Real estate expert on why the housing market is not inflated

Jeff Taylor, Managing Partner at Digital Risk, joins The Final Round to discuss the latest trends in real estate and why the housing market is in a W shaped recovery.

Video Transcript

SEANA SMITH: Just first, what are your thoughts just in terms of the skyrocketing demand that we've seen over the last several months at a time when the economy has been struggling to gain some footing, and the housing market has continued to really outperform in almost every aspect of how it's measured? And then also, whether or not this momentum is going to stick, and we're going to see these types of numbers throughout the end of the year?

JEFF TAYLOR: Yeah, you know, it truly has been amazing to look at the housing market. I mean, this year, we're heading towards a $3 trillion residential mortgage market. That's the second biggest in the last 25 years, only behind 2003.

And look, the recent activity that we've seen, even though it's been 60% refinance and 40% purchase, is mainly driven by the fact that we-- interest rates have driven-- lowered so much, and we have record all- time [INAUDIBLE]. And I see that market only getting hotter as the rest of this year goes in and all the way through 2021. So a great market to either refinance and also to potentially buy a house and buy a new house, especially if you can find one with the tight housing supply right now.

- Oh, I've got all kinds of questions, Jeff, but I'm going to go with the refi one, because my understanding was refi rates were not going down. Right? That the banks were saying, we don't want that business. We only want you new mortgage. This hasn't been the case?

JEFF TAYLOR: So that's the business action that we're in. We're the largest mortgage fulfillment company in the country, so I'll give you a perspective. It's not that banks don't want the business. It's a capacity demand. Right? So it's-- mortgages still take 45 to 60 days to get through the process, so they simply don't have the capacity to be able to process as many loans as quickly as they would. So rates are kept higher, sort of, in many aspects, to meet the capacity they can fulfill them in. So as capacity gets into the system, you will continue to see rates drop over the course of the next 12 months, and that's where there's still going to be a lot of opportunity. But a lot of people don't realize that. It's not that they don't want to drop rates. It's that they don't have the capacity to fulfill that mortgage request right now, on the refis especially.

- Right, refi especially. Go ahead, Emily. Sorry.

- Jeff, just taking a look at the housing market here, I know we've been seeing this movement towards suburbs away from metropolitan areas because of this trend towards working from home. Are there any areas that are getting hot right now that surprised you?

JEFF TAYLOR: You know, I'm not [INAUDIBLE] that surprised me, but we're still seeing about 1,000 people a day moving to Florida. You're looking at-- Phoenix is still extremely hot, and I think that your point is great as far as really that kind of work from home. And [INAUDIBLE] kind of [INAUDIBLE] go to home builders for a second.

You know, people in big cities are paying very high rent-- $2,000 a month in many cases. So now, you take a $2,000 rent, you make an $1,800 mortgage, right, because interest rates are so low, and now they can go and design their new house. Right?

They can design that new high tech office space. They get to design that new study area for the children depending upon what age they are for home schooling. I mean, that is-- that's a tremendous incentive. And then you see the homebuilders out there are incredibly, you know, incredibly aggressive right now, and you see anywhere from a 3% to 6% incentive, many of them offering buyers to build new houses.

SEANA SMITH: Jeff, I want to ask you just about the foreclosure moratorium, because obviously, it's designed to keep people in their homes, and it's done so. That's very important at a time like this. But to what extent do you think this has inflated the housing market over the last couple of months?

JEFF TAYLOR: It's a great question, and actually, I really don't think it has. And so here's my logic behind this. Going into the pandemic, the total US housing market was about $33 trillion in size with $18.7 trillion in home equity, so we had all time home equity levels.

So basically, people-- if the foreclosure moratorium had stopped, people have equity in those houses. They would-- they would probably sell those houses if their financial profile changes much, and they had to leave versus 2008, where they didn't have any home equity. They didn't put much money down, so they would just walk away from the houses-- from the homes. So while I think that, you know, all the policy changes in place are good for consumers in no way, but I think that's really affecting the housing supply market, because it was, you know, historically tight before the pandemic, and continues to be there right now.

SEANA SMITH: That's interesting, Jeff, because I've read some pieces just in terms of the fact that maybe that could jeopardize this V shaped recovery that we've seen in housing, and I know you also think that we have seen this V shaped recovery. So you're not concerned about that at all just in terms of when the foreclosure moratorium ends, and we had these monthly payments stacking up, these protections, we know can't last forever, but you don't think, in any way, this will jeopardize what we're seeing in the housing market?

JEFF TAYLOR: So let me go a little broader to the economy. I think the economic recovery is more of a W, right. I think that that's more of a W.

The housing market was already-- nine months again, I mean, the inventory was still unbelievable-- was unbelievably tight, and rates were getting lower. If I look broader at the housing market, I think that's going to be incredibly strong for the next 18 months, 24 months going forward. But I think the economy-- here's the unknown part. Right?

The first six months of the pandemic, the unemployment [INAUDIBLE] looks like the service industries, restaurants, you know, hotels, airlines. That next six months probably starts to creep into Fortune 500 companies having to right size their working staffs a lot, so that's going be more of a white collar, I would say, you know, on the unemployment, because a lot of those people are much more homeowners than the first case, which is more of the renters. So how that all plays out going to next year it's still sort of TBD. But again, because inventory is so tight in the US, and rates are so low, I'm still looking for maybe a '21 home price appreciation flat to 1% up.

SEANA SMITH: All right, Jeff Taylor-- always great to have you on. Co-founder and managing partner of Digital Risk. We'll have you back soon. Thanks so much for coming.

JEFF TAYLOR: Thank you for having me.