Homes are ‘still flying off the shelves’ despite higher mortgage rates: Century 21 CEO

Century 21 CEO Mike Miedler joins Yahoo Finance Live to discuss the housing market, home inventory, rising mortgage rates, and the wave of millennials entering the market.

Video transcript

AKIKO FUJITA: OK, well, higher mortgage rates are leading to a cooldown in the red hot housing market. But with inventory still relatively low and inflation weighing on buyers, is home buying still out of reach for a key demographic? And we're talking about millennials. Joining us now is Mike Miedler. He is Century 21 president and CEO. Mike, give us a snapshot of what you're seeing right now nationally. I mean, we're hearing more and more that bidding wars are no longer 20 buyers, but 10 buyers, that there are price cuts that are starting to happen. What are you seeing?

MIKE MIEDLER: Yes, absolutely, Akiko. Thanks for having me on. I mean, if you look at the NAR weekly monitor from just last week, you're starting to see, again, inventory in a low spot where pending inventory is down about 4.2%. I'm sorry-- active inventory. Pending inventory is down about 17%. And I think what you're still seeing is the serious buyers who are out there are still driving prices up.

So even with the spike in interest rates, this largest spike we've ever seen in the last 40 years, you've still got median price up around 15% year over year. And, you know, homes are going above asking. They're still flying off the shelves. I think it's the median is 13 days that you see a home go under contract, compared to 16 days just a year ago. So we're still seeing people who are serious about housing and looking for that dream of home ownership in the market and really making offers to purchase.

BRIAN CHEUNG: Hey, Mike, Brian Cheung here. On the supply side of things. What's the story look like on that front? Because it seemed to be an acknowledgment, at least in the industry, that there were going to be new homes that were needed in order to quell some-- or satisfy some of the demand. Is that happening despite the fact that mortgage rates are going up during this time?

MIKE MIEDLER: Yeah, Brian, great question. I mean, we're up to about 2.2 months of supply. And you have to realize that a normal marketplace for residential housing is about six months of supply. So we've been in this two-year kind of zone of just absolutely a sprint, as I call it. And now what you're seeing is, even the White House, just last week, coming out with ways that we can try to stabilize inventory and get more housing out to people who want it.

You know, I keep talking about the fact that we've got the largest generation, 90 million millennials, who won't reach the median age for the first-time homebuyer for another three years, literally storming into the marketplace. Right behind them, Gen Z, who are the second largest generation. And if you think about it from a supply perspective, from a housing starts and building perspective, we've seen, from 2012 to 2021, 12 million new household formations, but only built seven million new homes here in this country. So we've got a lot of catching up to do.

AKIKO FUJITA: I mean, you said that two-month supply versus what should be a six-month supply. How quickly are we seeing inventories rise? And at what point do you close that gap?

MIKE MIEDLER: Well, inventory is creeping up a little bit. But as I said, you know, pending listing inventory is down roughly 17%. So, again, the folks who are serious, who've been sidelined for the last two years, who have lost out on maybe 12 different bidding opportunities, are still out there, still serious. The good news is that you've seen a large amount of savings rate here in this country, where people have the cash to put down the 10% or 20% that it takes to qualify for a mortgage.

And really, you look at the typical mortgage. People are, obviously, anxious to get into the market before it increases any more. But even at 5%, 5 and 1/2%, 6%, you're still well below the typical mortgage rate that we've seen in this country over the last 50 years. So, you know, I don't know when the inventory will level off, but it's got, obviously, the attention of a lot of people, including the White House and government right now.

BRIAN CHEUNG: Mike, you know, I mean, home prices are still going up, obviously, but has the bidding war kind of alleviated for properties? And I know that's going to be different depending on what property, what market you're in. But look, we were hearing stories about people lining up just to go to an open house, and then there'd be some person with cash or even an institutional investor coming in, just to snatch up the whole thing. Has that alleviated at all in the last six months?

MIKE MIEDLER: You know, it hasn't, and that's why you see the sale to list ratio still above 100%. Last year, it was about 99%. So anyway, I was just in Redlands, California last week, and they were talking about, there is a little bit more of a normalization for sellers, who have to recognize that, like you said, there's not going to be 50 people in line at the open house. There's probably more like 10 at this point.

But Brian, it's the reason that you literally have 122 straight months in a row of sales price increases for the median home in this country. And so, that demand that you see from those generations and those household formations, I think, will continue to push the price up this year. And like Lawrence Yun says at NAR, it's probably going to be a little bit more modest. But there's still a lot of what I would call demand in the marketplace.

AKIKO FUJITA: And finally, Mike, you just pointed to a key demographic. Obviously, millennials kind of in the prime, in a position to buy their first homes. To what extent do those buyers get pushed out as a result of higher rates? I mean, it sounds like, based on your notes, that they're still right there, waiting for that next home, because they're in a better financial position.

MIKE MIEDLER: Yeah, and the great point is, they're in a better financial position. They've probably paid down some of the student housing debt. Think about it. A lot of millennials are now kind of in the move up buyer space as well. But it is that first-time homebuyer who is really affected by the spike in interest rates. If you look back, just call it a year ago, you need about $30,000 to $33,000 more of household income in order to afford the home at today's interest rate at the median price where it sits today.

So it continues to be a concern, I think. And the good news is that the jobs are out there. And if you want to earn more money or a second income like I did, when I purchased my first home, there's a place to find a job and make some more income to purchase and put down that 20% that it takes to get that dream of home ownership here in this country.

BRIAN CHEUNG: Well, at the same time, you do wonder if that's in flux with concerns about a recession on the horizon. But we'll see. Mike Miedler, Century 21 CEO, thanks so much for the breakdown there. Appreciate it.