millennials are also seeking out places like Maine.

Idaho is really a flight from Seattle, California markets. Going into Idaho, maybe that's the closest nearby state which they can go into. But Idaho was quite a surprise, Boise home prices, essentially, doubling, I believe, in the past five years.

JOAN WOODWARD: Wow, OK. So let's talk about sellers being concerned about values dropping. Because this was a big concern, as we all saw, during the mortgage crisis, the banking crisis of 2008 and 2009. So if inventory comes back and interest rates come down, are values, do you think, today artificially inflated by the lack of inventory? Let's talk about inventories, in your view, and values dropping.

And people get caught on their heels, right? They think prices are always going to be going up. As you just said, we should expect prices to stay high. But what if they don't? What if we have a exogenous crisis in the world that causes GDP to fall 3 or 4%, and we hit a recession? What's going on with housing then?

LAWRENCE YUN: Well, first, let's look at the unique circumstance of 2008 to 2010 foreclosure crisis. We had 8 million job losses in America. So naturally, people lose jobs. They are forced to sell their home.

But the other thing was you can't even say that the recession was caused by the housing market blowup. Because we had all this funny subprime lending that was occurring without income documentation, with teaser rates, get interest rate for 3% for three months. After that, they just steadily rise, and people cannot pay the higher interest rate over time.

So we really had those funny mortgages. Good thing we don't have those subprime lending anymore. It's part of the government regulation. So even if people wanted to get those funny mortgages, it's not available. So you can say that homeowners currently, they got their home by qualifying. And therefore, the only way they would be put under the stress is if they were to lose their job.

But let's say we have a mild recession, 2 million job losses in presidential election year. That means that most likely, interest rate will go down even lower than my forecast. It may even go down even to 5 1/2% range.

So when that happens, what we find in the housing market is the interest rate becomes more important factor than job losses. Yes, 2 million people lost their job. Some homes are being forced to be on the market.

But 90% of the Americans would have jobs. Seventy percent of Americans may feel they have a secure job, and they respond to those low interest rate. So demand immediately picks up to catch those additional inventory coming onto the market.

JOAN WOODWARD: OK, thank you for that. So I want to shift a little bit and talk about that first-time homebuyer. The younger buyers are in rentals, and their rents have been going up dramatically over the last two or three years. So they're stuck in a rental, but they're so afraid to buy.

What is your advice to young buyers today? Because some people just say, bite the bullet, pay the higher mortgage interest rates. You can refinance later. Just get in a house. What is your advice, renting, versus the young buyers?

LAWRENCE YUN: It's great to be young. But they have many options. One of the options they want to always keep open is, first, stop on those frivolous spending. So anything that they can save up, that will be helpful for future purchase.

The other part is that I believe that home prices overall will be stable, which means that in an environment where incomes are rising about 4% a year, so at least, income is beginning to try to catch up with some of the home price movement that had happened. But people who have the flexibility to work more hours remotely, hybrid model-- I am in Washington, D.C. Let me get out of the way so you can see one of the streets in Washington.

(DESCRIPTION)
He moves to the side. A street visible from his window has no cars. 

(SPEECH)
And it is empty. This is not due to the upcoming holiday traffic season. But it's been like this all through the summer, all through autumn. People are not coming into Washington. Maybe in other cities it's a little different. 

So the fact that the hybrid model is here to stay means that people can get better affordability. First-time buyers can get better affordability further out from the city centers, maybe two counties out. So maybe they want to consider that as a possibility.

But if one qualifies to buy a home, starter home, maybe it's not their dream home. Maybe they have to put a little sweat equity into it. Maybe it's just time to just roll up our sleeves and buy a slightly less attractive home and make it into a better home by putting the sweat equity into it.

JOAN WOODWARD: I actually think, personally, I think that's great advice. I advise my four adult children that it may not be the ultramodern, beautiful thing you see in a magazine, but you can make it that over time, over time. OK, I want to talk about-- because you touched on it, the commercial real estate market and the urban markets here. So commercial real estate really has suffered a disruption that we've not seen before, right?

And so cities-- we actually had a webinar on the future of cities not too long ago. We probably should come back and do another one on that. But the commercial real estate market, I read somewhere that some of the empty buildings in New York City that had been built over the last couple of years, they're turning them into pickleball courts. I don't know how you do that, but anyway, increase the ceiling size, or whatever. But what is the impact of the commercial real estate market with all this disruption in remote work?

LAWRENCE YUN: It's a major disruption. So first, let's go sector by sector. Retail, suburb retail shops are actually doing fine. And also, it's a service retail shops, meaning nail salons or, say, a fitness center, yoga, a salon like this. It's not the bookstore. It's no longer the bookstore retail shop one sees anymore.

But in downtown, all these sandwich shops, I mean, they're dying. I mean, you can say they are the COVID victims because they were thriving pre-COVID, but now they are shutting down because of light traffic in downtown areas. So retail overall is neutral, other than downtown suffering, suburbs doing well.

The warehouse had been doing well. But the prices on even warehouse buildings are beginning to come down because of high refinancing costs. Commercial building, they constantly have to refinance, with the financing costs becoming much higher. Even the warehouse prices are coming down.

Office, disaster-- so if one is an owner of an office building, if they can sell it now, go ahead and do it because it's going to drop, I think, more. The prices will drop more. Vacancy rates will rise more.

We have to think about, how do we best utilize emptying out buildings? Is it to convert into senior housing, condominiums, apartment? And anyone in the private sector will say, oh, those are very costly. It was built for different purposes.

So the only way to make the numbers work is either with a big tax credit or some kind of government spending into those conversion. Because the private sector simply cannot work on those empty, emptying office building and to turn it into something that could be utilized a little better. It's just too costly.

JOAN WOODWARD: Is that something that Congress you think would consider, builders, some tax credit? Is that in the works?

LAWRENCE YUN: Yes. Yes, it is in the works. In fact, I know the Biden administration came out with their housing blueprint about making more affordable housing availability. And one of the solutions which they recommended was providing tax credit or government funding for disused commercial properties and some of the vacant residential properties in inner cities.

There is already a housing unit, but it's vacant-- can we turn it into something more livable? So I think there is some discussion. Hopefully, there's some legislation and money to come for that.

JOAN WOODWARD: OK, I'm going to shift again. I'm going to talk about climate change and wildfires, rising sea levels, hurricanes. Some of the big states, like Florida, Arizona and Nevada, where retirees are moving, they've seen extreme weather. So first, what should we be doing about maybe curtailing building in some of these vulnerable areas, especially the coastal areas that we just know are going to get hit time and time again with hurricanes, with rising sea levels? Should we have new policies in this country that we don't build in certain areas that we know are vulnerable to this extreme weather?

LAWRENCE YUN: All the surveys shows that the great majority of Americans are concerned about climate change. But in terms of their actual behavior, they are acting as if climate change is not so important. So they express concern, but when they decide to buy real estate, you still see a large premium for beachfront house, compared to one block in, which, then, there, the price gradient goes down one or two blocks away from the beach, even though there is more risk, climate risk, of being on the beach.

So related to the actual disasters, we are seeing a very fast rise in insurance property insurance rates that's happening. That's partly to account for the actuarial, the incidents that would occur. Some of the Louisiana flooding, it just does not make sense why a home should be rebuilt in the same place where it gets flooded again and again and again. So the actuarial value of those flood insurance should be properly adjusted to account for those risks that is happening.

At the same time, one of the things that NAR talked with members of Congress related to flood insurance, specifically, is yes, we agree that the actuarial rate on flood insurance should be raised. But it cannot be done suddenly. We cannot have a old retiree, their flood insurance costs triple in a single year, which means forcing them out of their home. So even if it's a triple, let's make it over time, so that it's more gradual, more manageable increase year after year to eventually reach to that actuarially fair rate.

JOAN WOODWARD: OK. Thank you for that. I'm going to go to audience questions. We have so many coming in. So, we've got a couple on this one, on the private equity firms buying up so many houses in the U.S. and the effect on the housing affordability. So Brian Miller is asking that, a bunch of other folks. What is your opinion? Or does NAR have an opinion on private equity firms buying up housing?

LAWRENCE YUN: We say that business have right to conduct their business. And the private equity firms, maybe they wanted to buy gold or maybe artificial intelligence business. They're just chasing dollars.

And the reason why they are in real estate is they saw clearly, 2019, we had a major housing shortage. It was a decade of underproduction. So they were just following the pattern where there was a housing shortage. They see an opportunity there and, also, in the current environment, where home prices are so high, that people would need to rent. So they're saying, well, we're going to buy the home, and we're going to rent it out.

So there's one legislation moving in Congress to prevent the hedge fund institutional buyers from getting into the market. NAR does not have policy. We think that what is really needed is more housing production in every way possible, converting, again, some of the commercial building into residential units, allowing homebuilders to produce more home construction without so much hurdle. So if we have more supply, it would automatically reduce incentive for those institutional buyers to be in the market.

JOAN WOODWARD: OK, let's talk about places to live. And what are the emerging states or cities? We mentioned a bunch already on the call. Looking at your data, where are people moving beyond the Sunbelt, beyond the normal Arizona, Florida, maybe Nevada, for retirement? Are there any places emerging?

What about Alaska? What about Hawaii? Are any markets cooling? Is there a place that people, if they really are fully remote, and they're on this call, and they want to buy a house, where should they be moving to? Give us five or six cities and states that are more affordable, in your view.

LAWRENCE YUN: So if it's purely affordability consideration, then the Midwest would offer that option. So Indianapolis, Louisville, Kansas City, their home prices have risen. But you are looking at the current median price in Kansas City, versus what is the median price in, say, California market or in New Jersey. You said, wow, this is quite affordable in Kansas City.

Now, whether people want to move just for the housing reasons is unclear. So one also have to have some amenities, cultural, art, where there is some attraction to be in that city. What we are finding-- like, Portland, Maine, very interesting, whether-- but we are seeing many Bostonians or even people from other places going to Portland, Maine, which was the reason why Maine was one of the states to see that huge price growth that is happening.

Was this something that people predicted in 2019 pre-COVID? Probably doubtful. So there's remote work. Post-COVID has changed some of the dynamics of those unique places popping out, like Portland, Oregon, or places in Montana, where people may not have considered, but now beginning to consider out in Montana.

JOAN WOODWARD: OK, sounds good to me. I want to talk about-- you've been doing this a very long time, which is why you're such an incredible speaker for us. Maybe you've been crunching these numbers. What has surprised you in the last year?

I know all the disruption during COVID, everything has changed, right? It's a whole new marketplace than it was in 2019. But what has surprised you the most in your data?

LAWRENCE YUN: I think what is surprising is the resiliency of homebuyers. So interest rates have risen, as people know. Home prices have risen. What that means is that monthly mortgage payment has more than doubled from 2019 to now, same house. So one looks at the same house. For a new set of buyers, today for the same house, the monthly payment will be double, compared to the current homeowner who is currently living in that home.

So despite this high cost, multiple offers still happening on one-third of the property. I mean, that really surprised me, that given so much increase in costs, yet there is a desire among people to say, yes, I want to get into the market. I want to be part of that ownership category, not a renter category.

I know some people are always evaluating rent, versus own. But other people say, if I can't own, I'm going to at least give it a try. And then there's multiple offers.

JOAN WOODWARD: OK, a question coming in from one of our top insurance agents, Vanessa De La Torre, in California. What are your tips on helping insurance agents and real estate agents work together? And so you did mention several times, prices are going up. Insurance policy premiums have to go up. The cost of replacement of this homes, the inflation rate, is causing raw materials to go up.

So how does an insurance agent help a real estate agent, or vice versa, speak to consumers about what's happening in this marketplace? Because consumers are feeling the crunch, right? And so we want to work together. Help an insurance agent. What are some tips?

LAWRENCE YUN: I would say, just trying to develop a network. Because as a consumer, when we ask consumers, why do you like the specific realtor that you chose or you work with, not the other realtor, but this specific realtor? Because they are saying, it saves me time. I can trust my realtor.

And I think one aspect is for the realtors to be proactive to say, if you buy this house, the insurance rate will be this. That's based upon a person that I professionally communicate with you constantly. So I think by just giving more knowledge-- because realtors are not expert in the insurance market, and so forth, but they can always quickly connect the client with the insurance agent on some of the questions that the consumers could have.

JOAN WOODWARD: That's wonderful. And I think we're going to close on that note. Because, Lawrence, you've just been so gracious with your time. And we, obviously, would love to have you back, maybe make it an annual thing going into every new year to hear from your brilliant mind, so thank you so much. We appreciate it.

LAWRENCE YUN: Thank you. Thank you.

JOAN WOODWARD: OK, so then, my friends, I'm going to talk to you about what's coming up in January. Because we have quite the lineup.

(DESCRIPTION)
Slide, Wednesdays with Woodward (registered trademark) Webinar Series. Text, Register: travelersinstitute.org. Upcoming Webinars: January 17 - Insuring Innovation: Life Sciences and the P&C Insurance Industry. January 31 - Fit for Success: Unlocking Health and Performance. 

(SPEECH)
And on January 17, we're going to kick off. We're going to send you emails, and you can register for all these programs on our website, travelersinstitute.org. 

January 17, we're going to look at how the P&C industry underwrites the innovation of life sciences. So it's a really important part of that value chain. And we'll be discussing that in-depth. So life sciences underwriting, we're going to go deep on that. And the emerging trends in life sciences, like artificial intelligence, I think you'll be surprised on some of the discussion there.

And then on January 31, I'm going to be checking in with you, as I always do at the end of January, and see how your New Year's resolutions are coming. I'm going to be joined by my friend and LPGA golf pro and instructor and founder of Cardio Golf, Karen Jansen. This is for golfers and non-golfers.

So she's going to show us, actively show us, how we can stay fit in our busy schedules. And she really believes that spending 10 to 15 minutes every day is so much better than waiting the entire week and saying, oh, I have to go to the gym for 90 minutes. And then you don't do it.

So her philosophy is putting that 10 to 15 minutes on your calendar every day, no excuses. I'm guilty of it, too. She's going to help us. She's amazing.

And always visit us at travelersinstitute.org for more information. We really do have an amazing schedule in 2024. We'll send you all the details.

(DESCRIPTION)
Slide, Wednesdays with Woodward (registered trademark) Webinar Series. Text, Watch Replays: travelersinstitute.org. LinkedIn Connect: Joan Kois Woodward. Take Our Survey: Link in chat. #WednesdayswithWoodward. 

(SPEECH)
Have a safe and happy holiday season, everyone. Please stay safe on the roads. Our distracted driving campaign is actively out there. Every second matters. Please put your phones down when you're driving your loved ones this holiday season, and I'll see you in 2024. Be safe. Thank you. 

[MUSIC PLAYING]

(DESCRIPTION)
Logos, Travelers Institute (registered trademark). Travelers. Text, travelersinstitute.org.