WFG’s Q2 Economic Outlook webinar, co-hosted by WFG Chairman and Founder Patrick Stone and noted Economist and Forbes Contributor Bill Conerly, PhD drew more than 1,000 registered participants eager to hear insights into the current and future state of the economy and real estate market. In his opening remarks, Stone addressed pressing concerns regarding a potential real estate crash in 2027, expressing his belief that such an event is unlikely. He explained why panic should be avoided, drawing distinctions between the real estate and financial markets and noting that speculative real estate investments represent only a small fraction of the market.
Throughout the session, Stone offered a thorough analysis of supply and demand dynamics, historical market trends, and future projections. Key topics included the sustained increase in home ownership desire among millennials, the challenges posed by high interest rates, and the imbalance between housing supply and demand, particularly in states like California. Engaging in a comprehensive Q&A, Stone provided expert advice on issues ranging from the implications of the presidential election on real estate to strategies for identifying homeowners with equity. His insights provided a valuable, data-driven perspective, offering optimism for a gradual market recovery and actionable advice for industry professionals navigating these complex times. The following is a summary of the key observations and forecasts Stone shared during WFG’s 2nd Quarter 2024 Economic Outlook webinar.
Opening Commentary by WFG Chairman and Founder Patrick Stone
- Stone discusses potential concerns about a real estate crash in 2027, which he doesn’t believe will take place.
- Stone explains why he doesn’t expect a crash, highlighting the differences between the real estate and financial markets, and emphasizing that only about 10% of real estate is speculative.
Supply-Demand Dynamics
- Resales: There are about 85 million single-family homes in the US, with 16% rented and the rest owner-occupied. People are staying in their homes longer due to low interest rates and social changes.
- New Construction: Over the past five years, the US has averaged 1.448 million new home starts annually, with an average of 1.397 million homes completed each year.
- REOs: Currently a non-factor, with an estimated 35,000 foreclosures nationwide due to high equity and low-interest rates.
Demand Side Elements:
- Need: There is a significant group of homebuyers aged 20-40, comprising around 90 million people.
- Desire: Pandemic heightened the desire for homeownership. Recent surveys indicate 95% of people aged 20-42 want to buy a home.
- Affordability: The biggest challenge due to high interest rates and home prices.
Historical Context and Market Trends
- People are staying in homes longer. Average tenure has increased from 6.5 years in 2005 to 12.3 years currently.
- Annual sales volumes fluctuated from 5.64 million in 2020 to an estimated 4.25 million in 2024, with predictions for an increase to 5 million in 2025.
Construction and Underbuilding
- Various estimates on the degree of underbuilding in the US range from 1.7 million to 6 million homes.
- Largest estimates of underbuilding come from institutions like Zillow and Fannie Mae.
Economic and Market Projections
- Anticipation of two interest rate cuts this year, expected to impact mortgage rates and increase home-buying activity.
- Optimistic projections for market recovery, with significant improvements expected by 2026.
Conclusions
- Stone is optimistic about the future, expecting a gradual recovery in the real estate market starting in the second half of this year and growing more robust by 2026.
Question and Answer Segment
Do you see real estate-specific implications of the presidential election?
Patrick Stone’s response:
- Historical evidence does not show a consistent or regular impact of presidential elections on real estate.
- The tangible impact on real estate is more likely to occur if there is significant anxiety surrounding the election.
- This anxiety may lead to hesitation in decision-making among potential buyers and sellers.
- The primary concern for this election is the level of anxiety, rather than the outcome of the election itself.
- There is currently no meaningful influence on real estate based on political party or outlook.
- Optimistically, the hope is that the presidential election will not affect the real estate market either positively or negatively.
What lessons should we be most aware of from previous cycles that are starkly similar to our current environment?
Patrick Stone’s response:
- Patrick Stone highlights the key issues of need, desire, and affordability.
- He notes there is no direct relationship between this cycle and previous cycles but draws a comparison to the post-World War II era.
- The pandemic, much like World War II, has had a profound social, psychological, and behavioral impact.
- There is a heightened focus on home ownership as a priority for individuals.
- State governments are putting in significant efforts to facilitate home ownership.
- There is a notable increase in discussions about the social benefits of owning a home.
- Stone likens the current social trend to a reset button pushed 50 or 60 years back, emphasizing home ownership as a crucial life goal.
- He views home ownership as a means of accumulating wealth and achieving life stability.
- Stone is cautiously optimistic about gradual improvements in home ownership throughout the rest of the decade.
Are there any recommendations for those who focus on residential real estate?
Patrick Stone’s response:
Understand Your Market:
- Make every attempt possible to gain a deep understanding of the residential real estate market.
- Gather and analyze market data and trends comprehensively.
Relay Information to Clients:
- Provide clients with up-to-date and accurate information.
- Address clients’ anxieties by keeping them informed, even if the news is occasionally negative.
- Ensure clients understand what is happening and why, which reduces their concerns and builds trust.
Become Conversant in Market Trends:
- Continuously educate yourself on market trends and information specific to your region.
- Strive to be as knowledgeable and conversant as possible about current market conditions.
Hard Work and Focus:
- Dedicate substantial effort to know your business inside and out.
- Focus on understanding and conveying important information competently and clearly.
Client Relationships:
- Aim to ensure clients appreciate your thoroughness and expertise.
- Clients are likely to use your services more frequently if they trust your knowledge and insights.
Strive for Accuracy:
- While it's impossible to be 100% correct all the time, strive for high accuracy in your information.
- Understand that professionalism and effort in providing accurate market insights are highly valued.
Where do you see CRE lending heading?
Patrick Stone’s response:
- Current State of CRE Lending:
- As of Q1, 2023, $88.6 billion in distressed commercial real estate loans exist.
- This represents approximately 3% of the total $2.99 trillion in commercial real estate loans.
- $9.9 billion in new distressed property.
- $7.2 billion of these were resolved, leaving $2.7 billion unresolved.
- Sector-Specific Distress:
- Offices: $38.2 billion in distressed loans.
- Retail: $21.9 billion in distressed loans.
- Hotels: $14.2 billion in distressed loans.
- Multifamily: $10 billion in distressed loans.
- About $1.5 trillion in loans from community and regional banks are expected to come due or require refinancing by the end of 2025.
- A significant amount of capital is seeking opportunities in the distressed property market.
- Despite issues, the capital available is likely to mitigate a severe deflation in commercial real estate values.
- While there are challenges, the abundance of capital should facilitate refinancing and purchases of distressed properties.
- Although a minor disruption is anticipated, a major downturn is not expected due to the capital influx.
Are new home developments on track to meet the housing shortage in California by the end of the fourth quarter 2024?
Patrick Stone’s response:
- Population and Housing Growth Disparity:
- From 2010 to 2020, California's population increased by 6.1%.
- During the same period, housing growth was only 4.7%.
- Since 2020, California remains about 50% short of the required 180,000 new housing units needed annually.
- By 2025, California will need approximately 3.5 million more homes than currently available.
- There is a significant imbalance between housing supply and demand in the state.
- The Governor of California is actively pushing for legislative changes to remove restrictive city regulations on home building.
- Historically, cities along the West Coast, particularly in California, have implemented proactive measures to control housing types, locations, and quantities.
- Current legislative efforts focus on reducing these metropolitan-level restrictions.
- Effectiveness of Legislative Changes:
- The likelihood of these legislative changes being effective is uncertain, estimated at a 50-50 chance.
- Considerable movement exists in the California legislature aiming to address the housing crisis.
- Current Housing Development Stats:
- In 2022, 123,000 single-family homes were built in California, the highest since 2008.
- Despite this, the state remains far behind in meeting the housing demand.
- Patrick Stone is skeptical about California's ability to balance housing supply and demand within the next 10 years or possibly ever.
- The state’s housing shortfall is projected to persist, indicating ongoing challenges in meeting the housing needs.
What are your thoughts on wholesalers and how title companies should support real estate agents and their wholesale concerns for their clients?
Patrick Stone’s response:
- Wholesalers, potentially including iBuyers, have faced challenges in achieving success on a large corporate scale.
- Wholesaling on an agent basis, where an intermediary steps into a transaction, presents significant risks and must be handled with caution.
- Title agents are strongly recommended to consult with their underwriter and the underwriter's legal department to gain thorough understanding and guidance on managing wholesale transactions.
- Due to the potential for high levels of fraud in these transactions, it's crucial for title agents to be well-versed in identifying and mitigating risks.
- While wholesaling can be necessary and effective in certain cases, it is inherently complex and requires careful oversight.
- Patrick Stone emphasizes the importance of seeking comprehensive advice from general counsel and underwriters before engaging in wholesale transactions to ensure awareness of potential issues and risks.
What is the best way to find homeowners with equity without buying leads?
Patrick Stone’s response:
- Homeowners now have significant equity:
- Due to an average appreciation of 84% over the last five years.
- This equals about 16.8% appreciation annually.
- Criteria to identify potential leads without buying leads:
- Homeowners who have owned their home for over three years likely have a substantial amount of equity.
- Nationally, homeowners have about 48% equity in their homes.
- Applications of equity information:
- Those looking to refinance their mortgages.
- People interested in home equity loans.
- Homeowners potentially motivated to sell their homes.
- Utilize the length of home ownership to identify leads.
- Prioritize homeowners who have owned their properties for three years or more.
Given the data and analysis being provided, what is the number one action needed now to win in Q3 at scale?
Patrick Stone’s response:
- Focus on Core Competencies: Tailor efforts based on professional roles. Title agents should concentrate on top producers, while Realtors should target high-end market clients.
- Prioritize Top Producers: The prevailing economic conditions and ongoing NAR lawsuit necessitate focusing on those who are already generating substantial business.
- Build Relationships and Provide Value: In Q3, the emphasis should be on cultivating relationships and adding substantial value to clients.
- Gain Insights through Surveys: Regularly conduct surveys (via tools like Survey Monkey or through hired professionals) to understand client needs and market trends.
- Leverage Available Tools: Utilize available data and analytical tools to gain clear insights into market directions and client preferences, avoiding decisions based solely on assumptions.
- Customized Client Engagement: Understand and address specific needs and aspirations of potential clients to enhance engagement and satisfaction.
Closing Thoughts
- Prediction: Interest rates will be under 6% by the first quarter of next year.
- Further prediction: Interest rates will be at five and a half percent by this time next year.
Watch the video replay of WFG’s Q2 2024 Economic Outlook webinar here, or download the full transcript here.
About Patrick Stone
Patrick Stone is Chairman and Founder of Williston Financial Group, the Portland, Oregon-based parent company of several national title insurance and settlement services providers, including WFG Lender Services and WFG National Title Insurance Company. Stone’s lengthy career in real estate and related services includes C-level positions with three public companies and serving as a director on two Fortune 500 boards. His senior executive management positions include nine years as president and COO of the nation’s largest title insurance company, chairman and co-CEO of a software company, and CEO of a real estate data and information company. Stone also served as vice-chairman of Metrocities Mortgage, a 2005 top-20 mortgage lender, and as chairman of The Stone Group, an Austin, Texas-based tenant-represented brokerage company. In 2013, Inman News named him one of the year’s “100 Most Influential People in Real Estate.” Stone received HousingWire’s coveted Vanguard Award for lifetime career achievement in 2019 and again in 2021, was recognized in 2019, 2020 and 2023 as a Lending Luminary by Progress in Lending, and was the recipient of October Research’s annual Leadership Award in 2020.