00:00:00
The housing market has had certainly an
00:00:02
interesting year because of how home
00:00:04
prices have reacted to inflation, to
00:00:06
decisions by the Federal Reserve, and a
00:00:08
consumer that has become a bit more
00:00:10
cautious. So, what does this all mean
00:00:13
for housing as we head into a new year?
00:00:16
Pleasure to be joined today by Susan
00:00:18
Wter, who's a professor of real estate
00:00:20
here at the Wharton School. Susan, great
00:00:22
to catch up with you. How are you?
00:00:24
>> Good to be here.
00:00:25
>> Thank you. Uh, obviously when we talk
00:00:27
and do these year- end interviews,
00:00:28
there's two components that we look at,
00:00:30
residential and commercial. Let me start
00:00:32
with residential. With all this is going
00:00:34
on and we've seen, you know, some
00:00:36
pricing coming down. There's still an
00:00:38
inventory issue out there. There's still
00:00:40
lots to to talk about in this
00:00:42
marketplace. What's your general sense
00:00:44
of where the residential market is at
00:00:47
this moment?
00:00:48
>> The residential market is being driven
00:00:50
by the buyers who are sidelined. They're
00:00:52
loaths to buy. They're los to buy
00:00:54
because of uncertainties that you've
00:00:55
just gone through, but also because of
00:00:57
the certainty of high interest rates,
00:01:00
higher longer even if they come down
00:01:03
some, and they have come down 6.3 much
00:01:05
lower than nine, 6.3 still means a lot
00:01:09
of buyers are not qualified. And also,
00:01:11
housing prices are still near all-time
00:01:14
highs. Therefore, we've got buyers
00:01:17
sideline and we have actually inventory
00:01:20
is increasing somewhat. It's still lower
00:01:24
than before the pandemic, but it's
00:01:27
increasing, which means it's more of a
00:01:28
buyer market and prices are likely to
00:01:31
fall. Certainly inflation adjusted
00:01:34
across the country, but even nominally,
00:01:36
we're likely in many markets to see some
00:01:38
declines. Let me ask you about the rate
00:01:40
question because I think it's something
00:01:42
we've talked about in years past, but I
00:01:44
think it's still important in that you
00:01:47
still have a large swath of the public
00:01:50
that either, you know, when we had the
00:01:52
pandemic either got in at a mortgage of
00:01:55
three three and a half% or they refied
00:01:58
at that rate at that point and
00:02:00
realistically they don't want to get out
00:02:02
of that really nice rate.
00:02:05
How much of a concern is this longer
00:02:07
term for this industry that you're going
00:02:09
to have a segment of the population that
00:02:12
is more willing to maybe do a DIY
00:02:14
project at their current home than look
00:02:16
for that new home?
00:02:17
>> Well, it's an impact for the industry.
00:02:19
It's it's we see it in the builder
00:02:22
stocks which have not recovered to the
00:02:25
highs by any means even at the high end
00:02:28
toll a little bit but others no. So
00:02:30
where we are it's not only concern for
00:02:32
builder stocks but profits but it's also
00:02:35
concern for the overall economy because
00:02:38
it slows mobility and obviously it's a
00:02:41
concern for the uh the K-shaped economy
00:02:45
the younger households who are not
00:02:47
getting in because older households are
00:02:50
staying put and this slows down
00:02:53
transactions and that's really the
00:02:55
message for the coming year another year
00:02:57
of slow transactions in the housing
00:03:00
sector.
00:03:01
>> Susan, something interesting that was
00:03:03
floated by President Trump a few months
00:03:06
ago, a couple months ago, was the idea
00:03:08
of a 50-year mortgage. Give us your
00:03:11
thoughts on that idea if it's viable or
00:03:13
not.
00:03:14
>> It's not viable. And you could just look
00:03:16
at the number 50. If you purchase your
00:03:18
home at 30 and you have 50 years to pay
00:03:20
it off, you're 80. No one wants to go
00:03:22
into retirement paying that hefty
00:03:24
mortgage bill. So, it's not a solution
00:03:27
because of that. And also because
00:03:29
mortgage payments are doubled simply
00:03:32
because you're you're paying mortgages
00:03:34
over a much larger portion of your life.
00:03:36
And although the initial mortgage
00:03:38
payments are somewhat lower, we don't
00:03:40
know how much lower they are. This is
00:03:42
greater risk to the investor, greater
00:03:44
inflation risk, greater in risk of
00:03:46
default because you don't pay down that
00:03:49
balance and build up equity. So, you
00:03:51
know, there's not much consensus on
00:03:53
ideas, but there's a lot of consensus on
00:03:56
this one, and it's negative.
00:03:57
Unfortunately, it's not going to be the
00:04:00
magic bullet. Quite to the contrary,
00:04:01
this one just won't fly.
00:04:03
>> Let me switch over to the commercial
00:04:05
market and give us your general thoughts
00:04:06
on where the landscape sits on
00:04:08
commercial real estate at the moment.
00:04:11
>> Commercial is healing and uh commercial
00:04:14
of course has gone through two major
00:04:16
hits. the major hits of higher interest
00:04:19
rates and the work from home which
00:04:22
devastated offices. Office is still down
00:04:25
from its high by more than 30%. And also
00:04:29
multifamily
00:04:30
is excess supply across many markets
00:04:34
because of the low mortgage rates uh for
00:04:37
builders low rates for builders getting
00:04:39
in and and that supply has yet to be
00:04:42
absorbed. However, the good news is I
00:04:44
think we're on the slow march to
00:04:46
recovery and price points have been
00:04:49
found. There's not a huge uh interest in
00:04:52
getting back into real estate in this
00:04:54
market. You're not going to get the kind
00:04:56
of returns that people are betting on in
00:04:58
some other markets, but nonetheless,
00:05:01
real estate, commercial real estate's on
00:05:02
the mend and it's not likely to be the
00:05:05
source of any downside that's major,
00:05:07
which is good news. What are some of
00:05:09
those points that you think we need to
00:05:11
focus on then as commercial real estate
00:05:13
continues this recovery? Where are the
00:05:15
areas to focus on?
00:05:17
>> Well, the there is still a wall of debt
00:05:19
coming out of the banking system that
00:05:21
refinancing of commercial mortgages and
00:05:23
so that needs to go okay and it looks as
00:05:26
though that's being managed. The key
00:05:28
answer is the same answer for resi as it
00:05:31
is for commercial. It would be good to
00:05:34
get those rates down back to more normal
00:05:36
post World War II 5% levels.
00:05:39
>> Right. And you're still at a point where
00:05:41
if you look at a lot of uh communities
00:05:43
right now, there are still lots of
00:05:45
properties that are that are vacant that
00:05:46
are looking to be filled.
00:05:48
>> Absolutely. And we're likely to see that
00:05:49
vacancy, it's not going to be quick and
00:05:52
easy to get those properties repurposed
00:05:55
partially because it costs money to get
00:05:57
that done and the cost of money is
00:05:59
pretty high. So while while buyin is
00:06:02
occurring, deals are not exploding but
00:06:04
there are some more and strategic
00:06:06
investors are coming back in. Uh
00:06:08
nonetheless putting a lot of money into
00:06:11
these properties when money is so
00:06:12
expensive that's not clearly going to
00:06:14
happen. However, all that said, the
00:06:18
bigger picture is, you know, what's the
00:06:20
remote work trend and what's going to
00:06:22
happen to our cities and downtowns of
00:06:24
America? And they could have been
00:06:26
eviscerated, but it looks like that is
00:06:29
not the long run. the long run, I'm a
00:06:31
I'm a I'm somewhat optimistic about as
00:06:34
the in-person economy, you know, with
00:06:36
with AI and technology, there's a still
00:06:40
a need, in fact, perhaps increasing need
00:06:42
for inperson, and that's where downtown
00:06:44
shine.
00:06:45
>> Yeah. What's interesting is that uh with
00:06:48
so many companies with remote work, I
00:06:50
think everybody expected that uh firms
00:06:53
were going to pair down the size of the
00:06:54
properties that they had. And correct me
00:06:56
if I'm wrong. I don't think we've seen a
00:06:58
a massive move by firms to do that.
00:07:01
>> There is some there is some savings
00:07:03
that's happening. There are some
00:07:04
repositioning and some savings. But on
00:07:06
the other hand, in uh some markets in
00:07:09
some industries, there's an increase in
00:07:10
demand. Of course, AI, San Jose, San
00:07:13
Francisco are coming back. Those are
00:07:16
markets to watch. And New York City
00:07:18
also. I is there anything then as you
00:07:21
look at real estate larger scale that as
00:07:24
we turn the calendar to 2026 that really
00:07:26
has grabbed your attention that you want
00:07:28
to keep an eye on as we go into the new
00:07:29
year?
00:07:30
>> Well, actually it's it's the overall
00:07:32
economy. It's the major major uh factors
00:07:36
moving the overall economy. It's
00:07:37
inflation and inflation's impact on
00:07:40
interest rates and that's the potential
00:07:42
positive upside going forward. Uh we've
00:07:45
seen recently that the inflation
00:07:46
numbers, the CPI came in a little lower
00:07:49
and 2026 may see a continuation of that.
00:07:53
>> Susan, great to talk to you as always.
00:07:54
Thanks very much and look forward to
00:07:56
talking to you again next year.
00:07:57
>> Pleasure.
00:07:58
>> Thank you. Susan Walker, who is a
00:07:59
professor of real estate here at the
00:08:01
Wharton School.
