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Speaker 2: Amanda Line, I'm chief credit strategist for Golden Sacks joint
Speaker 2: us here in studio Manni, thanks so much for joining
Speaker 2: us here. What's your how's your market? How's the credit
Speaker 2: market behaving over the last you know, six seven, eight weeks?
Speaker 3: I would say, if I had to frame the credit market,
Speaker 3: it's it's generally resilient, but I think with an expectation
Speaker 3: of some volatility through midyear. But even so, we're not
Speaker 3: expecting spreads to really underperform in any material way. We
Speaker 3: have a forecast for wider spreads, but it's basically putting
Speaker 3: the market around the three or averages. I think, to
Speaker 3: your point, Paul, what's most interesting in this market is
Speaker 3: kind of this paradigm shift that we're seeing in terms
Speaker 3: of various pockets of the credit market, so pockets in
Speaker 3: liquid credit, pockets in private credit, even in infrastructure funding
Speaker 3: this AI build out. It's just driven by the size
Speaker 3: and the magnitude of the opportunity. But by our estimates,
Speaker 3: there's already been four hundred billion of AI related supply
Speaker 3: since the middle of twenty twenty five, most of that
Speaker 3: in investment grade. But the needs are here are so
Speaker 3: large that we expect US markets to participate euro Swiss,
Speaker 3: Sterling private markets. And then even in what we wrote
Speaker 3: about last night is in the investment grade market, the
Speaker 3: traditional investment grade market, we're seeing more of these kind
Speaker 3: of complex JV structures that are being used to finance
Speaker 3: data centers.
Speaker 4: Amanda want to talk private credit and whether or not
Speaker 4: what we're seeing in the private credit market right now
Speaker 4: is really is systemic risk. I mean, is this market
Speaker 4: underestimating a credit market downturn that could possibly be worse
Speaker 4: than expected.
Speaker 3: We don't believe it is. That doesn't mean that there
Speaker 3: can't besion, however, across managers and vintages and funds. The
Speaker 3: reason that we don't view it as a systemic risk
Speaker 3: it's a couple of fold But most importantly, there's not
Speaker 3: an asset liability mismatch like we saw in the financial
Speaker 3: crisis in certain pockets of the financial system that would
Speaker 3: allow for the kind of run on the bank. Moreover, actually,
Speaker 3: there's not a lot of leverage in these vehicles, and
Speaker 3: if there's a lot of noise right now on kind
Speaker 3: of BDC redemption activity. But if you use a very
Speaker 3: conservative estimate about the size of the private credit market,
Speaker 3: retail is around fifteen percent, and so there's a lot
Speaker 3: of concern from investors that because retail investors are requesting
Speaker 3: more redemptions than normal, that that behavior will feed over
Speaker 3: to the institutional community. But actually, I think one of
Speaker 3: the important points to raise is that in institutional funds
Speaker 3: there was never the option in the first place to
Speaker 3: withdraw and la redemptions, and so that capital is very
Speaker 3: much in draw down kind of locked up facilities, And
Speaker 3: if anything, our conversations with institutional investors would use a
Speaker 3: disruption in the credit markets as an oppertunity to deploy
Speaker 3: the significant dry.
Speaker 2: Powder that they have.
Speaker 3: I would say the other point that's raised a lot
Speaker 3: of software, I think it's far too early to write
Speaker 3: off the entire sector. You know, we're very close in
Speaker 3: coordination with our equity analysts on kind of their views
Speaker 3: on this sector. But at a very high level, if
Speaker 3: there's a disruption in software for private credit. There's also
Speaker 3: going to be a disruption in software in the syndicated
Speaker 3: leverage loan market, and there again, private credit is probably
Speaker 3: in a position to deploy capital into that dislocation, like
Speaker 3: we've seen in other periods of time, like twenty twenty two.
Speaker 2: I'm a risk taker. I'm ready to take some high
Speaker 2: yield risk clos leverage loans. How's that part of the market.
Speaker 3: That part of the market is actually holding in well,
Speaker 3: although I would say probably since the last time I
Speaker 3: saw you a little more cautious on kind of the
Speaker 3: lower end of that quality spectrum, so we're fine reaching
Speaker 3: into the high end of high yield. We would prefer
Speaker 3: high yield over leverage loans. You were talking about kind
Speaker 3: of the path for FED policy, you know, is a
Speaker 3: it is a somewhat of a tailwind if the FED
Speaker 3: stays on hold. That's better for the yield backdrop of
Speaker 3: leverage loans. But I think you have this overhang of
Speaker 3: software that will be hard to disprove in the near term,
Speaker 3: and so we prefer highyield bonds over loans. I would
Speaker 3: say for investors that are looking to kind of take
Speaker 3: more complexity or earn more yield. We actually like parts
Speaker 3: of mezzanine colos a bit of a niche topic. So
Speaker 3: what is so those are so basically, if you're looking
Speaker 3: for floating rate risk, if two options, you could kind
Speaker 3: of own the leverage loans outright, you could own it as.
Speaker 2: Part of a structure.
Speaker 3: The COLO structure introduces kind of some protection, some structure
Speaker 3: in the in subordination, and so that's something that for
Speaker 3: the investors that play in structured products, we like that.
Speaker 3: But to answer your question, Paul, we're not shying away
Speaker 3: from taking credit risk in this environment. We're seeing a
Speaker 3: little bit more thoughtful.
Speaker 4: Where are you seeing the most appetite right now for
Speaker 4: fixed income?
Speaker 3: By far, Alexis the yield based investor has kind of
Speaker 3: been a very strong anchor for spreads, and so this
Speaker 3: kind of quiet rise in treasury yields has allowed investors
Speaker 3: kind of deploy capital into the corporate credit market even
Speaker 3: those spreads are still on paper. A bit snug that
Speaker 3: could change is if the bond market starts to behave
Speaker 3: in a disorderly way. We've seen that around for example,
Speaker 3: the yen carry trade, the budget negotiations, debt ceilings, So
Speaker 3: that's something to watch but so long as this is
Speaker 3: kind of a gradual rise in yields for okay reasons
Speaker 3: meaning you know, sticky but not terrible inflation or maybe
Speaker 3: improving growth, that's actually a great backdrop for allocators in credit.
Speaker 3: And that's by far been the strongest support. I would
Speaker 3: say foreign demand is also it was a record in
Speaker 3: twenty twenty five. There was a lot of concern about
Speaker 3: waning appetite for US credit from foreign investors. We did
Speaker 3: not see that at all.
Speaker 2: Man, Thank you so much for joining us as always
Speaker 2: a man to line them. She's a chief credit strategist
Speaker 2: at Goldman Sachs. Stay with us or from Bloomberg Surveillance.
Speaker 2: Coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: Going on in terms of economic data, this week, we
Speaker 2: also had a big FED meeting. We're going to get
Speaker 2: a new chair of the FED that seems to be
Speaker 2: moving along after a long delay. Sprink it all down
Speaker 2: with our next guest, Ken Kim, senior economists at k
Speaker 2: p mg Ken, what did you make of the FED
Speaker 2: and announcement this week, the press conference from J pal
Speaker 2: and what looks to be like a changing of the
Speaker 2: guard here? How do you think about the FED these days?
Speaker 5: So, yeah, the biggest news was, you know, the four descents,
Speaker 5: although one of the descents was to be expected with
Speaker 5: Stephen Moran advocating for a twenty five.
Speaker 2: Base point cut.
Speaker 5: But the three other descents from the Reserve Bank presidents,
Speaker 5: you know, they indicate unease with the perhaps the inflation
Speaker 5: outlook because of the Middle East situation. Oil prices sharply higher,
Speaker 5: home meeting oil, diesel, jet fuel, you name it, all
Speaker 5: the above. So that's an indication that going forward, you know,
Speaker 5: the FEDS we think more concerned about inflation rather than
Speaker 5: a labor market for the time being. We didn't get
Speaker 5: one d and seventy eight thousand new jobs created in March,
Speaker 5: which gives the FEDS some latitude in our opinion to
Speaker 5: lean against inflation for the time being. And the other
Speaker 5: notable thing about the press conference was J Powell the
Speaker 5: current FET chair, but only for another few weeks, indicating
Speaker 5: that he's going to remain on the board as a
Speaker 5: governor so we didn't know that until the press contract.
Speaker 4: We haven't seen that happen in decades, in decades, and
Speaker 4: the last time it happens like nineteen forty eight, all right,
Speaker 4: I was talking about it back into the archives for
Speaker 4: that one. GDP numbers we got a first look this week.
Speaker 4: Two percent growth. Pretty impressive there for the first quarter,
Speaker 4: but the war had just sort of begun, right, What
Speaker 4: do you think the impact is going to be here
Speaker 4: if there's war continues, When does GDP really get dented
Speaker 4: because of it?
Speaker 5: Yeah, I mean the GDP figures were pretty solid as
Speaker 5: you indicate, we could see it impacted, you know, for
Speaker 5: second quarter. Pretty much going on right from here on out.
Speaker 5: Consumers as well as businesses are dealing with higher energy prices,
Speaker 5: and you know, they're paying it out of their wallet
Speaker 5: or pocketbooks, and that means less spending for other, you know,
Speaker 5: discretionary items. You're right, there was momentum at the end
Speaker 5: of the first quarter, and some of that, you know,
Speaker 5: the tax refunds did provide the impetus for the consumer
Speaker 5: to spend it on new vehicles and martch Retail sales
Speaker 5: was pretty solid as well. But you know, it's been
Speaker 5: a long time. Get consumers have been having to deal
Speaker 5: with cumulative inflation, so this is just you know, another
Speaker 5: shock to that.
Speaker 2: Is there a recession call in your outlook at all
Speaker 2: or is it not.
Speaker 5: It's some low probability calls. So we do have different scenarios.
Speaker 5: We think recession probably is thirty percent, but that is
Speaker 5: elevated because on any other you know, given day in
Speaker 5: the normal economy, recessions are usually in the low teens,
Speaker 5: you know, eleven, twelve, fourteen percent, So we think they
Speaker 5: have picked up, but still, you know, you have to
Speaker 5: have we frame it is seventy percent that that doesn't occur.
Speaker 4: Yeah, there's been a lot of talk about disconnecting this
Speaker 4: market between what's going on in stocks, and yet we've
Speaker 4: got the backdrop of a lot of uncertainty, changing of
Speaker 4: the guard of the FED, the war with the run.
Speaker 4: But historically markets have done well during wartime.
Speaker 5: No, yeah, I mean, certainly the markets are showing resiliency
Speaker 5: just like the overall US economy and the consumer. So
Speaker 5: that's ongoing despite the pickup and uncertainty with the breakout
Speaker 5: of the Iran US war.
Speaker 4: So not surprised, but what you're seeing in the equity
Speaker 4: markets right now.
Speaker 5: Well, certainly AI is you know on the back of
Speaker 5: the recent rally, so there is you know, more investment
Speaker 5: going into AI initiatives. And in the first quarter GDP report,
Speaker 5: non residential business investment that was up quite strong, up
Speaker 5: ten point four percent, and equipment spending capital spending was
Speaker 5: up seventeen point two percent on the annualized basis, the
Speaker 5: largest in like three years. So there certainly is you
Speaker 5: know a lot of tail wind for AI which is
Speaker 5: helping equity markets withstand what's happening in the energy markets.
Speaker 2: Are you surprised that the US consumer continues to spend money?
Speaker 2: I mean, inflation has been there, it's ramped up because
Speaker 2: of the war in terms of gasoline and some other costs.
Speaker 2: Are you surprised that the consumer is still hanging in
Speaker 2: there or are you one of those people that says, hey,
Speaker 2: never underestimate the strength of the US consumer.
Speaker 5: No, we have been surprised. You know, last year, we
Speaker 5: certainly thought the tariffs would impact consumer spending with you know,
Speaker 5: rising inflation. We did get rising inflation, but again, the consumer,
Speaker 5: you know, remains resilient and we're still seeing the same
Speaker 5: behavior in twenty in the early part of twenty twenty six,
Speaker 5: and you know a lot of that has to do
Speaker 5: with you know, fomo fear of missing out. You know,
Speaker 5: they want to continue to spend it on experiences. We
Speaker 5: have seen some weakness in good spending, but spending on
Speaker 5: going out, whether it's the concerts. Say now we're talking
Speaker 5: about right, that's right, right, that's happening in France. But
Speaker 5: you know, certainly that's an impact too.
Speaker 4: Can when do gas prices really become a problem for
Speaker 4: the consumer, because you've got six dollars a gallon gas
Speaker 4: in California, we've got it averaging about four forty here nationwide.
Speaker 4: At what level does it really become an issue?
Speaker 5: Well, we think it's already a problem. But again, you
Speaker 5: know there's always offsets. So the offset is the labor
Speaker 5: market still remains pretty good for the most part, even
Speaker 5: though Fetcher Pow did characterize it as weak. You know,
Speaker 5: you have that low hiring, low firing kind of phenomena
Speaker 5: going on, but the most part, in the first three months,
Speaker 5: the US did create on average close to seventy thousand jobs,
Speaker 5: so you know that is helping to support consumer spending.
Speaker 5: Wages are growing at three and a half percent, still
Speaker 5: slightly above inflation, so you still have a positive spread
Speaker 5: there or carry purchasing power, so those factors are helping
Speaker 5: for the time being.
Speaker 2: George Ken thank you so much. Ken Kim, senior economist
Speaker 2: at KPMG. During us here, stay with us. More from
Speaker 2: Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am E's durn Listen
Speaker 1: on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch US live on YouTube.
Speaker 2: Our next guest, Barbara Hampton, CEO of us A Rare Earth. Barbara,
Speaker 2: thank you so much for joining us here. What is
Speaker 2: USA rare earth and what do you guys? What are
Speaker 2: you guys focusing on?
Speaker 4: USA?
Speaker 6: Rare Earth is the global leader in rare earths.
Speaker 2: Nice.
Speaker 6: We have been building a mind to magnet value chain,
Speaker 6: and that value chain people ask me, wait, it's not
Speaker 6: a supply chain. You're not trying to get the all
Speaker 6: the expense out of a supply chain that goes from
Speaker 6: the ground all the way to the production of magnets. No,
Speaker 6: what we have to do is break China's stranglehold on
Speaker 6: this industry for decades. China set it as a strategy
Speaker 6: to own this space, and this space is critical to
Speaker 6: every sector of the economy. Permanent magnets and rare earths
Speaker 6: are in everything from semiconductors to jet fighters to frankly,
Speaker 6: our communication devices, and so the fact that at moments
Speaker 6: notice China could cut that off puts US at extreme risk.
Speaker 6: And what we're doing at USA rare earth is strengthening
Speaker 6: mining processing, metal making, and magnet making so that we
Speaker 6: can break that stranglehold and supply the world.
Speaker 4: Does this country sort of in house if you will
Speaker 4: have enough to do that in the country itself, we
Speaker 4: have access to the minerals that are needed. Yes, you've
Speaker 4: seen MP come to market with light rare earths. You
Speaker 4: may have seen US announce our intent to build a
Speaker 4: mine and round top mountain in.
Speaker 6: Texas that is rich in heavy rare earths. Between those two,
Speaker 6: the US has domestic supplies that would fuel this marketplace.
Speaker 6: But the fact is we can and should work with
Speaker 6: allies to make sure or that we make use of
Speaker 6: other deposits around the world build a resilient and a
Speaker 6: supply chain for actual magnet production that takes advantage of
Speaker 6: a value chain with optionality.
Speaker 4: Who are some of those partners?
Speaker 6: Some of those partners are fantastic places like Brazil.
Speaker 5: You may have seen.
Speaker 6: We've just announced our intent to acquire Sarah Verde. Sarah
Speaker 6: Verde is a company that has opened the Pella Ma
Speaker 6: mine in Brazil, producing all four magnetic rare earths, light
Speaker 6: rare earths as well as heavy rare earths and the
Speaker 6: mind there has a fifteen year, one hundred percent off
Speaker 6: take agreement with a special purpose vehicle funded by multiple
Speaker 6: government agencies, US government agencies as well as private investors.
Speaker 6: So here we have a producing mine in Brazil that
Speaker 6: can bring those essential elements into our economic and defense interests.
Speaker 2: So what is the goal for the US do you
Speaker 2: think in terms of rare Earth? Is it to become
Speaker 2: Is it a realistic goal to become completely independent of
Speaker 2: China and maybe some other nefarious actors or non allies.
Speaker 2: I guess I should frame it is that even possible?
Speaker 6: It is possible, Okay, it is possible, in fact necessary.
Speaker 6: The founders of USA Rare Earth actually recognized well before
Speaker 6: China's disruptions that with the growth of technology physical AI,
Speaker 6: China may very well consume all of their resources and
Speaker 6: might not be able to supply those to the rest
Speaker 6: of the world. Therefore, the folks who invested in the
Speaker 6: pelam Min and Brazil over well over a decade, as
Speaker 6: well as the board of USA Rare Earth, said this
Speaker 6: is a great investment opportunity. So we do have the
Speaker 6: capacity outside, but more importantly, we need to do this.
Speaker 6: You'll see this as well as other segments of our
Speaker 6: economy where we've allowed out China to take a leadership role,
Speaker 6: and frankly, it's dangerous.
Speaker 4: Talking to Barbara Hampton, CEO at USA Rare Earth, got
Speaker 4: to talk about the role of the federal government here,
Speaker 4: the US government taking a ten percent stake in the company.
Speaker 4: How does that change things, if at all, in your
Speaker 4: mission or how you're getting to attain your mission.
Speaker 6: Well, and actually I should clarify, but when the deal
Speaker 6: is completed signed, it'll be less than a ten percent stake, okay.
Speaker 2: And by the way, this is with the Department of Commerce.
Speaker 6: The USA Rare Earth worked with the Chips Program Office
Speaker 6: Secretary Lutenek had recognized this absolute imperative that we've got
Speaker 6: to solve this the geopolitical issue, and discovered that yes,
Speaker 6: USA Rare Earth has these very strategic assets. So the
Speaker 6: team did incredible due diligence, understood the business plan, believe
Speaker 6: in the thesis, and said this is investable from the
Speaker 6: Chips Program Office. Now, the stake the government will take
Speaker 6: is not a governance stake. It's a solely and economic
Speaker 6: interest in the company. What this means is that as
Speaker 6: we build this domestic capacity and take advantage of the
Speaker 6: domestic resource of Roundtop, the US taxpayer will benefit from
Speaker 6: that government investment. I think it's a win win.
Speaker 2: I'm looking at your publicet traded company, yes, and tickers
Speaker 2: USAAR has a market cap. You guys have a market
Speaker 2: a five point six percent. Stock is up one hundred
Speaker 2: and eighty filly percent. I'm sorry, five point six percent.
Speaker 2: Thank you very much, thank you. We've been throwing around
Speaker 2: terms with all this AI spending that are just crazy.
Speaker 2: I know, we tind to stock's up one hundred and
Speaker 2: eighteen percent this year. It's up one hundred and seventy
Speaker 2: percent over the trailing of twelve months. What's kind of
Speaker 2: the what's the investment story you tell your shareholders these days?
Speaker 6: What we want shareholders to pay attention to is the
Speaker 6: growing value chain. What we're building as a platform where
Speaker 6: this fragmented market can actually come together and help reduce friction.
Speaker 6: If you were to go around this marketplace today outside
Speaker 6: of China, what you would find is the survivors who
Speaker 6: live through all of decades of disruption by China. They
Speaker 6: are gritty, they are tenacious, but most of them are
Speaker 6: rather small and many have been starved for investment. I'll
Speaker 6: take less Common Metals, the only scaled producer of heavy
Speaker 6: Rare Earth Metals, alloys and strip cast outside of China, USA.
Speaker 6: Rare Earth acquired them last fall and this premise of
Speaker 6: now they have surety of off take because we need
Speaker 6: their materials to make magnets and they also have our
Speaker 6: help in finding sources of oxides for their metal making.
Speaker 6: Once we can work across the value chain, have the
Speaker 6: business leaders of these value chain businesses, the segments, the
Speaker 6: links in the chain. Once they can understand here's how
Speaker 6: we see the marketplace scaling, they can have the confidence
Speaker 6: to invest and grow their businesses. So we've been working
Speaker 6: with people, sometimes in m and A, sometimes in partnerships,
Speaker 6: supply agreements, off take agreements. We've got to align ourselves
Speaker 6: for a growing supply chain outside of China.
Speaker 2: I feel a little better now.
Speaker 4: I do too, and I've learned.
Speaker 2: I think I've learned a lot. I feel like we've
Speaker 2: got a path forward for some of these access to
Speaker 2: rare earths on a long term basis, because they are
Speaker 2: probably more products than we even know about. Barbara, thank
Speaker 2: you so much for joining us. Appreciate that, Barbara Hompton,
Speaker 2: she's the CEO of US, a rare earth publicly traded company.
Speaker 2: I did not know that USAAR is the ticker to stocks.
Speaker 2: Been at document mendus performer, So that reflects the kind
Speaker 2: of the importance I guess that the market is certainly
Speaker 2: placing upon rare earths. I think as investors we learn
Speaker 2: more and more how important these things are every day
Speaker 2: and kind of the supply chain associated with that. So
Speaker 2: we've learned a lot to that. We appreciate that and
Speaker 2: stay with us. More from bloom Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: I'm looking at the Mortgage Bankers Association thirty year fixed
Speaker 2: mortgage YEP six point three seven percent. I mean it's
Speaker 2: better than it was, you know, like a year ago,
Speaker 2: just touching seven. But I'm not sure it's where it
Speaker 2: needs to be for.
Speaker 4: For buyers to come off the sidelines and right sellers.
Speaker 2: To say, Okay, I'll put my house on the market
Speaker 2: and I'll move to Florida or whatever and downsize because
Speaker 2: I'm sitting on a three or four percent mortgage. Then
Speaker 2: i go buy something in Florida at six Yeah, where's
Speaker 2: the incentive exactly? That goes to the whole affordability issue.
Speaker 2: I'm not just not sure where we are right now.
Speaker 2: Odetta Kushy, she knows. Deputy Chief Economists at First American ODEBDA,
Speaker 2: can you give us a sense of kind of where
Speaker 2: the residential housing market is these days? I mean we're
Speaker 2: now getting right into the spring selling season. What's what's
Speaker 2: the market look like?
Speaker 5: Yeah?
Speaker 7: Thanks, It's been a soft start to the spring housing market.
Speaker 7: The existing home sales number has really struggled to get
Speaker 7: meaningfully above four million annualized sales. Consider that pre pandemic,
Speaker 7: something closer to five and a half million was really
Speaker 7: the norm. So we've really been stuck there since the
Speaker 7: latter part of twenty twenty two, so not a ton
Speaker 7: of momentum. But I do think that the underlying fundamentals
Speaker 7: are stronger than a year ago. We know that inventory
Speaker 7: is up compared with a year ago. Affordability is actually
Speaker 7: at its best level since twenty twenty two. That's in
Speaker 7: part due to lower mortgage rates, but also we've seen
Speaker 7: house price growth remain lower than income growth, and that's
Speaker 7: allowed affordability to slowly improve.
Speaker 4: Are there parts of the country ODEATA where prices are
Speaker 4: actually home prices are actually coming down. I mean, we're
Speaker 4: talking about maybe the rate of growth slowing down, but
Speaker 4: are there parts of the country where prices are just
Speaker 4: straight up coming down?
Speaker 7: There are we're actually seeing We talk a lot about
Speaker 7: this ke shaped economy everywhere, but we're seeing that in
Speaker 7: the housing market as well. There's a clear regional divide.
Speaker 7: When we look at our Northeast Midwest markets, they're still
Speaker 7: experiencing house price growth versus the some southern markets Mountain
Speaker 7: West markets where we're seeing outright price declines.
Speaker 2: So take Cape Coral, Florida.
Speaker 7: This is a market where we're seeing over eight percent
Speaker 7: your rear price declines. You know, compare that with a
Speaker 7: place like Poughkeepsie, where we're still seeing price growth. And
Speaker 7: that's really a function of the fact that a lot
Speaker 7: of the Northeast Midwest markets haven't built quite as many homes.
Speaker 7: There's not quite as much inventory on the market, whereas
Speaker 7: a lot of our pandemic Darling markets, if you will,
Speaker 7: they saw a lot of inventory grow and now they're
Speaker 7: starting to see some price cuts.
Speaker 4: Shout out to Poughkeepsie. Yeah, now part of the countries
Speaker 4: of a part of New York State that was really
Speaker 4: going through a revitalization right now.
Speaker 2: You know, a couple empty nesters retired to Syracuse. Wow,
Speaker 2: and their Syracuse grads and they're like, the cost of
Speaker 2: living is so much less, and we like a plversity
Speaker 2: and were like, dude, it's cold, we got to bed
Speaker 2: at you got to get party cloks down there. Talk
Speaker 2: to us about who's actually buying new homes today. I'm
Speaker 2: really thinking about some of the first time home buyers.
Speaker 2: It seems like a lot of those, so we read
Speaker 2: a lot about it. They're just their affordability issues just
Speaker 2: make it very tough for young folks to buy homes.
Speaker 7: It is. I mean, saving for a down payment has
Speaker 7: historically been the primary hurdle for potential first time home buyers,
Speaker 7: and then of course they don't have the money from
Speaker 7: the sale of an existing home to bring to that
Speaker 7: closing table. So it remains a very challenging market for
Speaker 7: potential first time home buyers. But then the existing homeowners,
Speaker 7: they're struggling with the fact that they're they're rate locked in.
Speaker 7: We know that seventy eight percent of existing homes with
Speaker 7: a mortgage have a rate below six percent, so their
Speaker 7: rate locked in. And you know, inventory is improved compared
Speaker 7: to a year ago, but it's still historically constrained, and
Speaker 7: so maybe it's challenging for them to find.
Speaker 2: A bigger, better home to move up to.
Speaker 7: And so it still is a challenging market. But I
Speaker 7: think on the margin is improving and beginning to normalize,
Speaker 7: which should put us in a better position this year
Speaker 7: for the spring home buying season relative to last year.
Speaker 4: Oh, Denna, how much of the affordability issue is the
Speaker 4: fact that we've got investors large and small coming in
Speaker 4: gobbling up a lot of the time single family or
Speaker 4: two three you know, multi family homes homes that would
Speaker 4: traditionally be going to a first time home buyers, and
Speaker 4: it's hard to compete with them.
Speaker 2: A lot of the time.
Speaker 4: They're also coming in with a lot of buying muscle
Speaker 4: and cash. It's hard to beat cash.
Speaker 7: Yeah, the investor's share of sales is still relatively small.
Speaker 7: I still think that the wider issue in the housing
Speaker 7: market is that we've really been chronically underbuilding compared with
Speaker 7: household for me for over a decade, and that chronic
Speaker 7: underbuilding has contributed to this this housing shortage, and it's
Speaker 7: worse in some parts of the country than others. But
Speaker 7: I think that that issue is still the primary issue
Speaker 7: contributing to our affordability concerns today.
Speaker 2: Deed, how did that come to that underbuilding for such
Speaker 2: a long period of time, How did that happen? How
Speaker 2: does that typically happen?
Speaker 7: Well, builders have faced several supply side headwinds at the
Speaker 7: you know, at the end of the global financial crisis,
Speaker 7: they lost a lot of skilled labor and they're still
Speaker 7: struggling with the lack of skilled labor. In the construction industry,
Speaker 7: material costs of increased, there's regulatory hurdles to building that
Speaker 7: make it more expensive to build that's in part why
Speaker 7: we see more building in the South Texas, Florida than
Speaker 7: we do in Boston, for example, right is some of
Speaker 7: those regulatory challenges, and so I do think that the
Speaker 7: supply side headwinds for builders, which they're still grappling with today.
Speaker 7: They're sometimes referred to as the five ls of home building, lots, legal,
Speaker 7: et cetera. And so I think that that's been one
Speaker 7: of the primary challenges.
Speaker 4: I'm talking to Odetta Kushy, Deputy chief economist over at
Speaker 4: First American. Odetta, when I look at the fifteen year
Speaker 4: five point seven seven percent, how is that sitting with
Speaker 4: folks who are looking to refinance? Are we seeing more
Speaker 4: people applications for refinancing sort of outstrip applications for new buys.
Speaker 7: We have seen a refinance demand increase on it certainly
Speaker 7: on a year every year basis. There are still relatively
Speaker 7: few who are in the money to refy. Typically we're
Speaker 7: seeing refis happen with maybe the twenty twenty five twenty
Speaker 7: twenty four vintages that those are really the folks that
Speaker 7: are in the money. So you know, looking out this year,
Speaker 7: you can have periods of refi boomlets. If rates dip
Speaker 7: a little bit, but we're not expecting any sort of
Speaker 7: major refi boom because again, so many folks locked into
Speaker 7: those super low rate mortgages over the pandemic.
Speaker 2: Odeedita, thanks so much for joining us. Really appreciate Odeta Kushy,
Speaker 2: Deputy Chief Economists, a first American.
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