About this episode:
Chief U.S. Economist Lara Rhame, Director, Investment Research Andrew Korz and Director, Investment Research Kara O’Halloran discuss the state of the housing market, the macro backdrop that brought us here, how hot the market really is right now and Andrew tackles the question on everyone’s mind, “Is this a bubble?”
Kara O’Halloran (00:05):
Welcome back to FireSide, a podcast from FS Investments. My name’s Kara O’Halloran, I’m a Director on our Investment Research team here. Today we’re going to talk about something that a lot of people have been talking about for the last year, and that really impacts almost everybody, and that is the housing market. I think most, if not everyone out there, has heard about just how red-hot the market is right now. There are stories about people buying properties sight unseen. Waiving inspections is almost the norm. It’s really just crazy out there. I am excited to dig into what caused this really red-hot market; whether we are in another real estate bubble and where we think things can go from here. I am joined today by Andrew Korz, who is another Director on our team who focuses a large part of his time on the real estate market. And Lara Rhame, our Chief U.S. Economist. Welcome.
Lara Rhame (00:54):
Andrew Korz (00:54):
Kara O’Halloran (00:55):
To me, the housing market has really been one of the more surprising side effects of the pandemic. In a way, it makes sense. We all sat at home for the better part of a year. I know I became very critical of my space. But there was also a lot of economic uncertainty, especially back in March of 2020. There were risks of even just touring other people’s homes or allowing people into your home to tour. But I think a lot of these trends really started before the pandemic. So Lara, I want to start with you, as always, to walk us through the macro backdrop of what has helped create this market.
Lara Rhame (01:30):
100%. There’s no market that really has included virtually every narrative of the pandemic economy like the housing market. One of the hallmarks of that is just the extraordinary growth that we’ve experienced since the bounce that we had in the third quarter of 2020. We had this massive decline. The growth has been just extraordinary. It continues to track at levels far beyond our potential GDP growth. And specific to the pandemic, has been this big shift in workers. We’ve had people moving from urban centers to the suburbs. People in the suburbs moved to the exurbs. The very expensive cities saw a lot of movement and migration to lower cost localities, or lower tax localities even.
Lara Rhame (02:24):
Finally, one of the big policy responses to the pandemic was the Fed policy of lowering interest rates. These rock bottom interest rates have fed through to housing one of the most interest rate sensitive sectors of the economy. Clearly, pandemic forces have driven housing from a strong market to just over the top. But very quickly, prior to the pandemic, we saw housing already experiencing structural tailwinds. I’m sure Andrew’s going to go more into some demographics, but the household formation trends were already pointing to the need for more houses and construction has lagged. So, for all of those reasons, housing was already experiencing strong tailwinds. Those have just been fueled exponentially by the pandemic.
Kara O’Halloran (03:24):Andrew, I want to talk about some of the crazy stats out there. I know you have some interesting supply and demand stats. I just bought my first home. I honestly felt that there was a period in time where I was going to have to be sitting on the front steps before these properties went on the market in order to find one. It was so, so competitive. Anecdotally, I experienced that. But walk us through a little bit about what’s going on in today’s market.