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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 34 January 2024 F E A T U R E S T O R Y Q: If I had asked you at this time last year, what do you think you would have predicted to be the defining housing market factors of last year? Channel: They probably would have been similar, just because we have been talking about this stuff for so long. For example, rates are evergreen. If you ever ask somebody, "What's a big driver of the housing market?" mortgage rates are al- ways going to be at the top of the list unless you live in some crazy all-cash market. I think going into 2023, I might've been a little bit more inclined to say that home prices would move more than they did. If 2023 proved anything it's that even in the face of 20-something-year low mort- gage demand, home prices can stay steep. I would also have been talking about inflation last year, although my take on it might have been a bit less rosy. Coming into 2023 from 2022, the picture for inflation seemed worse. There was a lot more con- cern about whether the Fed rate increases were helping as much as they could. "How much longer do we have to put up with this?" was a common question. Fortunately, because inflation has cooled noticeably this year, the answer might end up being "not as long as we initially feared." Q: Are there any stories happening in the economy or housing market that you find fascinating but that may be overlooked? Channel: I already touched on it, but the idea is that wages are indeed growing. There is a disconnect between how people view their finances versus how they view the finances of the nation. That is often lost in the conversation. I am guilty of it too, and I think we all are. We focus on the negatives because the negatives are scary, and it is like an elephant in the room—you are going to talk about the elephant, even if the elephant is just chilling in the corner and not doing anything. If you look at things like mortgage delin- quency rates, they are currently extremely low. Delinquency rates on other types of debts are increasing, but they are not as high as they were before the Great Recession. At the end of the day, no matter how good the economy looks at the macro level, people will struggle at the micro level, but broadly things still seem like they are going okay. Daryl Fairweather, Chief Economist, Redfin Daryl Fairweather is the Chief Economist for Redfin. Her insights have been featured on 60 Minutes, CBS Evening News, and in the New York Times and Washington Post. Before joining Redfin, she was a Senior Economist at Amazon, working on prob- lems related to employee engagement and managing a team of analysts. During the housing crisis, she worked as a re- searcher at the Boston Fed studying why homeowners entered foreclosure. She received her Bachelor of Science from the Massachusetts Institute of Technol- ogy and received her Ph.D. and master's degree in economics from the University of Chicago, where she specialized in behavioral economics. Q: What are the factors you believe will define the housing market in 2024? Fairweather: I am going to take a step back from rates and say inflation because that is what is driving rates right now. However, I don't think there is any reason inflation would heat up again. As inflation slows, that will allow for rates to come down more than they are right now. It seems like the market is optimis- tic too, so we would need inflation to come down even more than the market is expecting for rates to also come down. The productivity of workers has been improving, and maybe it will continue to improve because of advances in things like AI and remote work. I believe that's the reason why GDP is growing without inflation becoming more problematic. It's because the actual capacity of the economy seems to be increasing, which is ideal. That may allow the GDP to grow without inflation, and without the Fed- eral Reserve needing to intervene with higher rates. That would give us a strong economy and a strong housing market, and I feel like that's a best-case scenario. I'm in an optimistic mood right now. Q: What if things go in a more negative direction? Fairweather: During the pandem- ic, we had a bunch of challenges with supply chains. We've had international wars. Anything that makes things more expensive or makes it harder to operate in this economy could contribute to in- flation in a way that the Fed doesn't have good tools for and could lead to lower GDP growth and higher inflation. For a second high-level factor, I would say new listings of existing homes, specifically, and looking at the mortgage rate lock-in effect. It seems to have been holding back the housing market these past two years. People can only put off selling a home for so long, so I think we'll get more inventory next year, but how much is an open question. Q: Do you see factors on the horizon that you think will finally break that stalemate and encourage people to sell their homes again? Fairweather: Rates coming down helps because that narrows the gap between people's current mortgages and their next mortgage, but that gap is going to be there no matter what. It's not coming back down to 3%. The other thing is just time. People can only hold out for so long. Some people have paid a lot of their mort- gage off, or all their mortgage off, where this doesn't affect them, so I think we may see some release there on listings. Q: Are you seeing any movement in older Americans who, even before all the rate shifts, were choosing to age in place rather than downsize and return their homes to the marketplace? Fairweather: Redfin reported on how long people stay in their homes, and it went down a little during the pan- demic boom when mortgage rates we so low and everybody was buying houses. Because there were so many new homes