Home Prices Are FINALLY Falling, Is Real Estate About To ROLL OVER?

0:00What's going on guys today we've got a very special treat for you I've got an exclusive interview with Lance Lampert He's the editor-in-chief of ResiClub. He's the number one residential real estate reporter in the entire country. He's here to give us an update on U.S. housing. Now, please make sure that you're subscribed on YouTube. We're trying to get to 1 million subscribers, and I need your help. Let's get into this conversation with Lance Lampert.

0:31All right, Lance, I thought a great place to start this conversation is people know that the housing market is frozen. Obviously, the cost of buying a home is expensive, both in terms of the aggregate price, but also the financing cost. Builders and many others are trying to do different things to get that effective rate down. Talk a little bit as to what are people doing in the market? How effective is it? And how much compression is there on home builders margins? Yeah. So during the pandemic housing boom, builders really had complete pricing power. They could sell as many homes as they wanted to.

1:03There was just so much demand out there. It was kind of like one of those videos where the fish are just jumping into the boat, right? And that's what it was for the builders back in late 2020, all of 21 into Q1, 2022. And during that period, even though material costs saw the biggest ever jump up and land cost also soared, builders hit the biggest ever profit margins, gross margins that they had ever had, most of them, even bigger than the 05, you know, 04 boom period. And so when mortgage rates shot up in 2022, going from 3%, 4%, 5%, 6%, 7%, a lot of these builders, because the affordability environment had shifted, there was less housing demand out there, they made a decision to compress their margin, come down a bit on margin, and do some of the affordability adjustments that could entice buyers into the market.

2:03Some of those were bigger mortgage rate buy-downs. That's really been the lever that has been the most successful for builders in 2023, 2024. And once they did those affordability adjustments late 2022 and cut net effective price cuts in some of these markets, it brought more buyers back into the market and kind of kept up home builders' sales, right? So they didn't see necessarily a huge pullback in their actual volumes, which benefited the economy in 2023 and 2024, because we didn't have that big hit to residential construction, like some people would have feared going into the rate hiking cycle.

2:46And so heading into 2025, late 2024, and all of this year, the supply-demand equilibrium has slowly been shifting more and more to buyers. And existing inventory in this strained affordability environment, and some of that is due to the builders because buyers go into the market and they're like, well, these existing home sellers aren't cutting price, but the builder is willing to work with me. That has put upward pressure on existing home inventory in the market. And so more of these markets across the country, which this is something Resi Club tracks down to metro level, county level, zip code level, have been rising and jumping up to and even exceeding pre-pandemic 2019 levels in some of these markets, especially in the Sundell areas, Texas, Florida, Arizona, Colorado, and to the Mountain West.

3:36and as that's occurred and buyers have gained more power, builders have seen a greater softening in the market and some of these markets like Florida and Texas, even greater full-blown weakening, right? And so as that's occurred, builders have had to go back and do bigger affordability adjustments and the mortgage rate buy downs that had had so much success in 2023, 24 have had less success in 25 And so some of these builders are actually even going as far to cut outright prices. And that's something that builders absolutely hate to do because it, one, it lowers the comps in their community, right?

4:16Two, it creates an effect where people in the backlog are like, wait, I paid X price and my home's not going to be completed in six months. But Jim Bob just came up and got 10 % lower than I'm paying and waiting on this house to be built. And so some people in the backlog, if actual prices get cut, can drop out, right? And so the fact that the builders have gone as far to cut some of the outright prices in some of these areas like Florida, Texas, Arizona, is a signal that there's been a weakening there. And so if you look at the numbers, we have seen greater compression of the builders' margins recently.

4:54Resi Club closely tracks all of the data for 11 publicly traded home builders. of the biggest. And of those 11, all 11 have seen their margins come down year over year. Now, I should point out that a good number of these builders, like let's say Pulte Group, they still have margins that exceed pre-pandemic levels. So while there's been this compression of margins, it's not necessarily like a 2008, 2009 weakening. And so builders have come down a bit on margins. And we're starting to get to that point where some of the builders are making the decision, well, do I compress margins further, like Lenar, who is below pre-pandemic levels, or do I just start to pull back in the overall number of sales, right, and start to protect my margins?

5:43And so we are starting to see a little bit of that ladder, and single-family housing starts have started to soften a little bit, and that could create a bit of a softening to the overall economy as residential construction, it looks like, is starting to roll over in particular for contractors. Now, what's interesting to me is we have seen, obviously, these home prices as measured by the government come down for four months straight, which is what you're essentially saying here is that home builders are cutting. There's this kind of change in the dynamic of what's playing out. What I think people expected, if you go back to April, maybe it was, oh, tariffs are coming.

6:22If these tariffs are put in place, shouldn't all of the materials that are used to build homes actually go up? The home prices should be going up rather than coming down. And so I understand the kind of dynamics of supply and demand, but have we seen tariff impact in housing at all, whether it's on the materials or any other aspect of it? Because to me, I think that's like maybe one of the counterintuitive things here is even though tariffs got put in place, we actually have seen these home prices come down, although maybe not as much as people want them to. Well, so a few things there. And I think when all of the tariff discussion was occurring, I think a lot of people were overlooking, and this is something ResiClub pointed out, and I think it's something you also pointed out.

7:01In residential construction, only 7 % is imported. So within the core of residential construction, most of it's domestic. And then the part that is imported, a lot of it is either drywall components from Mexico or softwood lumber from Canada. And some of those things were excluded from some of the new tariffs that were going into effect. And according to Toll Brothers CEO, and this is what he said on their August 20th, 2025 earnings call, this is a direct quote, we have not seen any significant impact on build cost from tariffs, and we do not expect to see any this fiscal year. He added that, in fact, we are anticipating that build cost will come down modestly in the foreseeable future.

7:53And so builders and what we've seen in the softening for residential construction isn't tied directly to tariffs driving up material cost. Material cost, yes, they're up year over year, 3%, 4 % if you look at these indices. But that's nothing compared to the run-up that we saw in 2021 where we had a single-year record of a 30-plus percent increase in material cost. Instead, the softening that's occurred is just really, it's coming out of this pandemic housing boom, where we had so much demand pour into the market, prices go up so much so quickly. And in some of these Sunbelt markets go up 60, 70 percent like in Austin and parts of Florida.

8:40And as we move through that and things get smoothed over, that's really what this recalibration period is and not necessarily tied to tariffs driving up input cost. And so builders, if you look at the earnings calls, they've said that sticks and bricks, which is talking about both the labor side and also the material cost side, neither of those are the big issues right now. And actually, we're in a moment where residential construction is softening. And so that part is actually decreasing some of the demand for materials. But that's driven to the actual, that's an after effect of the actual housing cycle that we're watching play out.

9:26Now, one of the things that you've talked about and I think have done a good job of highlighting is this bifurcation, right? So there's certain areas like the Sunbelt, which maybe are being treated a little bit differently than maybe what we're seeing in the Northeast. Talk a little bit about that bifurcation and kind of what people should take away from it. Yeah, there's a lot going on that's driving the bifurcation. And so if you haven't been following housing market the past couple of years as closely, essentially what we've seen is a lot more softening in these boom towns throughout the Sunbelt and Mountain West.

9:56The Austins, the Tampas, the Jacksonville, Florida's, parts of Atlanta, the places that really went up huge during the pandemic boom. And then we've seen a decent amount of resiliency in some of these secondary markets in the Midwest and Northeast pockets. Places like Scranton, places like Allentown, places like Albany, Buffalo, Rochester, Cincinnati, Cleveland, Indianapolis, Milwaukee. Those places have stayed a little bit tighter than some of the Sunbelt piers. And so what's driving that? Well, some of it is that the places in the Sunbelt that saw so many people move in and they saw a lot of people move in who had high incomes.

10:40And so those people who moved in with higher incomes had the bandwidth to bid up prices more. Right. And created that more of that housing demand into the market. But as that migration wave during the pandemic has really decelerated significantly. So in Florida, between summer of 21 and summer of 22, on a net basis, there was 300 ,000 Americans who moved into Florida, right? Over the most recent 12-month period, it was 60 ,000. So, yeah, people are still moving to Florida, but it's not like it was before. And so what that means is that local incomes have to support where prices got to, right? And oh, by the way, those places that saw a lot of that migration burst during the pandemic, those are the very places that saw prices go up even more and created a greater detachment from underlying incomes.

11:35So that's one part. A second part is that a lot of these sundaunt areas, they have this healthier component of their housing market that they actually build homes. And so when you have a housing market where the affordability environment has shifted very dramatically, the markets that have that supply of multifamily and single family coming into the market, the builders will want to move that and want to continue to try to build if they can. And so to do so, they'll do some of the net effective price cuts, right? The bigger buy downs, maybe actually cut prices. And on the multifamily side, maybe offer up a few months of free rent or some of these other incentives.

12:18And so as that's occurred and that supply has hit the market, it's created a cooling effect. And it's grabbed some of the buyers that would have otherwise went and bought in the existing resale market. And it's drawn their attention to new construction. And so then that existing and resale inventory begins to build and it creates some slack in those markets, which, in my opinion, is healthy. We want that. We want we don't want prices to go up 40 percent in a 24 month period. That's not healthy for the economy. It's not healthy for the housing market either. And so that's a lot that's driving the bifurcation.

12:56And I'll throw out one more while we're here, which is there is this form of a lock in effect that's occurred on the market that's really tied to the affordability shift. And so a lot of people in the country, around over half of homeowners, could not afford to buy their house today at today's prices and today's rates, even the one that they live in. And so a lot of people are looking at what that new monthly payment would be to buy something else out in the market and sell their house. And they're like, no, I'll keep my lower monthly payment, lower rate. And a lot of them, even if they wanted to, couldn't afford it.

13:34And so we've seen a segment of the market around one fifth of normal churn that would be in the market gone. Right. But here's the thing. When that component of churn gets knocked off the market, it takes a seller and it takes a buyer. So it takes away some supply and it takes away some demand. But where that supply that's taken away and where that demand that's taken away could be two totally different places. So if you're somebody that's in Connecticut or Illinois or New Jersey, and you are going to sell your house to go move to Florida or Texas for tax reasons or greater affordability or whatever in 2024 or 2025, but you look at what that new monthly payment would be, and a lot of the incentive to make that move is gone because you would give up that 3 % or 4 % rate and take on a 6 % or 7%, and you're like, I'm not going to do it.

14:25So that would take away some supply from Connecticut, Illinois, and New Jersey, but it would take away some demand from Florida, Texas, or Arizona. And so that's also part of what's driving the bifurcation. Yeah, it's fascinating to think through this. You've mentioned the dual mortgage drought, which I find fascinating. Explain what's happening there. Yeah. So ever since mortgage rates shot up in existing home sales on a seasonally annualized basis, and I know people hate that word, but pretty much what that means is however many existing home sales we're doing right now, given how seasonality normally reacts, that's how many we would do in the next 12 months.

15:03And so that number of annual home sales right now is around 4 million, 4.1 million. And that's what we've been doing, the pace, since essentially late 2022 when rates shot up so much. In a normal market, now in a pandemic market like 2021, that boom period, we saw 6.1 million existing home sales, but that was abnormal. In a normal market, given the size of the country and the population and how many households, we should be around like 5.3 million existing home sales. And that's what we did in 2017. That's what we did in 2018. That's what we did in 2019. And so we're hovering around 4 million versus 5.3.

15:43So we are missing essentially 1.3 million existing home sales per year right now. And so if you do the numbers, given how many existing home sales we've had this decade so far versus what the normal trend would be, we're about 3 million existing home sales below trend. So we've lost out on 3 million existing home sales. And that's even accounting for the fact that during the pandemic period, we saw 1.2 million excess existing home sales. And so existing home sales, the purchase side of the market for mortgage is really constrained. And on a population adjusted basis for households, we're at essentially around a 40 year low for existing home sales.

16:30So that's the purchase side of mortgage, right? Three year drought on that side. Then the other side of mortgage is refinance. And as soon as a mortgage rate shot up from 3 % to 4 % to 5 % to 6 % to 7%, traditional refi term refinances just disappeared almost, right? Because who's going to give up a 3 % rate to get a 7 % rate? Now, over time, we've slowly seen refinance make a little bit of a move up. And a part of that is because we've seen rates, mortgage rates come down from the absolute peaks when October 2023, we briefly hit an 8 % average mortgage rate handle. and since we've come down a bit from there, we're around six, five now for the average 30 year fixed mortgage rate, because we've come down some, some of the buyers in late 2022, 23, early 24 vintages have taken this opportunity to refinance and get a little bit of payment relief.

17:37So that's created a little bit of activity for refinance, but it's still very low. Now there are some cash out refi still occurring and that's, but still fairly low in terms of the cash out refinances. And really what's keeping alive the cash out refinances is that some people in this higher rate environment, especially the bottom kind of fourth of homeowners who have a good amount of like credit card debt in this higher interest rate environment with auto loans being so high and credit card interest rates being so high, Some people have had to do cash out refinances to cover all these other expenses that they have.

18:19And so that's given a little bit of a boost to cash out refis, but still refis are essentially in a three-year drought as well. And so mortgage the past three years, it's just been very tough because usually for mortgage, it's normal for one side of the house to be down at a time. Like let's take 2008, 2009, 2010, 2011, the purchase side of the market was way down at the bottom, right? But as rates fell, there was actually some refi booms that occurred. And there was way more refinances during that period than there is today. Well, today, purchase side is just as low as it was in 08, 09, 10 in terms of existing home sales.

19:03And then refi is at essentially a multi-decade low, and it's coinciding together. And so it's just been a very tough three years for the mortgage industry. We've got about a minute and a half before we're going to let you go, but Open Door has become a darling of the retail investor community. When I talk to people in the traditional finance world, they're not as ecstatic. They seem to think that there may be some issues there. I hold shares. I like the retail movement, but you're a housing expert. What do you think about Open Door? Well, I think with Open Door is that when rates shot up, Open Door was definitely a little over its skis.

19:42It had overpaid, in my opinion, for some of the homes in some of these boomtown markets. And so there was a bit of a recalibration period for them. And then just in general, it's been kind of challenging for this iBuyer model in this higher interest rate environment and where there's less churn occurring in the housing market. Now, I think that the company seems to have stabilized some of the components to its core business. But with this influx and interest into Opendoor, the company, not just iBind, but the company itself, if the company could find ways to use this momentum to move into other business avenues and to really attack the areas of opportunity and housing, because they're one of the few that can operate at scale, right, in housing.

20:35And so I think if they're able to use this area of opportunity in this retail momentum and attention, I think there's some interesting things that they could do. But in terms of like iBuying, its core business, I still have a good amount of skepticism to how that plays out long term. But I'm not an iBuying expert either. I love it. I love it. I mean, look, it makes sense, right? They've got eyeballs, they've got attention. People are excited about it. Can they figure out how the heck do they serve customers, create a product that people love, drive revenue and profit, and you got a good business.

21:11So I don't think that what you're saying is unreasonable at all. In fact, I think that's what the team's trying to figure out, right, is how far can we take eye buying? What are the other tangential things that we should be doing to build a great business? So all makes sense to me. Where can we send people to find more about ResiClub, find your writing? Yeah. So Google Resi Club or go to our URL, resiclubanalytics.com, put in your email, sign up for our newsletter. You can also find us on Twitter, Resi Club, or you can find me at News Lambert. And I'm also on LinkedIn as well, Lance Lambert. And Resi Club Pro is the paywalled version, but you write more there.

21:48There's kind of more analysis. Explain a little bit about that. Yeah, I think if you're investing into single family housing or if you work in the housing sector, I think it's a must, really, because we get deep into the data. We explain really what's going on in a way that makes sense. We're looking at it from a regional perspective, metropolitan areas, counties, zip codes, and really getting into the nuance. And the other thing that's interesting about ResiClub is we have so much access to these top players across the sector. So you look at a guy like Sean Dobson, who's the CEO of Amherst. He was one of the few that actually bet against the housing market before it blew up in 2008, kind of similar to the big short trade.

22:33And then he bet the opposite way when the market bottomed and he started buying up single family homes. And now Amherst is the fourth largest holder of single family rentals in the country. And he's going to be speaking at Resi Day, which is our conference, November 7th in New York City. So I think that that combination is kind of really what we offer up with Resi Club Pro. It's three exclusive research reports per week. And, you know, you're the number one residential reporter in the country. So that doesn't hurt either. So, all right, Lance, thank you so much for your time. I always enjoy getting an update on the housing market and there's a lot of stuff going on.

23:11People are paying attention. So thank you so much. We'll do it again in the future. Anytime.