8.18.26 Servicing Disasters; Yardi’s Doug Ressler on Home Ownership Trends; Fed on Hold

Robbie Chrisman Welcome to the Chrisman Commentary Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include the link between natural disasters and mortgage servicing, why oil and lettuce prices matter to us in the mortgage industry. In my interview with the RD's Doug Ressler on affordability-driven housing demand, favoring markets where housing costs, jobs, and migration align, and challenging lenders in the mortgage industry to rethink traditional paths to homeownership. Here, take a listen, do a low preview. Doug Ressler The gap is growing between homeowner metros and renter metros. It's showing that the most important structural trends in housing are that the market is splitting really into two groups: ownership markets and um renter markets. And the ownership markets are places that are like uh the what we call the secondary and tertiary markets that are you know cost effective, like uh Grand Rapids, Provo, Ogden, many of the Florida growth markets. They're favorable, favorable to income, to home price ratios, population growth, abundant land, flexible zoning. Governance is very progressive towards zoning and permitting. And then there's renter markets, the coastal gateway urban cores that are from a standpoint like uh San Diego, New York, San Jose, Los Angeles, that uh have very rigid governance in terms of zoning, permitting, structuring, that they have severe supply constraints, uh, they have high land costs, they have high regulatory hurdles. Yes, they are trying to address all those. They understand these. Governor Newsom uh recently in California, I think it just came out yesterday, that he uh came out with a mandate that all cities in California will address or you know, follow all the same rules. There will be no no one that will be able to be a loose cannon, uh canon, if you will, that everybody will adhere to the same state regulations. To me, that is uh you know a way of saying, look, we we know we have these constraints and we have to all address them in collectively. Those are crucial to be able to be able to compete and to be able to fulfill the demands of housing uh within the uh states to be able to fulfill the widening uh wealth gap and to be able to fill fulfill the regional migration as it accelerates for owners to be able to attain housing and to build wealth. Sponsor From application to close, JazzX is a new operating model that helps you scale growth, boost productivity, and transform how your team performs. To learn more about the first true end-to-end AI platform built for mortgage, visit jazzx.ai. Robbie Chrisman While Lake Powell and the Colorado River are at their lowest levels ever, and states like Minnesota, Oregon, and Washington are in a drought. Would you like a clip of what they're experiencing in Hawaii with the hurricanes? Anyways, so far the North Atlantic hurricane season, which runs June 1st to November 30th, has been light, which pleases homeowners, servicers, lenders, and insurance companies. But elsewhere, this year's tornado season showed the continued trend of Tornado Alley shifting eastward and into more populated areas, with Illinois leading all states in tornado activity at 220 confirmed tornadoes, and Indiana and Wisconsin also setting record high numbers. The insurance industry is far ahead of the mortgage industry in terms of monitoring damage, and it reports that Tornado Alley appears to be shifting from Texas, Oklahoma, and Kansas thanks to a warming climate that's moving warmer and more humid air further north and further east. Mortgage servicers can't ignore the fact that Illinois's annual tornado report average was up 45.6% in the 2020 to 2025 period than it was in the 2000 to 2025 period. By comparison, in Kansas, the average was down 49% in the five-year span compared to the 25-year span prior. Look for this impact, look for this two impact, the value of servicing. The Federal Emergency Management Agency, or FEMA, calls the shots regarding official disasters, which in turn prompt lenders and servicers to put in policies and procedures. Unfortunately, the organization, as well as the process of assisting areas hit by disasters, has been politicized, and FEMA spent much of last year finding itself in the press or laying people off. Other states more complicated, and that federal agencies that help Americans prepare for, survive, and recover from extreme weather disasters have seen the Trump administration's cuts to the National Weather Service, Corporation for Public Broadcasting, and FEMA, and those that weaken the lifeline at every stage of the storm. In California, for example, the fires 18 months ago still have not been settled, despite communication between Governor Newsom and President Trump. Turning to rates, Treasuries and Agency Mortgage-backed securities opened the week under renewed selling pressure, led by the long end of the yield curve as the 30-year Treasury yield rose nearly six basis points to 5.31%, surpassing its July high and reaching its highest level since 2007. Why? Growing investor concern over persistent inflation, massive federal deficits, and an increasing supply of long-dated debt. Meanwhile, heavy corporate borrowing tied to the AI investment boom, weaker demand from traditional long-duration buyers, rising oil prices, and expectations for further Bank of Japan tightening are adding to global pressure on long-term yields. With the 30-year now only about 10 basis points below its 2007 high of 5.41%, we will see if the aforementioned forces are strong enough to drive long-term rates even higher. Higher long-term yields can make it easier for the Fed to hold short-term rates steady because tighter financial conditions at the long end can restrain borrowing, investment, and demand without requiring additional policy rate hikes. Accordingly, the Fed is increasingly likely to remain on hold this fall. Soft wage growth, a weakening labor market, and now disappointing July retail sales point to a moderating economy, while recent benign inflation has reduced the urgency to tighten. Futures currently put the odds of a September hike at just 31%. However, the Fed may still need to raise rates if elevated yields stem from inflation expectations rather than tighter real financial conditions. The August payrolls and CPI reports remain important, but without a meaningful upside, inflation surprise, the path of least resistance appears to be stable policy rates. This is particularly true as emerging signs of consumer stress and weaker real spending give policymakers another reason to remain cautious. For today's interview, I wanted to welcome to the show Yardi's Doug Ressler to talk about affordability-driven housing demand, which seems to be favoring markets where housing costs, jobs, and migration align. And it's been challenging lenders in the mortgage industry to rethink traditional paths to homeownership. He's senior research officer at Yardi Matrix, which involves the creation of business and statistical research models for the real estate industry. Being a millennial, there's there's obviously been a lot of chatter about homeownership in my friend groups, and it's it's certainly come to the fore in terms of being in the the psyche or the consciousness of people out there that want to be homeowners. And uh some of the data that we've seen here recently says that a lot of you know it's coming to fruition. Uh Redfin does a uh lot of surveys, and and I'm wondering if you can discuss uh this this most recent one kind of general takeaways from the survey methodology and what we what we learned. Doug Ressler Sure. We looked at it in the demographic strata, we looked at millennials, we looked at Generation X, and what we found is that primarily the millennial homeowner uh households over the last five years increased about 74 percent. Renter households also increased about uh 12.6 million nationally. But what we found is that uh homeownership has grown strongest in metros where income growth outpaced home price growth, and so that suggests that record millennial homeownership growth for housing demand is resilient. You read many articles that folks uh are declining in terms of uh not wanting to purchase homes, but we believe that this data is indicative of the fact that there's still a desire, especially on the part of millennials and even Generation X, to purchase homes. They both have different issues surrounding that. And from a buyer standpoint, what we looked at were worth some of those reasons. Higher rates have changed. Uh, where and what millennials buy and what they wanted to buy. Buyers uh are moving further from expansive urban cores. Buyers are purchasing smaller homes. Federal Reserve just came out with a study that showed that uh in the last five years, square footage has dropped from 24 uh starter home has gone from 2400 to about 2100 square feet. That has been driven by cost. Buyers are expecting to have longer commutes, they are moving to lower cost metros. That's why you see a resurgence in many of the Midwest. Uh, Hammond, Indiana, if you're a big uh Chicago Bears fan, you're gonna love it. Buyers are relying more heavily on dual-income households. Demand has proved highly adaptable in terms of all the uh different types of demand classes. What we have also seen is that the millennials versus the Gen X think differently in terms of how they buy for homes or the issues that present themselves. Uh, a millennial will prepare for, they think more in terms of the monthly payment as opposed to the the 20 or 10 percent down to be able to afford the loan. When that comes due for the closing costs and things like that, that usually uh hits them pretty hard. The Gen X thinks can't even go there. I I can't really have the wage and salary growth to be able to even afford uh the 20% down. So I'm I'm really gonna stay in the rental market longer, which we're seeing rental rates or what we call the renewal rates are increasing longer periods. So we're seeing, especially in urban cores, somewhere around 9% increase in renewal rates uh over longer term from what it was previously. One of the things that has stabilized is inbound migration. But what we do see is that there is a combination on what is driving these jobs and what is driving people to look for uh homes. And so the metros that are winning jobs and purchase of homes for millennials, it's a combination of income growth, job growth, migration, and housing supply. Some of the biggest uh states that we see this occurring in is in Florida, Dallas, Fort Worth, and yes, California, Arizona. The 21st century housing bill. What we see is that's going to act as a catalyst for those states that are prepared to have the uh provisions ready to adapt to those types of provisions that the bill will enhance. We see that to be true of permitting zoning, that type of thing. Uh, that's going to be particularly applicable in the Texas area, California area, Arizona area, and the Florida area. Why? Because they're already moving forward on a lot of that. Florida is already talking about in their November elections getting rid of uh property tax. That's a big, big impact for people that are going to either buy or own per housing today. They have good jobs environment. Aerospace is burgeoning there now. One of the big uh areas that we see in the report that we have is the North Port area of Florida. Also, uh Grand Rapids, Ogden, Provo, places that are secondary type of markets. The income growth is beating home price growth. And so um some people would argue the soundbite is that we don't have a housing gap issue. We have really a housing cost issue. Housing cost or housing the way we build housing, it's still a site-built uh housing type of construction. And housing costs have continued to escalate and have not changed in the last 100 years. And people can talk about modular housing and 3D housing and manufactured housing all they want, but it's still site-built, and you lose a lot of the scalability of how houses are built in manufactured environments when you transport and permit and zone and build once you put it on site. Uh, there's been a lot of studies written. Excellent book has been written that details a lot of this type of thing. But until we get costs uh under control, uh they're going to continue to ramp up. I think the average cost, and when you look at it by tiers, it changes. The aggregate of of uh wage growth has been somewhere around 3.84%, and uh inflation is starting to bump uh above that. But uh right now the cost of uh construction of home and the cost of mortgage and services and things like that is exceeding uh the wage growth cost, especially in the lower tiers, uh, the affordable workforce, that type of thing. So that's what's pushing the household growth that we talked about. When people are becoming very resilient, they're becoming very uh how do I want to say creative in terms of how they formulate households to be able to purchase homes? They are looking at ways to uh become more dual income and uh how they you know lower costs, but they may choose to uh move to exurbs or they may choose to adopt uh different types of lifestyles. That's why you have places like Grand Rapids, Ogden, Provo, those types of things that uh show that. Uh, you're also seeing consistent job growth in terms of millennials following jobs, uh, in terms of the healthcare industry, logistics, manufacturing growth. You're seeing inbound migration in uh California. Yes, California. A lot of people would say, well, I've heard that California is outbound. Well, if you look at San Francisco, San Francisco, because of the AI surge, is seeing for the first time in many years inbound migration, especially in the San Francisco Bay Area. You're also seeing Illinois, Northeast Metros having uh some of the strongest inbound migration, especially with some of the technology and AI. You're seeing more elastic housing supply in LA, San Francisco, and New York. That's where the ownership rates tend to make it easier to build houses. Affordability alone is really insufficient. You have to have affordability, job growth, and migration, and housing supply creates ownership. So lenders rethink ownership. Millennials have to increasingly shop based off monthly payment rather than just purchase price. So once you go get in, what's the cost of the loan? What's the cost of maintaining a home and things like that? So it's one of affordability, being able to afford over a long term. Many buyers can't afford, like I said before, to accumulate the 10, 20, or 30% down payments, especially the Gen Z renters. And they don't think that way. They think primarily in terms of a monthly payment, whether they're buying a Ford F-150 or a house. They think more about the monthly payment. They don't think about the down. And so uh what you see is uh more growth in shared appreciation loans. And uh what that means is shared appreciation loans are something that is being touted now, where you have employee-assisted housing, communities uh that uh have land trust models, co-buying structures. Uh, you're seeing some of that in the California markets, where you have shared equity and hybrid housing products that are growing solutions designed to bridge the affordability gap and build household wealth uh in high-cost markets. Are they predominant? No. But they are this creative methodology to be able to bridge the cost of housing. The models reduce upfront financial hurdles by splitting property ownership and equity gains on purchase cost and get people into housing, very similar to the BTR, the build-to-rent uh type of model that is a pure rental model where uh you uh build a property and it looks like a house, but it rents. Uh, you have a little bit more square footage, but uh it's an offshoot of that. So these shared equity and hybrid products, I think you'll see more of them. Amazon and Google are famous uh for looking into those type of aspects. So I think that they want to keep uh good, solid workers. They want to keep them uh in close proximity to where they work, and uh I think you'll see that it's advantageous for them in terms of their worker retention, and I think you'll see more of that in places like Seattle and the Bay Area, especially. Robbie Chrisman Doug, ton of good stuff there. Appreciate you running through all of that. Certainly some valuable tidbits for listeners out there. So thank you for the time. Doug Ressler You bet. Thank you. Hope I did good. Robbie Chrisman Today's economic calendar kicked off with housing starts for July, which came in at 1.239 million below 1.34 million expectations. Uh, we've also received building permits, which came in above expectations at 1.443 million. Import prices were down 0.4% month over month, and export prices were down 1.3% month over month. Later today brings July industrial production and capacity utilization and July pending home sales. We begin today with agency MBS prices slightly worse than Monday's close, the two-year yielding 4.19, and the 10-year yielding 4.74 after closing yesterday at 4.72%. Let's wrap up with a joke and some housekeeping. Here's some things we know because of TV. No matter how badly a spaceship is attacked, its internal gravity system is never damaged. If there's a deranged killer on the loose, this will coincide with a thunderstorm that has brought down all the power and phone lines in the vicinity. All bombs are fitted with electronic timing devices with large red readouts, so you know exactly when they're gonna go off. It's always possible to park directly outside the building you're visiting. Revolvers will fire at least 10 or 15 times without reloading. And if you decide to start dancing in the street, everyone you bump into will know all the steps and join in with you. Sponsor Thanks again to JazzX for sponsoring today's podcast. JazzX is a new operating model that helps you scale growth, boost productivity, and transform how your team performs. Learn more at jazzx.ai