08/08/2017 - The Roundtable Insight: Dan Habib On The U.S. Real Estate Market And Interest Rates
FRA: Hi welcome to FRA’s Roundtable Insight .. Today we have Dan Habib. He’s been involved in the mortgage industry for over 15 years. He was an integral part of mortgage market guide where he created and managed the sales team and helped grow their subscriber base. Dan later worked for Morgan Stanley as a financial adviser where he was a member of the number one ranked Barens financial advisory team in New Jersey. He’s held his serious 763 65 31 and life and health insurance licenses. He’s also one of the founders of NBS highway and has been instrumental in its significant growth during the past four years as a senior market analyst. Welcome Dan.
Dan: Hey thanks for having me Richard.
FRA: Yeah, I just was wondering, could you give us some background on NBS highway and mortgage market guide. What they are? What type of services you offer?
Dan: Yeah of course, so mortgage market guide was kind of the original company that my father Barry and myself had started. We had sold that company and we are now running NBS highway air which we created about four years ago. But a similar principle. Really it’s a service for mortgage professionals where we try to help educate them each and every day, help them close more opportunities that they’re given and also gain and protect new and current referral relationships. We do that by really breaking down what’s happening in the market for them each day, breaking down the economic reports and as that pertains to the mortgage industry and interest rates. We also really help them with timing of blocking and floating their loans to avoid costly reprices or get better interest rates for their customers. We have a bunch of proprietary tools on the site and some really great real estate data that I think really helps our customers showcase and quantify the opportunity that exists in homeownership today. We really try to help (really kind of) give some insights and combat a lot of the negativity that you see in the media especially as it pertains to you know the health of the housing market, and you know some of these economic reports that come out. You know it’s our view that we think the media really just doesn’t really understand it. And you know you see all these reports and all these articles on CNBC all the time about how you know it’s more expensive to buy than rent in every state in the United States. And you know you have guys like Greg Carrdon, who was just on a video on CNBC and said that you have no business owning a home unless you have 20 million dollars in the bank and different things like that which you know ultimately our customers are viewing and seeing and you know in a marketplace where you have really tight inventory. Our customer’s customers are saying individual looking to buy a home and you know in a marketplace we have really tight inventory you know across most of the country and you know these customers aren’t getting a lot of bargains because of that. Now a lot of the time that come in at full asking price or maybe several thousand dollars above and they watch this negative media it’s no wonder why it’s easy for them to maybe flake out and maybe go out and rent. But ultimately it may not be the best decision for them. So we help them to really kind of get to the truth and meet behind the strength in the housing market and help explain that to our customers so they can explain it to theirs.
FRA: Can you help us provide insight into that? So you mentioned the mainstream media doesn’t have that sort of more accurate view of what’s happening. What is the current state in the U.S. housing markets?
Dan: So we think the housing market is strong you know a lot of times people have concerns. We’ve seen some good appreciation, are we in bubble like conditions? Well you know if you look at the facts we look back you know during the housing bubble years those 6 years. So we had an oversupply in the market, we had nearly doubled the amount of inventory levels that we have currently. So certainly not seeing an oversupply in the market from that dynamic. When you look at the demand side, the main demand remains extremely strong. You know one of the kind of metrics that we look at, we like to look at demographics and you know one of the most famous guys, if you look at demographics was Lee Iacocca you know and he was very famous. He worked for Ford and he saw that all these baby boomers were getting older and they needed to have a kind of stylish car and he turned up creating the Mustang, and ended up being the most popular car for Ford at the time and it was their most profitable. So it’s important to look at demographics. When we look at the demographics, Zillow says that the median age for first time home buyer is thirty three years old. So if we take a look at the birth tables and we go back 33 years ago, we can see where the birth rates were and that was in about 1984 or so. And then you can see what’s happened the next nine years. There was a huge surge in births each year greater than the previous year. So what that’s telling us is that over the next eight years you’re going to see a greater and greater and greater crop of individuals turning 33 in either coming into the housing market to either buy or rent. So we’re going to see strong demand I think for the next eight years and it doesn’t fall off the cliff after that, it plateaus at some of the highest levels since the baby boomers. So we think that we’re going to see some really strong demand, supply is tight. Obviously the first law of economics you learn as you know, tight supply and strong demand, it’s going to be supportive of home prices. But also we think that the kind of dynamics that we’re seeing in place are going to persist because builders have a lot of challenges out there right now. They’re highly regulated, they’re having a hard time finding labor and you know lenders just aren’t lending to them on spec like they used to. You know they used to be like build it and they will come, but you know they got burned in the past. So we think that the dynamics are going to stay in place. You’re going to have some tight supply, you’re going to have some really strong demand. And you know the media really I think focuses on the amount of sales. Now obviously if we look at the most recent reports that just came out we had existing home sales and new home sales. And you know both of those were decent reports of course we’re not seeing the amount of sales that we saw you know 10 years ago but we’re still seeing sales of new homes so that were we’re up like nine point one percent in the year over year basis and that’s with really tight supply. So you know if there was more inventory out there I think there’d be more sales. But I think that the dynamics are still in place are very strong and healthy housing market.
FRA: And is it localized like do you see differences between what’s happening in Miami New York versus perhaps less volatile markets. You know that I’ve appreciated in the Midwest.
Dan: Yeah. Well sure it certainly is localized. Overall if we were looking at you know as a whole in the U.S. appreciation you know depending on which report you’re looking at it’s been about six and a half to like 6.9 percent over the past year and forecast there for it to be above 5.2 to 5.5 percent depending on where you’re looking at of the nation for the year going forward. Of course you know that can vary in different markets. You know what’s funny is that it seems like the new markets that are doing the best are the ones that have legalized marijuana, you know in Portland and Seattle and Colorado, Denver those are actually leading in the way with depreciation over the last year. So they’ve been pretty hot.
FRA: Is there like a generational change or what about the millennials? We hear stories where they just want to rant or I mean do they want to buy houses at some point maybe because they’re strapped with debt initially but do they have the intention and the desire?
Dan: I believe they do. You know if you take a look// I think obviously the millennials are a different generation. But you know if we look at kind of like a normal life cycle right I mean if we look many years ago it was pretty normal for an individual to kind of get out of high school get married and start a family and have kids and buy a home. And that happened much earlier, you know people were getting married in the 20s, having kids and now it’s just kind of move back. You know obviously life expectancy got a little bit longer too, but millennials are taking longer to do things you know they’re not going to be like you know the guys in Stepbrothers, 40 years old living in their parents basement. I think they still do have they want to buy a home. But I think that you know they’re just taking a little bit longer to do something. So I think there’s some pent up demand there for sure.
FRA: What about the effect of interest rates on the housing market. How do you see that?
Dan: I think right now is a great time to buy a home. Interest rates I think are you know still really attractive you know interest rates on a 30 year fixed you know anywhere probably between about a quarter point a half percent right now. You now its funny, someone might say oh its high. You know I think all of you know the average interest rate will last like 45 years in the quarter. So we’re still at really attractive levels. And I think now’s the time to buy because you know if we take a look at the Fed. We know from the Fed’s latest meetings and their statements that they want to start where Peter Book likes to call “quantitative tightening” where they’re going to start unraveling their balance sheet and they’re going to do it in a measured pace where they’re going to let you know four billion or more in bonds and 6 billion in Treasuries kind of roll up their balance sheet each month and then kind of revisit each corner and I think increase it by those same amounts and once they do that you know I mean the fed’s the biggest buyer of mortgage bonds and treasuries so once you have the biggest buyers start to back out a little bit I think that rates are eventually going to have to start to move up towards the end of the year. If they start doing this in September and out in September. So you know I don’t think rates are going to go crazy because they go up half a percent or so once the Fed starts doing this. Yeah. So I think I think now is really a good time to buy a home.
FRA: As you see the rates going higher would that have a dampening or a negative effect on the housing markets?
Dan: I don’t think it’s going to affect purchase business too much to be honest with you. But obviously refinances of course you know, what’s interesting is if you look at the most recent mortgage application data that we got just actually this morning, it shows that refinances just rates are up about half a percent from the 50 basis points from this time last year and refinances are down 41 percent. So obviously it has a big impact on refinancing interface. They have a percent in of course that’s going to have an impact further on revise. But I think the purchase market’s very strong.
FRA: And in terms of Fed policy, the Federal Reserve on interest rates. How do you see that playing out? What point do they stop raising rates is the big question?
Dan: I think that the Fed wants to get one more hike in December. I think in September, I see them starting the announcer they’re pointed in on their balance sheet a bit and I think it has to. So long as you know we see things remain the way they are now. I think it was over in December and then I think they’ll probably pause a bit until maybe mid next year. Everything is going to depend on the data. Obviously I mean the jobs data I think has been sufficient for what they want to do. I think that inflation has been obviously a little bit stubbornly low. You know if you look at the most recent data from this morning or yesterday was with the personal consumption expenditures came out and that’s the FEDs favourite measure of inflation and that core rate showed only one and a half percent. Obviously below the 2 percent that they’re looking for we think that the Consumer Price Index is a better measure because it has a heavier weighting towards the cost to put a roof over your head as well as out-of-pocket medical expenses. So I think it shows you know true inflation a lot better. But you know for whatever reason it is the Fed likes to focus on the PCE for that has been stubbornly low. And I also think that the Fed expecting to see the labor market tightening, they’re expecting to see some wage pressure at inflation which we haven’t really seen yet either but maybe we’ll start to see that coming. You know on Friday we’re going to be getting the jobs report which is obviously going to be very important for the stock and bond markets, certainly could have a big impact depending on how that comes out. Know we did get the ADP report today which is about in line with expectations. I believe it was about like about a hundred and seventy eight thousand jobs were created last month. So a decent number. I think a strong enough number for the FED. But we’ll have to see how that BLS report comes out. And really I want to be paying close attention to that average hourly earnings numbers see if we’re seeing any wage pressure inflation there but like I said I think the FED is going to try to get one more hike in this year and then kind of see some of the data that comes out from there.
FRA: Do you think there’s a look at the Federal Reserve policy from the perspective of raising interest rates up to a point where it doesn’t go higher than a 10 year Treasury bond yield because that’s some point that could turn the yield curve into an inverted yield curve you know potential recession type of thing.
Dan; Yeah of course, you know the tend to spread is something that we actually have on our site for our subscribers as a good recession indicator. You know it’s been pretty accurate one. You know I think that FEDs going to be careful I think that you know they’ve obviously done this whole QE experiment for many years and I don’t think they’re going to want to raise rates too quickly to you know send the economy into a tailspin.
FRA: And what about the actual purchasing power of a home. Just what are your thoughts on that? A lot of our commentators have mentioned a distinction between nominal terms and real terms so that if you take the price of a house today and divide by you know how many cups of coffee you can buy today versus how many cups of coffee can buy in the future. You know some measure of inflation. Do you see the actual purchasing power of a home as increasing nominally and in real terms or just perhaps nominally?
Dan: I think I see an increasing in real terms. I think that inflation, you know remains pretty low. I’m not too worried about it getting too out of hand. And any of the reports, you know we’re looking at a we have some great real estate data for every kind of a metro area in the country and you know what I’m seeing out there are some really strong appreciation forecasts. You know I think that it’s going to some really strong power.
FRA: And just your thoughts on the political situation in the USA. How is that affecting the housing market interest rates and the overall financial markets?
Dan: Well I think that initially the financial markets obviously got a really nice push from the new administration and you know we’ve seen the stock market has been on some tear. It’s been unbelievable. You know now and 22000 today. And you know even though the administration has been unsuccessful and you know ….and you see how we do on taxes. You know I guess some would argue that you know markets are moving higher. Maybe not so much based on Trump anymore on the strength of the stock and the earnings that we’ve been seeing in some of the fundamentals. But you know I would love to see some of the stuff from Dodd-Frank. You know kind of get loosened up a little bit and I think that can have a good impact on the housing market. But you know again, its been a little disappointing to see really nothing pass through, you know so far.
FRA: Just overall, your view of the housing market for the next 5 to 10 years?
Dan: Like I said before, I think the housing market’s going to remain very strong. I think we’re going to see some really strong appreciation levels. I think that you know one of the things that has been encouraging is that if you look over the last several years we’ve seen some really good levels of appreciation and you know the media has been negative on the housing market the last five six years or you would have missed a great opportunity. But you know one of the things I think the media gets wrong is the affordability. You know we have great affordability data for every measure for every country and what I’ve seen is that for most markets affordability has remained pretty level. I think the media makes the mistake of thinking that if a home price goes up automatically affordability has to go down. But obviously there’s a couple of other things that go into that number obviously it’s the home price but it’s also interest rates, it’s also wages and jobs and you know if we were to use the media’s kind of explanation well that would mean that if home prices went down all of a sudden affordability has to go up. But what happens if interest rates skyrocket what happens if you lose your job? Does that home get more or less affordable? Obviously less affordable. So I think we’ve been seeing until homes are still relatively very affordable. I think the dynamics of tight inventory are going to persist. I think demand is going to remain strong. And I think it’s going to be a recipe for a really strong housing market for years to come. Not really seeing any kind of you know conditions that would worry me like any bubble like conditions and you know historically you know even if there were talks of recessions and stuff. If we were to look at the last 10 recessions from World War 2 you know nine out of the last ten of them, housing has actually done really well. And you know obviously the last one, housing prices actually started going down a little bit before the recession and really it was more like the housing bubble I think kind of led us into the recession and not vice versa. So you know I think that housings going to be very strong for the years to come.
FRA: That’s a great insight. Overall the discussion and I appreciate very much having you on the show Dan.
Dan: Thank you so much for having me.
