Zillow: The Buying Window Could Be Closing in These States

0:00We've been saying that it's a buyer's market, but is the buying window already starting to close? This is a key point to understand if you're thinking about buying a new property in the coming months. Are conditions better now or are there better deals to come? Today, we're going to find out.

0:21Hey, everyone, I'm Dave Meyer. I'm a housing market analyst and the head of real estate investing at BiggerPockets. Joining me today on the show is Dr. Kara Ng, a senior economist on the economic research team at Zillow. Kara is going to share some insights on some data Zillow recently released, which indicates whether the current buyer's market dynamics are likely to remain steady or shift back towards sellers. And then we'll discuss the impact of recent Fed cuts on mortgage rates and also some really fascinating demographic data about U.S. homeowners. This episode is going to be jam-packed with information that will give you a leg up against your competition in the housing market.

0:59So let's bring on Kara. Kara, welcome to the Bigger Pockets podcast. Thank you so much for being here. Of course, I'm happy to be here. Can you just tell us a little bit about what you do at Zillow? Okay. So my name is Kara Ng and I'm a senior economist at Zillow. And basically I get paid to nerd out on data and then share this insight with everybody. Dream job. It's kind of like my job. It is the best job for people like us. So tell us, what are the big picture things that you're tracking? What are the big trends that you think are important for our audience? OK, so there's lots going on today.

1:33But one thing I want to flag is buyers who are waiting until spring or until, you know, something happens in their life to be able to buy a home. So what we're seeing in the data is that buyers have a lot of options right now. They have more time to decide and they have a lot of bargaining power compared to past August's and previous seasons. And so this might be an opportunity for a buyer, if they're looking, to take a look again to see if they can find a house that fits their needs. And then the caution for this is like if you want to wait until the mortgage rates fall more for negotiation power to increase more, like that's a riskier gamble.

2:13Because what we saw in August was that new listings fell. Yeah. It was the lowest level of new listings for the month of August in the history of Zillow's data. So I think what's happening is that sellers are sort of picking up on the fact that they are losing negotiation power and they might be thinking, I'm going to wait. And so they kind of pulled back on listing their homes. I totally agree that this is the most interesting story in the housing market. And for those of you who maybe not like Karen Meier looking at this every day, let me just provide a little bit of context here. Basically, for the last year or so, we've been seeing inventory going up, or really since it bottomed out in 2022 or so.

2:54It's just been going up consistently, and that has been slowly shifting the housing market from what has been a strong seller's market more towards a buyer's market. But eventually what happens in a normal investing cycle is sellers are like, well, I don't want to sell into a bad environment. And unless they're forced to sell, they have the option to not sell or to wait or to do whatever. And that's exactly what we're seeing. And I want to get to what Kara mentioned in just a minute about what that means for buyers. But does this signal that we are in more of a normal correction than having risk of a crash?

3:32Because we're sort of seeing the appropriate response from sellers, right? We are seeing the appropriate response. So you brought a very good point. Right. Today's seller is very different from the seller we saw before the global financial crisis. They're usually in a stronger financial position. They are not forced to sell. So they have the luxury of saying, like, this is not a market I want to enter into. I'm going to wait a few months maybe into the new home shopping season before I try again. So, I mean, that's kind of encouraging and it kind of attracts with what we're seeing. And do you think that will preserve prices somewhere near where we're at?

4:08because I've been following your predictions, Zillow's updated home price forecast all year. I think it started mildly positive and it's kind of drifted down a little bit to mildly negative for the year. Is that sort of where you're thinking will wind up at the end of this year? Yeah, flattish to mildly negative. I mean, we think prices are going to fall by a little bit, but it's not very much. And I think a lot of that has to do with sellers are kind of putting a floor on how much prices can fall. Right, exactly. And can you tell us about like the regional differences in where we're seeing sellers pull back the most?

4:41Ooh, yeah. So sellers are pulling back in a lot of places where inventory has recovered by a lot. So it's gonna be a bit of a roller coaster, but okay, think to Texas and Florida, right? These are places that had a big boom in the first part of the pandemic where everyone wanted sunshine and affordable living. No income tax. No income tax. That's pretty nice. Yeah. And then builders flocked in because they wanted to capture some of this demand. So they started building and then inventory rose and then it got to the place where prices were falling. And so now we're seeing sellers pull back in these places where they realize like, oh, if I don't have to sell my home right now, I might have to wait.

5:25I might want to wait because it seems like this market is just very saturated. Inventory is accumulating. Yeah, that's sort of why it feels healthy to me that this is happening, because you would want to see sellers pull back in the markets where inventory is going up and prices are declining the most. If we saw more people selling and piling on to that situation, that's when I would worry about more significant declines, 5%, 10%, something like that. But you're seeing the corresponding change, whereas the markets like in the Midwest, right, in the Northeast where selling conditions are still really good, that's where we're seeing new listings keep rising, right?

6:05Well, yeah. I mean, it's still a seller's market over there. And not only is it a seller's market, it's – I mean, Northeast is structurally underbuilt. There aren't enough homes to go around. And so it makes sense that if you're a seller and you want to sell, like you're not in a place that's disadvantaged. What do you think this means for buyers? Because you alluded to it a little bit earlier that people can wait and there's a chance that buying conditions could improve, but there's a chance that they stay the same or they even get worse again. How would you approach this kind of market if you were a buyer?

6:34I would just take a look at what I can afford at today's market, at today's prices, at today's mortgage rates, and see if I can find a home that fits. Because I think that is the most important thing. Buying a home is not like going to the grocery store and impulse buying a candy bar, right? You're stuck with this home for a long time. So you want to make sure that it fits your needs for now until the foreseeable future, right? And so that to me matters more than whatever the mortgage rates are, whatever the prices are. I mean, these things are important in that it'll determine whether or not you can actually buy that home, if you can afford to buy that home.

7:07So that's the first place I would check. Like if you were shopping earlier in the season, and you held off because we're like, oh, I can't find anything that I can afford. Mortgage rates have ticked up a little bit, but there's still a downward trend compared to May, right? So if you haven't looked lately, check what listings you can afford now, because it might be that a home that was out of reach before is now within reach and it fits your needs. That's great advice. I always recommend to people, you know, on our podcast, our audience, people who are mostly investing in real estate, buying rental properties.

7:40But if you're going to buy it for three, four, five-year hold periods, just make, if it works today, that's the most important thing that matters. Speculating about the future is really very challenging. And you and I do this all day, and it's still very difficult to forecast how this is going to happen. And I don't know about you. But to me, the global economy is feeling less certain than ever. And trying to forecast what's going to happen in a given month, a given year is going to be even less accurate than it is traditionally. And it's pretty inaccurate, even during normal times. So I think that's very wise advice.

8:19And the range of what we're forecasting isn't very large. So we're expecting prices to I flatten or fall by a little bit, right? So that helps a little bit in terms of affordability. We're expecting mortgage rates to dip down a little bit by the end of 2026, but we still expect it to stay within that 6 % to 7 % range that we've seen for a long time now, right? It might end up a little bit closer to the 6 % than the 7%. But all that together combined, is it worth waiting if I've already found a home that I can afford that I like to see if there's a better deal out there? I don't know. Yeah, it's very unclear if that will happen.

8:56If rates do drop more than that, prices could go up and offset some of the affordability gains that come from a mortgage rate drop, right? Why would mortgage rates fall by that much? You have to think about that. Because the recession. And then at which time are you going to want to buy a home then? Right, yes. With mortgage rates, it's a very tricky idea because mortgage rates falling, helps with affordability. But what would it take for more curates to fall, right? The most obvious thing is if there's softening in the labor market, which, you know, hopefully it's not your job that's been softened, right?

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13:11Welcome back to the BiggerPockets podcast. Let's get back into our conversation. Everyone wants to talk about mortgage rates. And you are echoing what I've been saying on the show all year that I think that rates are not moving down that much. I know a lot of people in this industry really want them to. It would probably help the industry, but I think it's unlikely. Can you tell me why you think six to seven is the range going forward? Well, because we're fighting two opposing forces, right? So mortgage rates can take lower if we have a softening labor market, which we're seeing signs of. We're seeing the labor market cool.

13:44But at the same time, you also have inflation that's relatively stubborn. And so these are two opposing forces that keep interest rates up and one keeps interest rates down. And so that's why you've been stuck in this range. unless something happens to break one of these forces to win this tug of war, it makes sense that mortgage rates will stay within this range. Yeah, I think that makes a lot of sense. Bond investors, the people who really have a big impact on the direction of mortgage rates, they're as confused as we are if there's recession coming or if inflation is going to win out. Like you said, there's these two opposing forces.

14:20And so until there is clarity one way or another, right, We're not going to see mortgage rates move in much of either direction. Sure, each data print we get, it moves a little bit back and forth. But we're sort of settled in, I think, a little bit with rates right now. And I think that's true even if the Fed cuts rates two more times this year. Yeah. So remember how many rate cuts the market is expecting. It's going to be very hard for the Fed to live up through the expectations. So if the Fed doesn't deliver on all the rate cuts that the market is expecting, mortgage rates may go up rather than down.

14:57All right. So that's your outlook for a mortgage rates looking at six to seven percent. But how do you think that translates into buyer activity going into next year? Because as you said, people probably even mathematically shouldn't wait, but people do. And we're also at extremely low home sales volume relative, especially to the pandemic, but even compared to historical norms. We're still pretty low. So where do you see sort of overall buyer sentiment and housing market activity going in the next year? Yeah. So from Zillow surveys, people are sort of coming to terms that mortgage rates aren't going to fall significantly.

15:41So in terms of transacting, that is not necessarily the barrier for people to hold off buying a home or hold off listing their home. Rather, a lot of the softening in sales activity has to do with other forces in the macroeconomy, right? Like the fact that job growth is just sort of stagnated. Zillow also finds that people move because they get a new job. And I think there's kind of a rate lock situation going on, but for jobs in the labor market. Because, I mean, people aren't really getting fired or they're not really getting laid off, but they're also not quitting. And you're not forming a lot of new jobs.

16:17So you're basically stuck where you are. So you can't really get move up. You don't want to move down. You don't want to move out. Right. So it's sort of like wait your luck for jobs. And anytime you have low job turnover, it means that residential mobility would also slow because, again, Zillow finds that the number one reason people move is for a new job. So when people move for a job, there's usually a strict timeline, right? They have to be in Dallas by October because they are starting their new role. If you take out jobs as the reason for people moving and you're just looking at the other life events like people getting married, people having a kid, people becoming an empty nester, these things do prompt people to move, but it's less urgent.

17:06And so I think that may be another reason why you see sellers able to pull back. If they can wait six months, it might be worth it for better conditions. But that's not the case if they have to move for a new job. Well, bringing up the better conditions and the idea of waiting till spring, which people have always touted as the home buying season. I guess I'll just ask you straight up, is the housing market still seasonal? I feel like for, you know, prior to the pandemic, we saw very predictable patterns, both in inventory levels, home sales volume, pricing. Every single year, it was very seasonal.

17:43Now, it just kind of feels a little bit different. Are you seeing the same thing? Well, I think what you're mentioning is sort of like mortgage rates create their own seasonality. Right. But there is a reason why people list in the spring and then the season sort of tapers off before the holidays, right? It's because it's a coordination exercise. You want a bunch of homes available so people can transact. If you're a seller, you want to be able to list your home, have someone buy it, and then move into your new home. That only works if there's some kind of coordination. And it so happens that if you have a family buying a home in the spring, moving that home into the summer and getting sold before the school year, it's just a natural place that makes it convenient for their lives.

18:23And it also makes sense that it slows down before November, before December, before the holidays, because no one wants to eat turkey in front of a bunch of boxes. Yeah, just off of the boxes, if you're anything like that. Off of the boxes. There's no table. Okay, well, that's super interesting. So as we move back to what you, I think, Azil, are describing as a more neutral market, maybe we'll start to see some of that traditional seasonality come back. And if you're correct, too, that mortgage rates are perhaps going to be a little bit less variable and going to kind of stay in this range that we might start to see some of those normal patterns arrive again.

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23:32Welcome back to the BiggerPockets podcast. Let's jump back in. So Cara, I know you're actually around the corner from me right now, and you were speaking at a conference on housing policy today. Can you tell us a little bit more about that? Yeah, sure. So in this housing conference, we were talking about some of the challenges renters are facing when they're hoping to transition into homeownership. And we talked about the affordability challenges. So saving for a down payment and affording the monthly mortgage payments. And we talked about how homeownership gaps by race are persisting because of just some ways that generational wealth gaps are persisting.

24:12So for example, a down payment, saving for a down payment is very very hard if you're a renter because we know that compared to five years ago the amount of income you need to make rent as a renter went up by twenty thousand dollars right so that is a stretch on your budget okay so which makes saving for a down payment very very hard and then if you are a first-time home buyer then you don't have a home you can sell to leverage into your next home and then also if you're a minority household and you're the first generation home buyer, it's harder to tap into the bank of mom and dad for down payment help, because likely mom and dad don't have a home.