CNBC’s Capital Exchange program recently hosted a discussion on housing hosted by real estate reporter Diana Olick, who posed questions to Sheryl Palmer, chairman, president and CEO of Taylor Morrison Homes, and David M. Brickman, president & incoming CEO of Freddie Mac. The event, held at the Willard InterContinental Hotel in Washington, D.C., on May 16, was attended by executives from the financial and housing industries. Topics included millennial home buying trends, the affordable housing shortage, tariffs, housing starts, and interest rates.
Palmer disputed the notion that millennials are not buying homes and are rejecting master-planned communities by acknowledging they account for one-third of her firm’s business. “So this population that wasn’t going to buy is truly buying,” she said. “They really aren’t running from where they grew up. They actually loved that whole suburban dream, the house, the couple kids, the dog. It’s real, but it’s at age 35.”
Though they may be waiting to buy homes until they’re a bit older, Palmer said she believes that the full millennial effect has yet to be felt in the marketplace. “Median age for homeownership is 34 for millennials, and we have half the millennials turning 34 over the next seven or eight years, so we have a huge wave coming at us,” she said.
The wave may be crashing onto a beach with no homes, according to Brickman, who said, “We don’t have enough housing. We think we need about 1.5 million new homes, but we are barely at 1.2 million. We’ve been doing that level or lower for a number of years, so we’ve got a deficit 4 million houses that we really should have to house the entire population,” he said. “So that drives rents up, drives prices up and creates some of the tensions we see in terms of lack of supply.”
Brickman blamed the usual villains of underproduction including rising land prices, construction costs, and regulation. “No one can figure out how to build more affordably without a change in the regulatory structure or some form of additional subsidy,” he said. Brickman specifically pointed at zoning challenges and land use policies at the local level as a hindrance to expanding the supply of affordable housing. He said he has hopes for advances in off-site construction techniques and using technology to reduce the cost of mortgage-loan origination.
Palmer downplayed the effects of tariffs but did confirm that the first round did shake things up for a while. “The first round happened and we took a hard look at our business nationally and went to more domestic sources,” she says. She is also optimistic about seeing an end to the trade war. “I do believe in time it will be solved.”
The latest housing starts numbers were also discussed as Palmer professed to be bullish on where things are heading. She blamed the sluggish fourth quarter of 2018 for clogging up the pipeline and affecting the current state of affairs. “The fourth quarter of last year was probably holistically the worst quarter we’ve had as an industry since the downturn, we ended the year with a tremendous amount of inventory—you just can’t pick up that machine and say, ‘OK I need new starts’ because now there’s a race to the end of 2019—everybody needs starts,” she says.
Brickman said he hopes for stability in interest rates while Palmer pointed out that a large percentage of current mortgages were made when rates were below 5%. “There is a lot of price sensitivity especially in the more affordable markets,” she said. “Forty-eight percent of the mortgages in America today are under 3.9%, and 80% are under 4.9% Lots of mortgages are under 4%. At 5% people could buy down and pay more.”