Home REXTrends An Economic Discussion on COVID-19 and the Housing Market

An Economic Discussion on COVID-19 and the Housing Market

by Craig Barrett
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The topic of conversation these days seems to remain consistent in almost every household — COVID-19. REX has decided to talk about it with our followers, our friends, our family, and our customers to keep the conversation open and transparent in a new series we like to call #REXTrends. Joining us today is Senior Vice President of Public Policy at REX, Mike Toth, Director of Analytics at REX, Chris Holloman, and Economist Expert and Consultant, Ben Harris.

Listen as they spark an insightful conversation about COVID-19 and follow along as REX continues to tackle this crisis head-on:


Mike Toth: Well, good afternoon everyone. My name is Mike Toth. I am a Senior Vice President for Public Policy at REX Homes and I am very pleased to be joined this afternoon by economists, Ben Harris and a colleague of mine, Chris Holloman. Ben is an economist who consults with Rex. He is the founder and principal of Cherrydale Strategies, and a professor at the Kellogg School of Management. Ben is also a veteran of Washington DC Policy Circles, where he has served in a variety of capacities on Capitol Hill and in the white House, where he served as the Chief Economist for Vice President Joe Biden. Ben, great to see you today. Thanks for being with us.

Ben Harris: Yeah, thanks for having me. I appreciate it.

Mike Toth: Wonderful. And also very pleased to be joined by my colleague, Chris Holloman, who works for REX Homes. Chris, like myself, is also based in Austin, Texas. He is a Director of Analytics at REX and a Senior Data Scientist. Chris, great to see you. Great to be with you today also.

Chris Holloman: Thanks for having me, Michael.

Mike Toth: Wonderful. Well gentlemen, so much, so many questions right now coming from communities across our country about the housing market, about how COVID-19 and the pandemic is affecting homeowners. So I thought we could dive in and drill down into some of these trends to try to understand exactly what’s happening and where we may be a couple months out if possible. First out, Ben, we’ll start with you and talk about some of the overarching kind of general economic trends and how they affect housing. I think what we’re seeing is just a lot of concern, a concern about wages, concern about retirement, concern about the general health of the economy. How is COVID-19 affecting the real estate market?

Ben Harris: So if we’d been having this discussion back in December or January, very different discussion obviously if you’d asked me how’s the housing market look, in December, I could say with a fair amount of certainty and confidence there are a few different things which are driving the housing market and it’s generally considered to be healthy overall. One is that we have low unemployment. Almost everyone who wants a job has one. Wages are increasing slowly, but there’s still on the upswing. We’ve got limited supply, so prices are growing at a pretty healthy rate from around 4% per year since 2012. Well, we’ve had about seven or eight years of pretty healthy recovery overall in the housing market. And while conditions vary from market to market nationally, the combination of low unemployment, some wage growth, and historically low interest rates mean that the market’s pretty healthy. You never want it to get too hot, you never wanted to get too cold. And the housing market was looking pretty good.

Ben Harris: I participate in the survey of economists who forecast the housing market and so not only was it pretty healthy for about seven or eight years, but we’re also expecting relatively healthy market going forward. A lot of economists predicted around 2% to 5% annual increases in housing prices, so nothing too crazy, but still positive. A lot were asked, “Do you see the risks on the upside or the downside?” So do you see a steep decline in housing prices on the horizon? Many did not. And other economists were asked about, “Do you see anxiety rising? Do you see people worrying about being able to sell their homes or not?” And very few people saw, I think like 4% of economists saw an increase in anxiety in 2020. So overall we expected as health to continue.

Ben Harris: Obviously, everything has changed and there’s quite a bit of uncertainty. So it’s hard to say with any certainty what’s going on. But right now, obviously people are prohibited from leaving their homes in some states and many don’t want to, even if they’re allowed to, many are worried about their jobs. So we saw 3.3 million Americans last week by far record high apply for unemployment insurance. We’ll probably see another 3,000,000 to 4,000,000 this week. So we’ve got 7,000,000 more people who are out of work than they were two weeks ago. And there’s just a lot of uncertainty. And so a lot of people mark it a major life decision like buying a home when there’s so much uncertainty.

Ben Harris: Now, that being said, this could all pass relatively quickly and it’s not like 2008, where we were in for a prolonged recession and there is a chance that after one or two months we can go back to business as normal. And some small businesses will have a hard time recovering, the stock market probably will not be back up to where it was, but there will be a sense of normalcy maybe, I don’t know and no one knows. So this could get back on track or could not get back on track. But right now, we’re in a period of extreme uncertainty.

Mike Toth: So Ben, you described the pre-COVID-19 conditions in the housing markets as almost like Goldilocks, not too hot, not too cold, right in that sweet spot, is there any way in which homeowner equity right now could provide a shot in the arm, in the economy, or if we’re able to get out of this current situation, could homeowner equity provide a shot in the arm to the economy?

Ben Harris: Yeah, that’s a great question. So when we look at the type of businesses that are maybe changed for good, we really don’t know. We don’t know if cruises will ever recover. We don’t know if people will ever want to go sit in restaurants the way they did before. This isn’t to say that restaurants are dead because that’s crazy, but maybe we’ve just become accustomed to take out in ways that we weren’t before or maybe we’re more scared of going on a cruise like we were before. One of the nice things about home ownership, it does have this enduring quality to it. Everyone will always look for homes to live in. And as we’ll get to in a little bit, there are ways to buy and sell homes and don’t always require you physically being there.

Ben Harris: And so when we look at how business models might change, and we look at how restaurants might do business differently, we look at how doctors might do business differently, we might see more telework. We might see that seep into the realty market and there’s, I think a pretty decent chance that people will shift away they’re doing business in a whole host of industries. The second has to do with investment, and I think for a long time, for a couple of years, a lot of economists and a lot of market watchers were concerned about the stock market maybe becoming a bit overbought and thought that maybe the run up in prices was not reflected with fundamentals. It’s only a slight exaggeration to say that Americans really only invest in two things, stocks in their homes, and if stocks have become a little bit less attractive, maybe people want to start investing in their homes a bit more and just finding the stability in homes that they’re not finding in stocks right now.

Mike Toth: Great. Well, Chris, we’re going to shift over to you in just a moment. But Ben, one more question because you touched on it in the first part of the last answer. How do you see innovation helping to assist or enhance the real estate market as we go forward from now?

Ben Harris: So there’s a lot of uncertainty and the big uncertainty is how people will continue to feel about face to face contact with other human beings. And we don’t know if this will have changed us for good, or whether or not it will have changed us temporarily. But I think we’re getting used to doing business online in ways we weren’t before. You’ve seen this explosion of zoom, so many people are teleworking and it feels like a moment. Advances don’t always happen literally in the economies, they happen stepwise. You see something will change and there’ll be this big boost of innovation and changes that happen really quickly.

Ben Harris: This is obviously a national tragedy and is terrible in so many different ways. But COVID-19 could mean that we are on the cusp of a new way of doing business and that we’re just used to doing business online in ways that we weren’t before. And so that opens the door for innovation in real estate in addition to whole host of other industries. And the basic premise is, look, maybe we’ll get comfortable with buying and selling a home without physically being present.

Ben Harris: And the tools for showing homes have changed so much over the past few years, I know you guys will talk about it in a second, but you can get a great idea about what a home is, about the product you’re buying without physically being there to see it. Now, some businesses don’t allow for this type of adaptation. You can’t go to the dentist unless you’re physically present. When it comes to buying and selling a home, there is real promise there that innovation could permanently change the way we’re doing business.

Mike Toth: Wonderful. Thank you, Ben. Let’s turn to you now, Chris, as stated before, Chris and I are colleagues here at REX Homes. Chris, why don’t you tell our audience a little bit about what we do at REX, how REX is made for this moment, how REX is set up to match buyers and sellers, and also tell us how you analyze some of the market trends that Ben touched on. Ben touched on some shifts in demand, potentially permanent shifts in demand. How is REX right now looking at some of these market trends, or how are you at REX as a Director of Analytics looking at some of these market trends?

Chris Holloman: Yeah, sure. So just the broad overview. REX is a residential real estate market. Our goal is to connect buyers and sellers who are selling their homes. We want to make the process fast, convenient, and inexpensive. One of the biggest things about our value prop is that we don’t charge nearly as much as our competitors. So people are able to keep more of that equity that you talked about in their pocket when they sell their home, and buyers are able to get their new home at a lower price. And the other big differentiator is that we use technology in every aspect of our business. And this is really a great time for that.

Chris Holloman: Technology is the foundation of the way that we stay in touch with our customers. We have tools in place that help people know at any moment how their home sale is progressing. What’s the stage of my showings, what’s the stage of my escrow, those kinds of things and how am I moving toward completing this transaction. And then we talked a little bit about using technology for buyers to be able to virtually tour homes. Advances like 3D scans of homes where it feels like you’re in the home even if you’re not there. And connecting all the different pieces of the way that people shop for homes.

Chris Holloman: So the way that people look at the homes has changed from 10 years ago where you would rely on a buyer’s agent to come to you with a list of homes that fit your needs from what they could tell from the MLS, the multiple listing service, and to then put you in their car and drive you around to those homes to look at them. These days what people do is, they first go on Zillow and they maybe monitor the market for a couple of months or they go on homes.com. And what we want to do is make it seamless for them to move from those ways of searching for a home to finding a home hopefully on the REX website where they can directly make an indication of interest and say, “Hey, I want to learn more about this home and make it an offer.”

Chris Holloman: You asked a little bit about the way that we use data to make all this happen. We keep a close eye on what’s happening on the MLS. Traditional brokerages still constitute the biggest part of the industry and we want to make sure that we are outpacing the MLS, and that we’re growing in ways that make those who are selling their homes with us know that they have access to a really big buyer pool and growing every day. We use machine learning technology to connect buyers and sellers. We seek out the right buyers for a home who are the most likely people to want to see a home and make an offer on it, so we cut out a whole lot of the work of having people go to a home that aren’t really interested, they’re just looking. We want sellers to know we’re bringing people who are ready to make an offer.

Mike Toth: Wonderful. And something that Ben really talked about earlier was just that we’re in a period of extreme uncertainty right now. But Chris, you and I have talked about the stability of REX’s platform and other periods of time. So could you just tell us a little bit today about that stability in terms of how REX has been able to execute and what that may tell us about the current situation?

Chris Holloman: Yeah, definitely. We are in almost 30 markets at this point and we monitor each of those markets separately. The way that a downturn hits Riverside, California is not the same way that a downturn hits Austin, Texas and we want to make sure that we are thinking about those differences for each of our customers separately. If I could share something from my screen really quickly just to show your friends here. I’m going to share with you a picture of what our businesses look like against the MLS over the past three years and one of our markets that we expanded into, which is the Riverside market.

Chris Holloman: What you’re looking at on the graph there on the left side you can see the scale of MLS listings. The blue line is MLS listings over time and you can see a really strong seasonal cycle, where we have really big peaks up here in the July timeframe and then falling off to a low at the end of the year, following the same pattern year after year as we would expect. And then the orange line is what’s happening with REX. And you can see that we’ve had very stable increases.

Chris Holloman: So one of the interesting things is that we’re not as affected by the upswings and downswings in the market at this point as the MLS. Now, of course, we did have a slow December, but we ramped right back up in January this year faster than the MLS ramped up over the same time period. So even though we do have some, we do follow the seasonal cycle, we just don’t get a strong lifts and falls as the MLS market does right now because of our strong growth.

Mike Toth: Wonderful. And Chris, what would you tell us about how to think about the challenges that buyers and sellers are having right now? If it’s a potential buyer who wants to buy a home or potential seller who wants to sell a home, what does the data tell us, or the way you’re analyzing the data, what does that tell us about some of the challenges that buyers and sellers are facing now and maybe the ways for potential buyers and sellers to solve some of these problems?

Chris Holloman: Yeah, it’s a really, I’m not going to lie, it’s an unprecedented at a time that we’re in and so it’s hard to make any real forecasts of the way things are going to go in the future. What we have seen so far is really good adoption of the technology that we’re putting out there. So for example, on the seller side, certainly the number of people who are contacting us has trended down since COVID-19 started making people stay in their homes. But what we found is that the people who are contacting us are just as serious or more serious about getting their home on the market. Then what we had seen in the past, and they’re really willing to adopt technology and what they’re seeing is that it works well for them. We do what we normally would go to somebody’s home and meet with them in person. We’re doing that online and having people talk us through what’s in their house. We investigate what their finishes look like and what possible detractors or additions devalue look like and then we help them get their home online as fast as possible and start finding buyers.

Chris Holloman: On the buyers side, people are able to, I already mentioned, that people have adopted technology for a long time to screen homes through Zillow or through homes.com. We’re adding another stage to that. Maybe you’d find 10 homes that you’re interested in on Zillow. A few of those are REX homes, we let you two of those virtually and then no one, maybe not, no one, but most people aren’t going to buy a home without actually stepping foot in it. So once you’ve narrowed it down to those two or three that you’re really interested in, REX will make it work so that you can actually go and visit those, whether they’re REX homes or not. So one of the advantages to our company is, we act as a full scale real estate residential brokerage, where we will show you whatever homes you’re interested in.

Mike Toth: Thank you for that perspective, Chris. We’ll finish up with you Ben and circle back. Hearing what you’ve heard about the data points that Chris’ shared and putting the uncertainties of the present moment aside, how does some of the innovation that Chris talked about affect the way we should think about economic trends in the real estate market going forward?

Ben Harris: So let me just end with some optimism because I think it’s always good to enter the optimism and when it comes to housing market, I’m fairly optimistic. The first point is around when it comes to technology and really even just how the realty market works, I think it might be a long time before some Americans are comfortable going back out in groups of 100, like you might sit in a restaurant, certainly some concern around being an arena with 30,000 other people maybe watching a baseball game or some other sporting event, but when it comes to buying and selling a home, you’re rarely around more than a handful of other people. So I don’t think realty will be affected longterm the way some other industries are.

Ben Harris: The second point of optimism I wanted to bring up is that Americans have never spent more time in their homes than they have these past three weeks. I can say that with a fair amount of confidence. And it may have some people thinking about the product they’re living in and if my commute time triples or goes up four fold, I’m going to think a lot about, is this the car I really want? And now that Americans are spending so much more time in their homes, I wonder if it’ll change the way they value this product versus others. But one thing that Chris said about innovation I think makes a lot of sense has to do with familiarity. And a lot of time economists talk about tipping points and network effects.

Ben Harris: And for every person that tries out this new type of innovation that becomes more accustomed to buying and selling your home this way, they might recommend it to two or three other people. A lot of people take their financial advice from their social networks. So one person trying it out, would then lead to three or four more being willing to consider it, and just like we all sort of became accustomed to smartphone over time and how we became accustomed to email over time and all the technologies are adopted gradually. This could be the push that this industry needs to change and it doesn’t require that many people getting more comfortable with it and then recommending it for it to really catch on.

Mike Toth: Wonderful. Well, on that optimistic note, gentlemen, it’s been great having this conversation and I look forward to staying in touch.

Ben Harris: Thanks very much.

Chris Holloman: Thank you.

Mike Toth: Have a good day.

Ben Harris: You too.

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