Zillow’s Matthew Speakman on the state of inventory

Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:

Victoria Wickham: Hello, HousingWire listeners. Today, I am joined by Zillow Economist Matthew Speakman. Matthew, thanks for joining us today.  

Matthew Speakman: Yeah, thanks very much for having me on.  

– Yeah, absolutely. Well, I want to get started by discussing the latest existing home sales report from The National Association of REALTORS indicating that existing home sales fell 6.6% in February to a seasonally-adjusted annual rate of 6.22 million, but are 9.1% higher than last year. So, can you dive a little deeper on what factors contributed to the slowdown?  

Matthew Speakman: Yeah, sure thing. So, I think it’s a couple of key factors. First is the winter weather, that much of the country experienced the really harsh conditions through February, Texas and other places really had to experience. You know, normally existing home sales measure buying and selling activity actually from a month or even two months before the reported month just due to the nature of how the data are compiled.  

But I think, in this case, the weather actually did impact February’s report just due to some closings that might not have been able to take place. So, that actually leaves us with a bit more of a backlog of sales for the months to come. So, you know, I think the weather was one factor.  

And the other is, you know, the inventory element, specifically a lack of listing activity. You know, through much of 2020, particularly in the second half of 2020, we saw that overall inventory was down quite a bit. But, you know, actually new listing activity, people putting their homes on the market was keeping pace with previous years.  

And due to high buyer demand and homes selling very quickly, the overall stock was down but activity levels were actually on par with previous years. That hasn’t been the case thus far to begin the year. We have seen listing activity kind of take a bit of a step back.  

Although, I think the weather might have exacerbated those declines as well. You know, I think the last thing with the sales figures as well is it’s important to remember that we’re still 9.1% above last year’s pace. And keep in mind, that’s before the pandemic arrived. The housing market was in really great shape heading into the pandemic, and the fact that we’re at least 9% above last year’s pace, as the economy continues to improve, as the labor market is showing some signs of strength, I do think that that bodes well for home sales going forward.  

Victoria Wickham: It’s interesting. We’re definitely going to talk about inventory in just a bit. But let’s discuss the nation’s median existing home price, which, according to NAR, rose to $313,000, which is 15.8% higher from one year ago, with prices rising in every region. So, can you discuss what is behind these price increases and, from your perspective, do you believe there’s a ceiling to how high prices can go before they start to cool off?  

Matthew Speakman: Right, yeah. Prices are another huge story. You know, our measure of home values, the Zillow Home Value Index, which kind of measures the entire housing stock as opposed to just those that sold, is up 9.9% year over year, that’s the highest annual appreciation since April 2006. It’s up 1.1% on the month alone, so, just really strong growth.  

And I think, again, a couple of things are factoring in here, and I mentioned the both earlier. First is the tight supply. So, you know, inventory is down overall and that places more competition in the market, you know, it leads to more bidding wars, etc., pushing prices up. And then another is just this surge of demand, which, again, factors in competition.  

And one thing to note about the demand is it seems as if the sources are really organic. There are a lot of people who are aging into what are viewed as sort of traditional home-buying, home-ownership age, you know, about 5 million more 25 to 35-year-olds in mid-2020 than there were in 2010. You know, another factor is what we’re calling here the great reshuffling, that is, you know, the pandemic and pandemic-driven effects on day-to-day life are leading people to sort of rethink and re-evaluate what they need out of their home, how much space they need, what amenities, where they can live, etc.  

So, that’s leading to increased demand as well. So, you know, all in all, I think this tight supply and the organic, you know, elevated levels of demand are combining to push prices higher. You know, as for where prices go from here, you know, I don’t think either of these trends are going to change markedly anytime soon.  

We here expect growth in prices to further accelerate through much of the year, peaking in about the middle of 2021 but, overall, you know, remaining quite strong through the rest of the calendar year. I think that growth will abate slightly as the economy improves and more people are likely to list their homes, but yeah, we should expect strong price growth for the coming year, I would say.  

Victoria Wickham: All right. Well, NAR’s data also indicates, as of the end of February, housing inventory remained at a record low of 1.03 million units and was down by a record decline of 29.5% from a year ago. Additionally, NAR’s data also indicates properties typically sold in 20 days, which was a record low as well.  

So, we’ve continued to see an incredibly hot housing market and our country’s inventory remains a question of concern. So, what are you seeing in consumer search habits and what does Zillow’s data tell us about home-buyer demand at this time?  

Matthew Speakman: Yeah. I think that’s just it, you laid it all out there. I mean people love to focus on that down 30% year over year stat with inventory. And it’s important, don’t get me wrong. But, to me, the bigger factor there, the more important metric is that 20 days on market that you mentioned. Homes are just selling so quickly, they’re flying off the shelves.  

And, as I mentioned earlier, that’s kind of dampening the overall stock of for sale inventory. Now, again, we’ve seen new listing activity kind of slow to begin the year but, you know, early signals suggest that that was sort of a temporary slowdown. And yeah, I mean the low days on market really emphasize the elevated levels of demand that we’re seeing in the market.  

You know, we see that in our data as well. Visits to our site remain very strong. And, in particular, people are really seeking out… you know, are more increasingly, you know, interested in using digital tools, like 3D tours or having a virtual tour with an agent, things like that that allow them to gather as much information as possible in order to be the most ready to make a decision on a house.  

It’s so competitive out there that, you know, people are looking for any advantage they can gather. And a lot of these digital tools that we offer are enabling them to do so. So, you know, yeah, levels of demand are still very strong, as I mentioned before. And that shines through in our metrics as well.  

Victoria Wickham: That’s really interesting. Well, you know, I’d like to continue the discussion on inventory. And this next questions, it’s kind of a three-part question, so, bear with me here, but what factors do you think need to happen to get more homes on the market? And, you know, what is your data saying about how potential home sellers are feeling about putting their houses on the market?  

And, you know, from your perspective, are you optimistic that more people are going to be putting their houses on the market this year?  

Matthew Speakman: Yeah. It’s the big question. Right? And I think, as I mentioned earlier, I think, in part, this slowdown in new listing activity does appear to be at least in part affected by the harsh winter weather conditions that we’ve experienced through most of the country, in the past couple of months. So, there are early signs that activity has increased in recent weeks as the weather has continued to improve.  

You know, another big factor is, of course, the pandemic. Right? It’s easy to sort of dismiss as it’s all-encompassing every day but, you know, the pandemic is still going to drive the market going forward. Our figures suggest that, you know, 70% of homeowners say they’d be mostly or completely comfortable moving to a new home as vaccine distribution is more widespread.  

And that’s, you know, up from 52% from before, you know, vaccine distribution was sufficiently widespread, let’s say, so, a difference of about 14 million homes. So, all that is to say is, you know, as more vaccines are rolled out, as the economy continues to improve, reopen, as the labor market starts to improve and continues to show strength, I think all of those are going to combine to more confidence, from the perspective of home sellers, to list their homes in the market, take advantage of these rising prices and low time on market, let’s say.  

So, all those combined offer me confidence that we will see some inventory improvements in the coming year and that this extreme sort of tightness that we’re seeing, should start to abate. But, as I mentioned before, I think that, you know, homes are selling so quickly that we’re not going to see sort of an about turn in overall inventory stock anytime soon.  

It’s going to be sort of a gradual change.  

Victoria Wickham: Really really great insight here. But, you know, before we go, lastly, is there anything else that you’d like to add today or anything else our listeners should know?  

Matthew Speakman: No, I think that’s it. And I think we covered a lot here, so, the key dynamics in the housing market for the time. But, yeah, it was great chatting with you. Thanks for having me on.  

Victoria Wickham: Absolutely. Well, we appreciate your time, and thank you for joining us on HousingWire Daily.  

Matthew Speakman: Thanks. Take care.