Five Questions With Jonathan Smoke, chief economist, Realtor.com
Jonathan Smoke leads a team of real estate analysts who regularly post news and analysis to Realtor.com, the official website of the National Association of Realtors®.
Before joining Realtor.com in 2014, Smoke held several executive
positions at Hanley Wood, an information, media, event, and strategic
marketing services company serving the residential, commercial design
and construction industries. Smoke also founded BlueSmoke, LLC
of Atlanta, a housing market research company that provided consulting
services to builders, developers, lenders, and real estate investment
companies, and served in several roles for Beazer Homes of Atlanta and
Deloitte. He has more than 20 years’ experience in the housing
industry. You can follow him on Twitter at @SmokeonHousing.
Smoke graciously found time between market forecasts to share some insights with The Score, and he even offered some musical recommendations for your listening—and dancing—pleasure.
Conventional wisdom on Millennials is that their risk aversion makes them more comfortable renting than taking on the debt of a home purchase. As with all generalizations, there’s probably more to the story than that. How does that square with your observations?
The idea that Millennials prefer renting is not supported by various surveys of attitudes and preferences. These indicate that young people have a positive and strong opinion of home ownership. Millennials already outnumber all other generations in buying homes. They represented 35% of buyers last year, according to the 2016 Home Buyer and Seller Generational Trends report from the National Association of Realtors®. Their entry into home ownership was somewhat delayed by the recession, but that’s behind us. We now see affordability, available inventory, down payment requirements, and credit access as their biggest impediments. Those impediments are most easily overcome in more affordable markets and indeed, we are already seeing substantial buying activity this year in affordable markets.
You’ve predicted that 2016 will see an unusually robust spring housing market. What are some of the factors behind that forecast?
Several factors point to a strong likelihood of seeing the best spring housing market in a decade. First, we have a substantial amount of pent-up demand from buyers who tried to purchase last year but were held back by limited inventory. Second, we are seeing some increase in housing inventory, principally through an increase in new single-family construction. Third, both the economy and consumer confidence continue to be strong, likely adding to the pent-up demand. Rents are increasing as rapidly as home prices, so first-time buyers are realizing that if they can buy sooner, they will financially benefit. And finally, mortgage rates are now lower than they were last spring, which adds to buying power and/or the ability for more people to qualify.
What the heck is going on with mortgage interest rates? They declined in the wake of the Fed’s December rate hike (by more than 30 basis points as of early April). How long do you expect rates to stay low?
Forecasting mortgage rates has been the bane of economists for several years. The expectation originally for 2016 was that rates would slowly move up, with the 30-year fixed conforming rate likely to reach about 4.5%. Instead, rates have fallen and the 30-year fixed confirming average is now in the low 3.6% range. Many foreign central banks are pursuing negative rates, which has increased the global demand for U.S. dollar and U.S. bonds. Our domestic rates have thus fallen, despite the efforts of the Fed to raise short-term rates. Now the Fed is sounding more dovish and is likely to go very slowly with any efforts to raise short term rates this year. As a result, rates are likely to stay low—at least under 4%—throughout the spring buying season. If more positive U.S. and global economic data emerge suddenly, rates could jump up. Rates are likely to end the year up from where we are now, but I don’t think rates are likely to end 2016 any higher than where we ended in 2015.
Presidential election cycles always fuel some marketplace uncertainty, and this cycle is the most unconventional in memory. As the contest firms up for the general election, do you anticipate any specific impacts on U.S. housing, this year or next?
Presidential election years are not strongly correlated with good or bad housing markets—over the last 40 years we’ve had both. They tend to be slightly better than average, mainly a result of more stable Federal Reserve policies during election years. We don’t have a comparable moment in history with robust housing data to study for possible insights into this one. I have to fall back on my own experience to say that people generally don’t make housing decisions related to, or dependent on, who occupies the White House. The eventual winner will face challenges in Congress if he or she seeks to enact any far-reaching policies that could have a long-term negative impact, so I have to assume that any impact we might see will likely be temporary and related to fluctuations in consumer confidence.
You’ve posted videos at Realtor.com in which you appear as your alter-ego as “DJ Smokey Smoke.” What similarities are there between the real estate and music businesses, and what would be your choice of theme song for the 2016 housing market?
Real estate and music both mean something deep and special to nearly everyone. Technology is changing both industries—we have more information and more choices, but the irony of the modern scene, with information overload and access to virtually everything, is that we need DJs and Realtors more than ever.
Asking me to pick one song is tough, but if I had to pick one for 2016 it would be Flo Rida’s “My House.” The state of Florida is back on the hot market scene with demand surging and prices in most areas following as the state has finally emerged from its foreclosure hangover. But even better than that trend, the song speaks to the essence of today’s demand—owning a home is cool again.
My bonus pick would be “Dessert” by Dawin. The financial market turmoil at the beginning of the year has given buyers more than 5 percent more buying power thanks to the lowest mortgage rates we’ve seen in nearly 3 years. Whatcha gonna do with that dessert? Who wouldn’t want to dance to that?