Rising Rates: How to Navigate the Current Housing Market

In this episode of the Smarter Building Materials Marketing Podcast, host Zach Williams is joined by Lance Lambert, the co-founder and CEO of Resi Club and expert in the housing market industry. 
 

This conversation covers topics from the unanticipated resilience of the labor market to the challenges of housing affordability, along with insight that can help industry pros navigate current economic trends.

02:19 - Fastest rate hike cycle in 40 years.

03:36 - Builders frustrated with rate hikes, seeking relief.

08:05 - Supply is tight, affordability worsens, different markets perform differently.

11:17 - Why narratives and predictions aren’t always helpful.

13:23 - Corrections in the housing market, regional level and submarket level.

17:00 - Builder margins and margins throughout are important.

19:00 - Pain points if Fed-induced recession occurred
 

Recently venturing into entrepreneurship, Lance Lambert, the founder of Resi Club, is a versatile character in the housing and real estate industry. His newest venture is a comprehensive media publication and research company specializing in scrutinizing regional housing markets and home builders. 
 

Resi Club cleverly integrates new-age prop techs while consistently monitoring institutional companies. Before embarking on his own venture, Lance served Fortune magazine as its real estate editor and editorial director. 
 

Over his four-year tenure at Fortune, he methodically expanded his repertoire to encompass a broad spectrum of housing and real estate matters. Prior to Fortune, he polished his skills and knowledge with reputable stints at Bloomberg and realtor.com.
 

The conversation begins by addressing the letter sent by the National Association of Realtors and the NHB to the Federal Reserve, expressing their concerns about the rising interest rates.

“As soon as the Fed started hiking rates back in spring 2022, the long-term side of yields, the 10-year treasury and the 30-year fixed mortgage rate were on a bullet train up.” - Lance Lambert

Lance explains that the housing industry has experienced the fastest rate hiking cycle in 40 years. Mortgage rates have climbed from 3 percent to a staggering 8 percent — the building and housing industry is hoping for relief, but it hasn’t come despite assumptions and predictions. 
 

Lance does mention that this isn’t the first time this has happened. Back in 1981, builders actually mailed the Fed Reserve lumber as a form of protest. It isn’t surprising that this recent letter was mailed, and it isn’t shocking that it would be mailed at the end of the rate hiking cycle. From builders to brokers, industry professionals are becoming extremely frustrated and do not want to take the rising interest rate hits on the chin anymore.
 

The conversation shifts to the balance between affordability and supply in the housing market. Lance highlights the significant headwind of deteriorating affordability, which has reached levels unseen since the early 1980s. Simultaneously, there is a tailwind of tight resale supply due to low churn in the market, as homeowners are hesitant to sell with high mortgage rates.

"There's not much existing home inventory sitting on the market, which is active listings. We're down about 47 percent [in] September 2023 versus September 2019." - Lance Lambert

People with a 2 to 4 percent mortgage rate aren’t going to sell unless they have to — they don’t want to give up that rate for a 7 to 8 percent rate. The resale churn occurring in the market today occurs when something like debt, divorce or job relocation forces the home to become available. 
 

Lance advises to stay informed on regional market trends. Understanding the regional variations in home prices and market demand can help investors and professionals make informed decisions.
 

He also mentions how assessing builder margins can play a crucial role in adapting to changes in affordability. Builders with higher margins have more flexibility to adjust prices and incentivize buyers.
 

With the discussion turning to predictions for the next 18 months, Lance advises against making specific predictions due to the dynamic nature of the market. His main goal is to bring people together and provide a healthy amount of information while fighting narratives. 
 

However, Lance looks back to a year ago, noting how people’s predictions of rising rates were very temporary yet we are still seeing them increase, some now reaching 8 percent. Lance says that if consumers knew everything they knew today about inflation rates a year and a half ago there would have been more transaction churn and more activity occurring over the past year.
 

He also emphasizes the potential for corrections in the housing market at regional and submarket levels. While some markets continue to experience growth, others may go through cycles of decline due to affordability constraints. 
 

"If we are moving out of this 20-year period where house price growth has been very national throughout the country ... we would expect more pricing bifurcation heading forward." - Lance Lambert

When asked his opinion about the Fed actually lowering rates in the next twelve months, Lance advises that seeing how the economy holds is a key factor. He also mentions that Jerome Powell, Chair of the Federal Reserve of the United States, insinuated that the market still has time to cool off.

“I think the uncomfortable truth is that, right now, we're in a period where it's higher for longer.” - Lance Lambert

If people walk away now with the market being hot, does that set inflation up to increase again? The labor market and economy have shown resilience, so it may just be a waiting game for it to cool down until we see rates lower.

You can follow Lance on Twitter and access his newsletter through Resi Club Analytics. Opportunities to stay updated on the housing market and receive daily newsletters covering various aspects of the industry.

The Smarter Building Materials Marketing podcast helps sales and marketing professionals find better ways to grow leads, sales and outperform the competition. It gives insights, examples and shares stories about how to create a results-driven digital marketing strategy for building products and construction companies of any size. SBMM is co-hosted by Venveo’s Founder, Zach Williams and Venveo’s CEO, Beth PopNikolov.