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The housing market has had certainly an interesting year because of how home prices have reacted to inflation, to
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decisions by the Federal Reserve, and a consumer that has become a bit more cautious. So, what does this all mean
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for housing as we head into a new year? Pleasure to be joined today by Susan Wter, who's a professor of real estate
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here at the Wharton School. Susan, great to catch up with you. How are you? >> Good to be here.
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>> Thank you. Uh, obviously when we talk and do these year- end interviews,
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there's two components that we look at, residential and commercial. Let me start
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with residential. With all this is going on and we've seen, you know, some pricing coming down. There's still an
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inventory issue out there. There's still lots to to talk about in this marketplace. What's your general sense
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of where the residential market is at this moment? >> The residential market is being driven
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by the buyers who are sidelined. They're loaths to buy. They're los to buy
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because of uncertainties that you've just gone through, but also because of the certainty of high interest rates,
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higher longer even if they come down some, and they have come down 6.3 much lower than nine, 6.3 still means a lot
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of buyers are not qualified. And also, housing prices are still near all-time highs. Therefore, we've got buyers
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sideline and we have actually inventory is increasing somewhat. It's still lower
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than before the pandemic, but it's increasing, which means it's more of a
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buyer market and prices are likely to fall. Certainly inflation adjusted across the country, but even nominally,
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we're likely in many markets to see some declines. Let me ask you about the rate
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question because I think it's something we've talked about in years past, but I
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think it's still important in that you still have a large swath of the public
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that either, you know, when we had the pandemic either got in at a mortgage of three three and a half% or they refied
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at that rate at that point and realistically they don't want to get out of that really nice rate.
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How much of a concern is this longer term for this industry that you're going
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to have a segment of the population that is more willing to maybe do a DIY project at their current home than look
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for that new home? >> Well, it's an impact for the industry. It's it's we see it in the builder
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stocks which have not recovered to the highs by any means even at the high end toll a little bit but others no. So
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where we are it's not only concern for builder stocks but profits but it's also
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concern for the overall economy because it slows mobility and obviously it's a
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concern for the uh the K-shaped economy the younger households who are not getting in because older households are
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staying put and this slows down transactions and that's really the message for the coming year another year
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of slow transactions in the housing sector. >> Susan, something interesting that was
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floated by President Trump a few months ago, a couple months ago, was the idea of a 50-year mortgage. Give us your
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thoughts on that idea if it's viable or not. >> It's not viable. And you could just look
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at the number 50. If you purchase your home at 30 and you have 50 years to pay it off, you're 80. No one wants to go
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into retirement paying that hefty mortgage bill. So, it's not a solution because of that. And also because
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mortgage payments are doubled simply because you're you're paying mortgages
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over a much larger portion of your life. And although the initial mortgage payments are somewhat lower, we don't
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know how much lower they are. This is greater risk to the investor, greater inflation risk, greater in risk of
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default because you don't pay down that balance and build up equity. So, you
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know, there's not much consensus on ideas, but there's a lot of consensus on
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this one, and it's negative. Unfortunately, it's not going to be the magic bullet. Quite to the contrary,
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this one just won't fly. >> Let me switch over to the commercial market and give us your general thoughts
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on where the landscape sits on commercial real estate at the moment. >> Commercial is healing and uh commercial
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of course has gone through two major hits. the major hits of higher interest rates and the work from home which
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devastated offices. Office is still down from its high by more than 30%. And also
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multifamily is excess supply across many markets because of the low mortgage rates uh for
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builders low rates for builders getting in and and that supply has yet to be absorbed. However, the good news is I
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think we're on the slow march to recovery and price points have been found. There's not a huge uh interest in
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getting back into real estate in this market. You're not going to get the kind
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of returns that people are betting on in some other markets, but nonetheless, real estate, commercial real estate's on
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the mend and it's not likely to be the source of any downside that's major,
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which is good news. What are some of those points that you think we need to focus on then as commercial real estate
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continues this recovery? Where are the areas to focus on? >> Well, the there is still a wall of debt
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coming out of the banking system that refinancing of commercial mortgages and so that needs to go okay and it looks as
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though that's being managed. The key answer is the same answer for resi as it
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is for commercial. It would be good to get those rates down back to more normal post World War II 5% levels.
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>> Right. And you're still at a point where if you look at a lot of uh communities
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right now, there are still lots of properties that are that are vacant that are looking to be filled.
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>> Absolutely. And we're likely to see that vacancy, it's not going to be quick and
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easy to get those properties repurposed partially because it costs money to get that done and the cost of money is
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pretty high. So while while buyin is occurring, deals are not exploding but there are some more and strategic
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investors are coming back in. Uh nonetheless putting a lot of money into these properties when money is so
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expensive that's not clearly going to happen. However, all that said, the bigger picture is, you know, what's the
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remote work trend and what's going to happen to our cities and downtowns of America? And they could have been
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eviscerated, but it looks like that is not the long run. the long run, I'm a
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I'm a I'm somewhat optimistic about as the in-person economy, you know, with
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with AI and technology, there's a still a need, in fact, perhaps increasing need
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for inperson, and that's where downtown shine. >> Yeah. What's interesting is that uh with
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so many companies with remote work, I think everybody expected that uh firms were going to pair down the size of the
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properties that they had. And correct me if I'm wrong. I don't think we've seen a
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a massive move by firms to do that. >> There is some there is some savings
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that's happening. There are some repositioning and some savings. But on the other hand, in uh some markets in
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some industries, there's an increase in demand. Of course, AI, San Jose, San
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Francisco are coming back. Those are markets to watch. And New York City also. I is there anything then as you
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look at real estate larger scale that as we turn the calendar to 2026 that really
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has grabbed your attention that you want to keep an eye on as we go into the new
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year? >> Well, actually it's it's the overall economy. It's the major major uh factors
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moving the overall economy. It's inflation and inflation's impact on interest rates and that's the potential
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positive upside going forward. Uh we've seen recently that the inflation numbers, the CPI came in a little lower
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and 2026 may see a continuation of that. >> Susan, great to talk to you as always.
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Thanks very much and look forward to talking to you again next year. >> Pleasure.
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>> Thank you. Susan Walker, who is a professor of real estate here at the Wharton School.