Dave:
Hey everyone, welcome to On The Market, I’m your host, Dave Meyer. And listen everyone, after you hear today’s episode, I don’t ever want to hear again that data or economics or finance is not interesting because we have an amazing conversation and an amazing guest today, Mark Zandi, who is a very well-known American economist. He’s the chief economist of Moody’s Analytics, and I look forward to talking to Mark every time we have the great opportunity to have him on the show. He makes really complicated topics very easy to understand, and I really love just how humble he is about his remarkable success as an economist. But he also gives it to you straight. He tells you which data points are important, which ones are unreliable, which should be ignored altogether, and it really helps you cut through a lot of the clutter and make sense of what’s going on in the complicated economy.
Today, we talk a lot about the labor market and I learned several things that I never knew from Mark. We also get into immigration, what happens in the economy in an election year, and we also talk about the housing shortage and some of Mark’s ideas on how we could restore some affordability to the housing market. So we have a great show for you, and with no further ado, let’s bring on Mark Zandi from Moody’s Analytics.
Mark Zandi, welcome back to the podcast. Thanks for being here.
Mark:
Thanks, Dave. It’s good to be with you.
Dave:
For those of our listeners who are new or didn’t hear your last episode, can you just tell us a little bit about yourself and your career at Moody’s?
Mark:
Sure, I’m the chief economist of Moody’s. I joined Moody’s a while ago now, 15, 16 years ago. I sold a company that I had formed in 1990 to them, and I’ve been with them ever since. So I’ve been a professional economist for, hard to believe, but over 30 years. I’ve seen a lot of ups and downs and all arounds.
Dave:
When you were here on the show last time, we ended with this term that you had coined, the slow session, that you had been using to describe the economy. Can you remind us what a slow session is and if your thoughts about it came to fruition?
Mark:
Yeah, slow session, and you can look it up in Google. You can Google it. There’s a URL there that one of my colleagues purchased. Yeah, for nine bucks a year apparently so not bad. Slow session, not a recession. So the economy isn’t contracting, going backwards, but an economy that’s not going anywhere quickly, a slow session. I’ll have to say, 2023, of course not over yet, but pretty darn close is going to turn out to be a lot better than a slow session. Not only did we avoid a recession like we thought, but it was a really good year in terms of growth.
GDP is what economists use to gauge the broader health of the economy, that’s the value of all the things that we produce. That’s going to grow 2.5% on a real after-inflation basis in the year, and that’s a good year. I mean typically think of 2% as the benchmark. You get 2%, you’re doing just fine, especially when unemployment’s so low, when sub 4%. 2.5%’s great. So it turned out to be a much, much better year than certainly most people feared and even better than I had expected.
Dave:
What do you attribute that resilience to?
Mark:
A bunch of stuff, but there’s a list, but I put at the top of the list the supply side of the economy really surprised, meaning we got a lot more productivity growth during the year. We can peel that onion back too if you want, but productivity came back to life. One thing that might be going on is all those people who quit their jobs back a couple, three years ago, they’ve now taken on jobs that they think better of, they’re more suited to their talents and skills and they’re better paid and they’re happier. And we can see that in surveys and that probably translates through to higher productivity, but remote work might be playing a bit of a role. I think it’s way too early for AI, but that may play a role down the road.
The other big thing is labor force growth. A number of people out there working and looking for work. That has been very strong surprisingly, and part of that’s just more participation, more people are coming back into the workforce. Participation rates aren’t quite back to pre-pandemic, but they’re higher than I would’ve thought they would’ve been if there had been no pandemic, just because the retiring baby boom generation and then immigration has been boom-like, and of course that poses a whole slew of questions and challenges. But one of the benefits of that is you’ve got more folks out there working and looking for work, and that adds to growth. So because the supply side of the economy grew more quickly, surprisingly so, that allowed the GDP the amount of stuff that we produce to grow more quickly without any inflation, with inflation coming back in. So I can wax on, but that’s I think a high level the most important factor resulting in the surprisingly good economy.
Dave:
Great. Let’s dig into that a little bit more because you mentioned a couple things I think that are going to be really interesting for our audience. One of them was about labor force growth. During the pandemic, we saw a lot of people leave the workforce, and as you said, it’s starting to come back. You also mentioned that immigration is fueling a lot of the labor force growth. Is that legal migration, illegal migration, a combination of both?
Mark:
It’s got to be a combination of both. Certainly the former, legal immigration is up. I mean, that got crushed during the pandemic for lots of obvious reasons and that’s made its way back. That’s certainly adding to a number of folks out there working. But I do think we’ve seen, it’s clear we’ve seen a surge in undocumented workers now and I’m sure that’s adding to jobs and payroll and labor force. But here’s a technical point. These estimates, these numbers are based on surveys and if the Bureau of Labor Statistics, the keeper of the survey goes to someone who’s undocumented and say, “Are you working?” I’m pretty sure that undocumented worker may not want to respond to the survey. So I’m sure undocumented workers are finding their way into the workforce and adding to labor force, but I’m not so sure how much of that is behind these really good numbers that we’re observing.
Dave:
Got it. So in the numbers and the data that you provide in your report, which comes from the Bureau of Labor Statistics, that is mostly reflecting legal migration, but there might be even more labor force growth it sounds like that is not measured by traditional methods.
Mark:
Got it, exactly. The data is imprecise representation of reality and all data is an imprecise representation of reality. In this case, it’s quite imprecise. And my guess is my sense is that we’ve seen very strong labor force growth of strong immigration, but it’s probably been even stronger than we think it is in the data that we’re observing.
Dave:
That’s super interesting. I mean, one of the questions I’m constantly wondering about is when you look at the total number of job openings in the United States right now, it’s come down a little bit over the last couple of months, but it’s still I think eight and a half million, somewhere around there, pretty high. And even if, from my understanding, correct me if I’m wrong, even if we got back to pre-pandemic levels of labor force participation, it still wouldn’t fill the need or fill all of those jobs. Is that correct?
Mark:
Yeah, that’s the arithmetic, but I’m not sure that’s reality. I’m not sure I believe in those unfilled positions. Okay, now I’m going to speak to you as an employer. I hire lots of people, I employ lots of people.
Dave:
Yeah.
Mark:
I’ve got a couple hundred economists around the world in my world reporting up to me. And what’s happened is it’s costless to open up a position and you just leave it there, it doesn’t mean you’re going to hire anybody. You could slow walk that forever, and that’s what I think is going on here. I think it’s not like you’re getting dinged for having that open position. And here’s the other thing, if you work in a big company, a multinational like I do, the human resource function is a machine. It’s a very complex machine and apparatus. You really don’t want to shut that thing down, because once you shut it down, to get it back up and running is going to be incredibly painful. So you keep it running, but less than full force and that’s what’s going on here I think in a lot of companies.
So those open positions don’t mean what I think people think they mean, which is interesting because the economics profession, if you go back a couple, three years ago, there was this whole, even sooner, more recently than that, smart folks were saying, “Oh, we’ve got to have a recession. We’ve got all these open positions. That means the labor market was really tight. The only way we’re going to get cool the labor market off and get inflation back down is by jacking up interest rates and pushing the economy into recession.” So they pinned a lot of that view on all these open positions, but without actually, I think understanding. And I guess you wouldn’t really understand unless you’re actually a business person doing this, doing it actually that there isn’t as many open positions out there as people think there are.
Dave:
That is a great take and one I haven’t heard before, but makes total sense because you hear a lot right now about the concept of labor hoarding where people basically businesses don’t want to lay off employees or more hesitant to lay off employees than they were in the past because how the labor market was especially two years ago or whatever. And this seems like an extension of that almost where people might be opportunistic. You post a job and if someone fantastic comes along that you would love to have a couple years from now, you would take advantage of that, but you’re not necessarily eager to fill any of these positions with any sort of urgency.
Mark:
You nailed it, that’s exactly right. And you just want to keep those resumes coming in, you want to take a look, you might have a conversation or two, but it doesn’t mean you’re actually going to hire that person sign on the dotted line and I think that’s a lot of what’s going on here. And in times past that was less the case. Before online job matching and searching companies, if they had an open position, they had to go to the newspaper and put a help wanted ad, and now it’s expensive. Probably people don’t realize this, but if you go back in the day, probably 25 years ago, New York Times was a big client of mine, and they made a fortune on help wanted advertising. It was like, I don’t know, crack cocaine margins. I mean, it was incredible business.
The newspapers were the single most profitable industry on the planet. The pharmaceuticals were a close second, but the newspapers were number one, and that’s because the cost of doing that. But for the business person, that was costly. So if you weren’t actually going to hire somebody in any reasonable timeframe, you wouldn’t keep posting online. I mean, excuse me, you wouldn’t keep posting help wanted, right? You wouldn’t put it in the newspaper, but online costs are, if there is any costs, there’s some if you go LinkedIn I guess, or some other job searching sites, but it’s relatively modest in the grand scheme of things.
Dave:
So given that, and we talk about this on the show quite a lot, there’s a lot of different labor market data, none of it perfect as you pointed out, but when you look at the big picture, the aggregate of all the information you look at, Mark, what are your feelings about the strength of the labor market right now?
Mark:
I feel great about the labor market. I mean, it’s rip-roaring. It’s sub 4% unemployment for two straight years. Last time that happened was in the 1960s, and that’s the only other time in history I think that that’s been the case. Lots of jobs, job growth is moderating, but that’s by design because the Fed’s trying to cool things off and get inflation back in the bottle. Wage growth is good. There’s lots of different measures, but if you look at the plethora of the data, it says 4% wage growth and that now is higher than the rate of inflation. If you look at wage growth across all wage tiers across the wage distribution, low wage workers, high wage workers, everyone is getting wages that are increasing at a rate that’s faster than the rate of inflation. That’s been the case now for all of 2023, so that’s all really good.
Probably the best thing, quit rates have come in, which is I think consistent with the moderation and wage growth and that’s probably good because that was things were getting heated. Hiring has come in, it’s more consistent with pre-pandemic, but really, and you mentioned this in the context of labor hoarding, really important thing is layoffs remain very, very low. I mean, we’re talking today on a Thursday in December, we get the unemployment insurance claims data, which is a read on the number of people that lost their job and say, “Hey, can you help me out?” And get a check. That remains extraordinarily low, close to 200,000 per week, which that’s consistent with a rip-roaring labor market. So if you wanted to pick one part of the economy to highlight how well things are going, it is the job market. It is very good. And it’s across industry, it’s coast to coast. It’s not like one part of the country’s doing great, another part’s not. It’s uniformly the case across the country.
Dave:
I think that’s really important because there are a lot of high profile or when a big tech company lays people off that makes the news and I think that distorts a lot of the underlying data about what’s going on with the labor market that although some of the big companies were laying off maybe six months or a year ago, that overall that is not really the case. Initial claims, as you said, Mark, are extremely low. Continuing claims I think are going up a little bit but are still low in historical context, so it shows a lot of strength. Mark, given what you said about the labor market, can you tell us a little bit more about your outlook for this year, 2024?
Mark:
I’m positive, I’m upbeat. We may not get the same kind of growth in ’24 that we got in ’23, but that’s okay. Get GDP growth around two, that’s very consistent with a good solid year, help create a lot of jobs and at least certainly enough jobs to keep unemployment at or around 4%. So it should be a good year. I mean the key to the economy obviously is you and I is consumers, Dave, if we keep spending, particularly if you keep spending, it’s key that you keep spending.
Dave:
Me personally, I’m doing a very good job of it.
Mark:
Although you’re in Amsterdam, you’re not going to help out the US economy from Amsterdam.
Dave:
Oh, I come in hot every time I come visit though. I’m going skiing, I’m doing fun stuff, don’t worry about it.
Mark:
We need those dollars. But as long as the consumer hangs tough and does their thing and spend, not with abandon but just enough, we’re good. We’re golden because they drive the economy, and all the forces that influence consumer spending look pretty good. We talked about jobs, we talked about wage growth higher than the rate of inflation. We talked about unemployment. The stock market’s at a near record high. Housing values, they’ve gone flattish, but they’re way up from where they were just a few years ago. Lower income households are under more financial pressure and they have taken a bigger hit from the previously higher inflation, and so they have borrowed against their credit cards and taken on consumer finance loans and are now paying a lot more in interest because of the higher rates.
But middle income and high income households, they have not borrowed, and they have done a really good job of locking in the previously low record interest rates through various refinancing waves. The average rate on an existing mortgage is 3.5% so that gives you a sense of, it’s amazing. So people are really insulated from the higher rates, and then there’s still a fair amount of excess saving that got built up during the pandemic. Again, high income, high middle income households have most of that, and households are sitting in their deposit account as cash and they call on it when they need it and have used it to supplement their income.
So if you add up all the things that drive consumers and their spending behavior, it all looks pretty good. Certainly consistent with the idea that they’ll hang tough, stay in the game and allow the economy to move forward without suffering a recession. Now, obviously a lot of risk, a lot of things to worry about. There always is. The thing that makes ’24 unique is because we have an election coming, and we could talk about that if you want, but that does pose some potential threat given just how fractured our politics are. But abstracting from the things that are low probability, the most likely scenario is that we have another reasonably good year.
Dave:
I do want to get into the political question, but before we do it, I just would love your opinion, given your belief that there is remaining strength in the US economy, how do you feel about the Fed’s recent, I don’t know if you really call it a pivot, but their more dovish approach in the last couple of weeks?
Mark:
I’m all for it, I think it makes a lot of sense. I was perplexed back previously when they still thought they’d raise rates in 2023. I thought that made a lot less sense to me in the context of fading inflation, everything suggested that they could pause, and now they’re forecasting three-quarter point rate cuts in 2024. That makes sense in the context of inflation moderating and all the trend lines there look really good. It feels like by this time next year we’ll be within spitting distance of the Fed’s target without any rate hikes and some rate cuts. The only thing that’s keeping inflation from its 2% target, the Federal Reserve has a target of 2% on one measure of inflation, is the growth in the cost of housing services.
And that goes back to rents. And as you know, Dave, rents have gone flat to down for the past year, and so that’s going to translate through in the slower growth and the cost of housing services over the next year. And as that happens, overall inflation is going to get back in the bottle so to speak. So I forecast lots of stuff, some things I’m confident in, some not so much. Inflation coming back to target by this time next year, if we have this conversation next year, and I’m on the record here now, I feel confident in that. I think that’s very likely to happen. Stuff could occur, but that’s very likely to happen. And if so, that would be consistent with rate cuts so I’m all on board with that.
Dave:
I certainly hope you’re right. And I do just want to take a minute to explain something that Mark just said, which is rents have been one of the main things that have been keeping one of the main headline inflation indicators that you hear about, the Consumer Price Index, up over the last couple of year or so. But the way that it’s collected for the CPI lags quite a bit. And so that is why we see inflation numbers reflecting higher rent. Whereas if we look at some of the data I look at or a lot of the private sector data into rents, you see as Mark said, they have been flat or even fallen in some markets. And so the Fed, even though the CPI uses this older historical data, they can see from private and other data sources that the rent pushing up inflation is likely to end. So that is, I believe, Mark a big basis of your hypothesis about inflation coming down.
Mark:
Yeah, you explained that very well, Dave. That’s exactly right. Yep, exactly right.
Dave:
Thank you. You mentioned.
Mark:
A, A+.
Dave:
I appreciate that, I’ll take it.
Mark:
I’ll put my professor hat on.
Dave:
You mentioned that an election year could influence the economy. Can you tell us a little more about your thinking on that subject?
Mark:
Well, I do worry about our fractured politics, they are a mess. I think it’s likely that the election is going to be close. Feels like it’s going to be former President Trump against current President Biden again. Obviously, a lot of script to be written over the course of the next few months and the year, but that feels like the most likely scenario and that argues that it’s going to be a very close election. And if it’s a close election, when I say close, it’s going to boil down to 5, 6, 7 states. It probably boils down to one county, two counties in each of those states because at the end of the day, it’s really about, I live in Pennsylvania. That’s a swing state, and the swing county is Chester County, the county I live in because it’s a suburban county, it’s a purplish county.
In fact, I joke my wife is going to determine who’s going to be the next president because we live on a circle. The circle is a mile in length in Chester County, and it’s some legacy farmers and folks you think are Republican. And then you’ve got a bunch of newbies, Vanguard employees because we live very close to Vanguard and got less Vanguard executives coming in and they are more progressive Democrat. In fact, I could go on and on about my neighborhood. It’s a story in and of itself.
Dave:
But the way the elections have gone recently, it really could come down probably not to one vote, but you do see these hugely impactful counties or states coming down to fractions of a percent of the total population. So I agree that, obviously we’re a long way away. We’re still 11 months away, but it does seem like it will be a close election.
Mark:
The point is it’s going to be close, and if it’s close, it’s going to be for sure going to be contested. If it’s contested, well, that could be messy, and I think that’s a threat to sentiment which is already pretty fragile. And at the end of the day, a recession is a loss of faith with sentiment. As fragile as it is, if it takes another knock, people could pack it in. The consumer doesn’t do what I expect and we don’t have the year I expect.
Dave:
I got it, okay. So it’s not necessarily that there’s historical precedent that during an election year.
Mark:
No.
Dave:
The economy behaves one way or another. It’s more just given the political realities right now there’s just more chance for, yeah. There’s just more chance for a surprise I guess, or a loss of faith like you said.
Mark:
Maybe it won’t be a surprise because we’re all talking about it already.
Dave:
Fair.
Mark:
But one of the fundamental strengths of the American economy is the stability of government, the political process, the rule of law. And if that’s shaken, challenged, then that goes to the core of what makes the US economy exceptional, and it is exceptional. And so that poses a threat to economic growth in the coming year. And of course even after that longer run.
Dave:
I’d love to turn a little bit towards our focus here of the show on the housing market. In your report, you detail some interesting information about the housing shortage. We’ve talked about this, but probably not for a while on the show. Can you just tell us a little bit about the nature of the housing shortage in the United States?
Mark:
Yeah, we don’t have enough homes. Particularly affordable homes, both for rent and for homeownership, and this happened in the wake of the financial crisis, the bust. I mean, housing seems to be always at the center of our economic problems, I don’t know why. But before, the financial crisis 15 years ago, the problem was overbuilding. Builders put up too many homes, vacancy rates soared, and that was the basis for the collapse in the housing market that occurred in the crisis, 2008, 2009 into 2010, house prices fell 2020 5% peak to trough depending on the index. The bottom really wasn’t until 2011.
That wiped out a lot of builders. It was such a wipe out crash, it wiped out builders, it wiped out a lot of infrastructure for building. It also raised the cost of building because a lot of local governments that rely on property tax revenue got nailed by the fall in housing values and so then they jacked up fees on permits in construction. And so the fixed cost for building rose very sharply in that period. And so that’s really made it difficult to ramp up homebuilding, particularly for lower priced homes that have lower margins, again, the builder has to cover those higher fixed costs. And it really wasn’t until right before the Fed started raising interest rates that homebuilding seemed to have gotten back to where it needs to be, not to solve the shortage, just simply to ensure that it wasn’t going to get any worse, that we were putting on enough homes to meet the underlying demand.
And by the way, going back to the point about immigration, underlying demand may even be stronger than we anticipate because we’ve got all these immigrants coming into the country, and we probably much more than we think, and it’s adding to the problems at the affordable part of the market and then adding to our homelessness issues and that kind of thing. But if you do the arithmetic, and so right now we have a vast shortage. The vacancy rates are low, the homeowner vacancy rate is at a record low, and we’ve got data back until just after World War II. By my calculation, we’re short by about 1.7 million homes both for rent and for homeownership. Increasingly, it’s less of an issue on the rental side, more of an issue on the homeownership side.
So this just exacerbates the problems potential first-time home buyers have getting into the market. They have this shortage of homes, lots of other things going on, high mortgage rates, high house prices, soft income growth and that just adds up to a world of I can’t afford anything, I’m just locked out of this market. I think it’s one of the key reasons why even though the economy’s good, people don’t think it is, many people don’t because they’re paying more for lots of stuff and one thing that younger people in their thirties and forties know is it’s going to be, unless something changes here, unless mortgage rates come in and the house prices weaken a bit, they’re not going to be able to afford to become a first-time home buyer anytime soon.
Dave:
Yeah, it definitely impacts sentiment for sure. And like you said, it doesn’t seem like there’s an immediate fix. I did have a couple of questions for you to follow up. One of the things I look at quite a lot is that there’s been a lot of multifamily housing for rent, rental units being built in the US over the last couple years. And there’s some evidence that in certain markets there is an oversupply. If you look at absorption rates, they’re turning negative. So how do you square those two things? On one hand, we don’t have enough housing. On the other hand, we’re a little bit oversupplied. Can you help make sense of that?
Mark:
Yeah, the oversupply you talk about is entirely at the high end of the multifamily market. It’s these big apartment complexes that are going up in big urban centers. I live in Philly. If you go down to downtown Philly, massive projects, luxury apartments that are going in. That part of the market is oversupplied. Vacancy rates are rising and rents are flattening out there coming down in many. I say Philly, but that’s symptomatic of what’s going on in DC, New York, Boston, Chicago, Seattle, San Francisco, LA, lots of markets around the country.
Dave:
Oh, yeah.
Mark:
So they’re no problem. It’s really in the affordable rental for people that have lower income. It’s not lifestyle rental. Some people want to rent, it’s a lifestyle. I want to live in an urban center and I have that lifestyle and therefore I’m going to rent. This is rental because of necessity. I have no choice. I can’t afford to own a home, I have to rent. And it’s that part of the market where the shortages are more severe. And by the way, if I exclude the high-end rental, the shortage is even greater than 1.7 million units obviously. That 1.7 million is for the entire market. If I exclude that, the shortage is probably two and a half million, something along those lines, even much worse.
Dave:
So it’s similar to something we see with the purchase market, which there’s just seems to be a mismatch between the product available and what demand is. We don’t build a lot of small homes or first-time home buyers anymore that are affordable and seems like a similar thing happens in the rental market as well.
Mark:
Yeah, exactly. Exactly, it’s the same dynamic playing out. The entry level, builders focus on high-priced homes because that’s where the margins are. They can make a lot more money. They’re not as focused. That was changing right up until when the feds started raising interest rates. You could feel like D. H. Horton for example, the biggest home builder in the country really was increasingly focused on entry-level housing. So that was changing, and I assume that’s going to be the case on the other side of all this mess. But that was very recent. You’re right, builders had been focused on the high end of the market.
Dave:
Mark, do you know what level of construction we need to get to start making a dent in this deficit?
Mark:
Well, I think the underlying level of construction, single-family multifamily starts that we need just to maintain the current vacancy rate for the shortage not to become even worse is probably around 1.6, 1.7 million units. And right now, we’re a little bit shy of that. We just got one more data point though that was somewhat encouraging, but it’s only one data point. For the month of November, housing starts single-family multifamily got to 1.55 million, something like that. So that’s pretty good, I’m pretty encouraged by that. We’ve got to see better than that, but that’s helpful.
The one area where I think it would be good if policymakers could focus is for manufactured housing because the other source of supply on the homeownership side is manufactured homes. That’s about 100,000 units per annum. And of course that’s affordable and that’s where you can get some really good productivity gains through improved manufacturing processes. And so if I were king for the day, I might need a week or a month, but if I were king, I would focus on that market and how to get that going and produce a couple hundred thousand, 250,000 a year. We’ve done it in the past, I mean at the heyday of the manufactured home building.
Dave:
Oh, really?
Mark:
Yeah, it was a bit of a bubble. But if you go back into, I think it was the ’80s, there was a period when we were producing a quarter million manufactured homes a year, yeah.
Dave:
That’s fascinating. I didn’t realize that. It just seems like such an obvious solution. I appreciate all the other things that people are doing, but correct me if you disagree, but to me, the only way to fix the housing market is more supply. We just need a lot more supply.
Mark:
Yeah, absolutely.
Dave:
Everything else is a stop gap. And not that stop gaps shouldn’t be attempted, but we just dramatically need more homes and that seems like a good option.
Mark:
And some things where the intuition is, oh, if I could only help people with their down payment, or if I could only lower the mortgage rate somehow, or make mortgages assumable or portable, that’ll solve the problem. No. I get the intuition.
Dave:
Yeah.
Mark:
I get it. But all you’re doing is juicing up demand if there’s no supply, all that happens is you just jack up rents and prices and not helping anybody and it’s obviously very costly. So I really focus on the supply side. I mean, there’s some demand side things that I think we could do, but there are things that would kick in later once we get more supply coming into the market.
Dave:
All right, thank you. Well, Mark, this has been super helpful, but before we get out of here, I got to know what’s your outlook for housing prices for 2024?
Mark:
Yeah, you remember, Dave, I said I forecast lots of stuff. Some I’m confident, some not so much. This is one of those not so much.
Dave:
Good. Me neither.
Mark:
One of the surprises for me in 2023 because prices started falling when the Fed jacked up rates in ’22 and coming into ’23, it looked like we were going to see more price declines and I expected it to help store affordability. But instead, no, prices have firmed and actually are up a little bit. And the actual prices today are, I think they’re at an all-time record high, not by a lot. Prices really haven’t gone anywhere for a year and a half, but nonetheless, I mean they haven’t fallen to a significant degree. I still believe that we will see some price weakness here over the next couple, 1, 2, 3 years and that goes to restoring affordability. You can only restore affordability if mortgage rates decline, expect that. Incomes to rise, I expect that, but I also think we need some decline in house prices for that arithmetic to work for people to get mortgage payments to a place where they can afford them.
And I think what happens is, I may have talked about this when we met last time, but I think when happens is life happens. Events, life events, divorce, death, children, job change. Those things can happen and you can put off a move for a while, but after a period of time, the helm you’re living in doesn’t make any sense given your demographic need, you’re going to move. And my thesis is that when these folks start moving, then they’re going to have to cut the price at least a little bit to make the arithmetic work for the buyer, to get a buyer for the home. But that doesn’t play out in a month or a quarter, that plays out over two, three years, something like that. Or the other scenario could be that I feel as likely could happen, prices just stay flat for three, four years because there’s a so-called reservation house price. I know this myself, I believe my home is worth what the highest price Zillow ever posted.
Dave:
Everyone does, right?
Mark:
And I’m going to be very reluctant to sell at a price below that so I might just wait, wait, wait until rates are down, incomes are up enough that I can sell my home at the price I think it’s worth, which is the highest I’ve ever saw in Zillow.
Dave:
I think that from my completely observational and anecdotal consensus analysis of economists, I think that’s what a lot of people think is that prices are going to remain relatively flat and you can restore affordability over time by, like you said, by mortgage rates coming down slowly, by wages going up slowly if housing prices just stay flat, affordability will improve. But like you said, it could also be a combination of all three. So appreciate you giving us your outlook. We know it’s very tricky to forecast this right now, but had to get your opinion. Mark, if people want to check out the great reports you’ve put together or follow your work, where should they do that?
Mark:
There’s a website called Economic View, and there’s a lot of free content there. It’s a paid site as well, but there’s a lot of free content. And I put a lot of the work I do write, I post it on the free side of the paywall, so you can take a look at that. I also tweet @MarkZandi, so feel free. I actually, I got my handle @MarkZandi gazillion years ago. Never used it because I, “Well, what’s this Twitter thing? Why would I do that?” And so I entered in right before all this recent turmoil on Twitter, which I still don’t quite understand or get. But anyway, I actually enjoyed the Twitter. This is going to sound weird, but when I was a kid, we had a teacher who taught us haiku, you know haiku poetry?
Dave:
Yeah.
Mark:
Japanese poetry, and it was very rigid in terms of the syllables and the lines and everything.
Dave:
Yeah, it’s 14 syllables or something like that.
Mark:
I don’t even remember but I loved writing haiku and I love writing tweets. I love it because it’s so therapeutic because you have to get into 280 characters and that really hones what you’re saying. And that really, I think really is quite useful.
Dave:
Honestly, I think the economic conversation on Twitter is something you can’t get anywhere else.
Mark:
I think you’re right.
Dave:
I follow so many different economists and analysts on Twitter for something about the format of Twitter just works really well for this economics financial conversation that doesn’t work on any other social media platform in my mind. So I follow you there, and a lot of the guests that we have here, they’re primarily on Twitter. So if you want to follow Mark.
Mark:
We should start a social media for economics. What do you think?
Dave:
It would be 20 of us, but I don’t know if we’d get the ad revenue from Twitter, but.
Mark:
I don’t know. I like that idea somehow.
Dave:
I don’t know. We get a lot of downloads here, so maybe we’ll get our audience over too.
Mark:
Yeah, I like that idea. Of course, I’m going to be dead wrong, but I still like the idea.
Dave:
Well, you’ve got one follower already from me.
Mark:
There you go.
Dave:
All right, Mark, thanks so much for joining us. We appreciate it and hope to have you back again soon.
Mark:
It was really a pleasure, I really enjoyed the conversation. Thank you so much.
Dave:
On The Market was created by me, Dave Meyer, and Kaitlin Bennett. The show is produced by Kaitlin Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at Bigger Pockets for making this show possible.
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G-Rate sues NAF over poaching, alleges violation of LO comp rule
Top-10 mortgage lender Guaranteed Rate has filed a lawsuit against retail rival New American Funding over poaching. But this isn’t your standard poaching lawsuit: G-Rate alleges that NAF has wooed at least 30 employees since early 2023 via illegal loan officer compensation practices.
Despite the rise in poaching lawsuits in a competitive market, it’s the first time a large lender has publicly accused a competitor of violating the LO comp rule by allowing their salesforce to manipulate lead sources in order to reduce their rates and win more loans.
Industry experts told HousingWire for a December feature that the manipulation of lead sources is widespread among retail lenders, and there’s no enforcement.
Tara Castrejon, director of content marketing and public relations at NAF, said in an emailed response to HousingWire that the company does not comment on pending litigation.
A spokesperson for G-Rate did not immediately respond to a request for comments.
“Since February 2023, NAF has unlawfully raided GR’s branches nationwide, poaching over 30 GR employees from coast-to-coast,” the lawsuit states. “To achieve its goals, NAF uses illegal compensation practices to induce GR employees to resign from GR and join NAF, and incentivizes and encourages GR employees to solicit and recruit other GR employees to defect to NAF.”
The lawsuit, which seeks injunction relief and damages, was filed on Dec. 26 in the Circuit Court of Cook County, Illinois. G-Rate claims, among other accusations, tortious interference, violation of Illinois deceptive trade practice laws and misappropriation of confidential information.
NAF zeroed in on employees in Washington, Arizona, Texas, Georgia, Missouri, Florida, and Illinois, the lawsuit states. The departing employees included a divisional manager, branch and regional managers, and loan officers.
G-Rate claims that it all started when Gregory Griffin, a former regional manager and senior vice president of strategic growth, joined NAF as regional manager of strategic growth, where he was responsible for recruiting in the Midwest Region. Griffin had a “non-solicitation” agreement with his former employer, G-Rate claims.
“After Mr. Griffin’s hiring by NAF in January 2023, the dam broke, and NAF began to aggressively recruit and hire from GR. Prior to this point, NAF had not been able to successfully recruit from GR on such a massive scale,” the lawsuit states.
Griffin did not immediately return to a request for comments.
The lawsuit says that former employees who transitioned to NAF sent borrowers’ information to their emails, including pay stubs and bank statements. G-Rate’s research on publicly available data on closed loans shows “numerous customers took their business from GR to NAF in conjunction with the employee defections to NAF,” it says.
Claims re LO comp rule violations
Among the more explosive claims is that NAF repeatedly violated Regulation Z, which prohibits loan officers from receiving payments based on the “terms of a transaction” other than the amount of credit extended.
The rule also prohibits reductions in LO comp to fund pricing concessions to consumers at the expense of the loan officer, which would be characterized as a change in transaction terms.
G-Rate claims NAF does not pay LOs “a fixed percentage of the loan amount or any other type of compensation permitted by applicable law and regulations.” Instead, the company supposedly offers different pricing buckets based on the source lead and allows LOs to play with them.
“Should the consumer dislike the loan pricing first offered using the ‘self-generated’ ‘bucket,’ the loan officer can freely switch the ‘bucket’ to ‘corporate generated’ or ‘connected generated’ instead, which, in turn, corresponds to lower compensation for the loan officer,” the lawsuit states.
The document follows: “The lower ‘bucket’ results in new, lower pricing to the consumer. If the consumer likes the new pricing, and NAF ‘wins the deal’ with its lower pricing, the loan officer reduces the loan officer’s compensation to provide the consumer with a discount. Put another way; the loan officer is allowed to later (and falsely) change the source of the lead, allowing for lower loan officer compensation and a pricing advantage for NAF over competitors like GR. This approach is illegal.”
G-Rate claims the practice has caused millions of dollars in lost revenues, investment and future business opportunities. It also says NAF misrepresented to potential recruits that its illegal compensation arrangements were “audited” and approved by the Consumer Financial Protection Bureau (CFPB).
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Job growth is slowing down right on cue
Slowing job growth doesn’t mean a recession, but today’s jobs report tells me that the significant job gains we were accustomed to in the early part of the COVID-19 recovery period are ending, which ties nicely to how I thought labor would recover after COVID.
Even though the headline number on the report today beat estimates, we are entering a new phase of the economic cycle, which means you need to know where to look to get clues for a recession. The BLS jobs report data isn’t the best recession indicator, which we can all see since the recession of 2023 — forecast by so many — didn’t occur.
Here are my three key points on the labor market recovery since I retired my COVID-19 recovery model on Dec. 9, 2020:
1. Job openings should get to 10 million. (We eventually got to 12 million) We’re now down to 8.8 million.
2. We should get back all the jobs lost to COVID-19 by September of 2022. That checked off roughly on schedule, see here.
And the third is the most important one at this stage of the cycle:
3. If we didn’t have COVID-19, the total employment in America would have been between 157 million-159 million today. We are there now, and since population growth is slowing down, we shouldn’t have big labor reports going out, which will be perfectly normal.
Let’s take a look at today’s jobs report.
From BLS:Total nonfarm payroll employment increased by 216,000 in December, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued growing in government, health care, social assistance, and construction, while transportation and warehousing lost jobs.
Here are the jobs that were created and lost in the previous month:
In this jobs report, the unemployment rate for education levels looks like this:
It’s jobs week, so we had four total reports. The job openings data was interesting because the quits percentage and hires are now below COVID-19 levels, which means the Federal Reserve is too restrictive with their policy today since the growth rate of inflation has fallen more than they thought.
However, the labor market isn’t breaking: jobless claims data is almost below 200,000. I will not go into full recession mode until this data line breaks over 323,000 on the four-week moving average. Don’t make the same mistake so many Wall Street people did in 2022-2023 by thinking a slowing down is a job loss recession. We aren’t there yet.
Of course, the 10-year yield had a wild day today. It shot up toward 4.08%, then fell to 3.96% after the poor ISM service print, and ended the day 4.5%. Some people might not understand yet how bad the ISM service print was, which could be one reason bond yields header higher later in the data.
Here is the chart of the 10-year yield before jobs Friday. The trend was going lower, but we hit a critical resistance level of 3.80%:
So, what do we make of the labor market after jobs week? Yes, it’s getting softer as the job openings/quit percentage data has been telling us. The significant job gain reports are past us now, and we are starting to get back to our regular pre-COVID-19 trend of job growth data.
Does this mean the labor market is breaking? No, but we don’t want the Fed to wait for jobless claims to break above 323,000 on the four-week moving average to cut mortgage rates. So, hopefully, the Fed realizes they overhiked and should be doing cuts to land the plane since the inflation growth rate has fallen faster than they thought.
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Job gains exceed expectations in December
Employers kept a brisk hiring pace in December, exceeding economists’ expectations by 46,000 jobs. Jobs increased by 216,000 in December, up from 173,000 in November, according to data released by the Bureau of Labor Statistics. Economists were expecting an addition of 170,000 jobs.
With December’s numbers in, a total of 2.7 million jobs were added to the U.S. economy in 2023, an average monthly gain of 225,000, according to the BLS. That’s less than the 4.8 million increase of 2022.
“While this is below the job growth in 2021 and 2022, when the economy was rebounding from the sharp job losses in 2020, it is still a much higher pace of job growth than we had before the pandemic,” Bright MLS Chief Economist Lisa Sturtevant said in a statement.
Meanwhile, the unemployment rate remained unchanged at 3.7% in December and the number of unemployed Americans also showed little change at 6.3 million.
“Even though the headline jobs numbers beat estimates, the internals of the jobs report show that the labor market is slowing down,” HousingWire Lead Analyst Logan Mohtashami said. “We have had negative revisions to the labor report. We had negative revisions of 71,000 jobs loss to previous months. Also, the prime-age employment rate has declined by 0.5% from the recent peak. This week’s job openings data showed that the quits and hires ratio is also below pre-COVID-19 levels.”
Job gains occurred mainly in government, health care, social assistance and construction in December, while transportation and warehousing posted fewer jobs.
Construction employment continued to trend up, with the sector adding 17,000 jobs in the last month of 2023. Construction added an average of 16,000 jobs per month in 2023, slightly less than the 2022 average monthly gain of 22,000.
Average hourly earnings for private employees grew by 4.1% in 2023. On Wednesday, the BLS reported that job openings slipped to 8.8 million in November, down from an upwardly revised 8.9 million in October.
What to expect at the next Fed meeting
Today’s labor report and next Thursday’s inflation data will be key inputs for the Federal Reserve as it looks to fulfill its dual mandate of full employment and price stability.
“The market is currently expecting a rate cut by March, and investors will be looking for clues about the timing of any rate reductions,” Realtor.com Chief Economist Danielle Hale said in a statement. “The labor market has weathered higher rates rather well, giving the Fed more leeway to prioritize inflation fighting.”
In terms of implications for the housing market, the Mortgage Banker Association Senior Vice President and Chief Economist Mike Fratantoni anticipates that “these data are likely to keep interest rates from falling further at this point, but we expect mortgage rates to drift down over the year as the economy slows.”
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Our Lopsided Housing Supply
The housing market has two big problems: home prices and a lack of supply. With so few homes on the market, buyers have barely anything to choose from, and sellers remain in control. But how did we get to this point? Back in 2008, there were too many homes on the market, and we all know what happened to home prices. So how did we go from being oversupplied to undersupplied by MILLIONS of housing units so quickly? The answer is pretty simple.
Mark Zandi, Chief Economist at Moody’s Analytics, joins us again to give his take on the 2024 economy, the housing market, home prices, and our massive underbuilding problem. The last time Mark was on the show, he explained the “slowcession” that could have taken place in 2023. Instead, a roaring economy took off with low unemployment, high consumer spending, and real wealth increases for many Americans.
But, as we head into 2024, there are still a couple of BIG problems: little-to-no housing supply and a polarizing presidential election of epic proportions. Both of these will have big impacts on the economy, and if you want to know what could be coming next, don’t miss this episode!
Dave:
Hey everyone, welcome to On The Market, I’m your host, Dave Meyer. And listen everyone, after you hear today’s episode, I don’t ever want to hear again that data or economics or finance is not interesting because we have an amazing conversation and an amazing guest today, Mark Zandi, who is a very well-known American economist. He’s the chief economist of Moody’s Analytics, and I look forward to talking to Mark every time we have the great opportunity to have him on the show. He makes really complicated topics very easy to understand, and I really love just how humble he is about his remarkable success as an economist. But he also gives it to you straight. He tells you which data points are important, which ones are unreliable, which should be ignored altogether, and it really helps you cut through a lot of the clutter and make sense of what’s going on in the complicated economy.
Today, we talk a lot about the labor market and I learned several things that I never knew from Mark. We also get into immigration, what happens in the economy in an election year, and we also talk about the housing shortage and some of Mark’s ideas on how we could restore some affordability to the housing market. So we have a great show for you, and with no further ado, let’s bring on Mark Zandi from Moody’s Analytics.
Mark Zandi, welcome back to the podcast. Thanks for being here.
Mark:
Thanks, Dave. It’s good to be with you.
Dave:
For those of our listeners who are new or didn’t hear your last episode, can you just tell us a little bit about yourself and your career at Moody’s?
Mark:
Sure, I’m the chief economist of Moody’s. I joined Moody’s a while ago now, 15, 16 years ago. I sold a company that I had formed in 1990 to them, and I’ve been with them ever since. So I’ve been a professional economist for, hard to believe, but over 30 years. I’ve seen a lot of ups and downs and all arounds.
Dave:
When you were here on the show last time, we ended with this term that you had coined, the slow session, that you had been using to describe the economy. Can you remind us what a slow session is and if your thoughts about it came to fruition?
Mark:
Yeah, slow session, and you can look it up in Google. You can Google it. There’s a URL there that one of my colleagues purchased. Yeah, for nine bucks a year apparently so not bad. Slow session, not a recession. So the economy isn’t contracting, going backwards, but an economy that’s not going anywhere quickly, a slow session. I’ll have to say, 2023, of course not over yet, but pretty darn close is going to turn out to be a lot better than a slow session. Not only did we avoid a recession like we thought, but it was a really good year in terms of growth.
GDP is what economists use to gauge the broader health of the economy, that’s the value of all the things that we produce. That’s going to grow 2.5% on a real after-inflation basis in the year, and that’s a good year. I mean typically think of 2% as the benchmark. You get 2%, you’re doing just fine, especially when unemployment’s so low, when sub 4%. 2.5%’s great. So it turned out to be a much, much better year than certainly most people feared and even better than I had expected.
Dave:
What do you attribute that resilience to?
Mark:
A bunch of stuff, but there’s a list, but I put at the top of the list the supply side of the economy really surprised, meaning we got a lot more productivity growth during the year. We can peel that onion back too if you want, but productivity came back to life. One thing that might be going on is all those people who quit their jobs back a couple, three years ago, they’ve now taken on jobs that they think better of, they’re more suited to their talents and skills and they’re better paid and they’re happier. And we can see that in surveys and that probably translates through to higher productivity, but remote work might be playing a bit of a role. I think it’s way too early for AI, but that may play a role down the road.
The other big thing is labor force growth. A number of people out there working and looking for work. That has been very strong surprisingly, and part of that’s just more participation, more people are coming back into the workforce. Participation rates aren’t quite back to pre-pandemic, but they’re higher than I would’ve thought they would’ve been if there had been no pandemic, just because the retiring baby boom generation and then immigration has been boom-like, and of course that poses a whole slew of questions and challenges. But one of the benefits of that is you’ve got more folks out there working and looking for work, and that adds to growth. So because the supply side of the economy grew more quickly, surprisingly so, that allowed the GDP the amount of stuff that we produce to grow more quickly without any inflation, with inflation coming back in. So I can wax on, but that’s I think a high level the most important factor resulting in the surprisingly good economy.
Dave:
Great. Let’s dig into that a little bit more because you mentioned a couple things I think that are going to be really interesting for our audience. One of them was about labor force growth. During the pandemic, we saw a lot of people leave the workforce, and as you said, it’s starting to come back. You also mentioned that immigration is fueling a lot of the labor force growth. Is that legal migration, illegal migration, a combination of both?
Mark:
It’s got to be a combination of both. Certainly the former, legal immigration is up. I mean, that got crushed during the pandemic for lots of obvious reasons and that’s made its way back. That’s certainly adding to a number of folks out there working. But I do think we’ve seen, it’s clear we’ve seen a surge in undocumented workers now and I’m sure that’s adding to jobs and payroll and labor force. But here’s a technical point. These estimates, these numbers are based on surveys and if the Bureau of Labor Statistics, the keeper of the survey goes to someone who’s undocumented and say, “Are you working?” I’m pretty sure that undocumented worker may not want to respond to the survey. So I’m sure undocumented workers are finding their way into the workforce and adding to labor force, but I’m not so sure how much of that is behind these really good numbers that we’re observing.
Dave:
Got it. So in the numbers and the data that you provide in your report, which comes from the Bureau of Labor Statistics, that is mostly reflecting legal migration, but there might be even more labor force growth it sounds like that is not measured by traditional methods.
Mark:
Got it, exactly. The data is imprecise representation of reality and all data is an imprecise representation of reality. In this case, it’s quite imprecise. And my guess is my sense is that we’ve seen very strong labor force growth of strong immigration, but it’s probably been even stronger than we think it is in the data that we’re observing.
Dave:
That’s super interesting. I mean, one of the questions I’m constantly wondering about is when you look at the total number of job openings in the United States right now, it’s come down a little bit over the last couple of months, but it’s still I think eight and a half million, somewhere around there, pretty high. And even if, from my understanding, correct me if I’m wrong, even if we got back to pre-pandemic levels of labor force participation, it still wouldn’t fill the need or fill all of those jobs. Is that correct?
Mark:
Yeah, that’s the arithmetic, but I’m not sure that’s reality. I’m not sure I believe in those unfilled positions. Okay, now I’m going to speak to you as an employer. I hire lots of people, I employ lots of people.
Dave:
Yeah.
Mark:
I’ve got a couple hundred economists around the world in my world reporting up to me. And what’s happened is it’s costless to open up a position and you just leave it there, it doesn’t mean you’re going to hire anybody. You could slow walk that forever, and that’s what I think is going on here. I think it’s not like you’re getting dinged for having that open position. And here’s the other thing, if you work in a big company, a multinational like I do, the human resource function is a machine. It’s a very complex machine and apparatus. You really don’t want to shut that thing down, because once you shut it down, to get it back up and running is going to be incredibly painful. So you keep it running, but less than full force and that’s what’s going on here I think in a lot of companies.
So those open positions don’t mean what I think people think they mean, which is interesting because the economics profession, if you go back a couple, three years ago, there was this whole, even sooner, more recently than that, smart folks were saying, “Oh, we’ve got to have a recession. We’ve got all these open positions. That means the labor market was really tight. The only way we’re going to get cool the labor market off and get inflation back down is by jacking up interest rates and pushing the economy into recession.” So they pinned a lot of that view on all these open positions, but without actually, I think understanding. And I guess you wouldn’t really understand unless you’re actually a business person doing this, doing it actually that there isn’t as many open positions out there as people think there are.
Dave:
That is a great take and one I haven’t heard before, but makes total sense because you hear a lot right now about the concept of labor hoarding where people basically businesses don’t want to lay off employees or more hesitant to lay off employees than they were in the past because how the labor market was especially two years ago or whatever. And this seems like an extension of that almost where people might be opportunistic. You post a job and if someone fantastic comes along that you would love to have a couple years from now, you would take advantage of that, but you’re not necessarily eager to fill any of these positions with any sort of urgency.
Mark:
You nailed it, that’s exactly right. And you just want to keep those resumes coming in, you want to take a look, you might have a conversation or two, but it doesn’t mean you’re actually going to hire that person sign on the dotted line and I think that’s a lot of what’s going on here. And in times past that was less the case. Before online job matching and searching companies, if they had an open position, they had to go to the newspaper and put a help wanted ad, and now it’s expensive. Probably people don’t realize this, but if you go back in the day, probably 25 years ago, New York Times was a big client of mine, and they made a fortune on help wanted advertising. It was like, I don’t know, crack cocaine margins. I mean, it was incredible business.
The newspapers were the single most profitable industry on the planet. The pharmaceuticals were a close second, but the newspapers were number one, and that’s because the cost of doing that. But for the business person, that was costly. So if you weren’t actually going to hire somebody in any reasonable timeframe, you wouldn’t keep posting online. I mean, excuse me, you wouldn’t keep posting help wanted, right? You wouldn’t put it in the newspaper, but online costs are, if there is any costs, there’s some if you go LinkedIn I guess, or some other job searching sites, but it’s relatively modest in the grand scheme of things.
Dave:
So given that, and we talk about this on the show quite a lot, there’s a lot of different labor market data, none of it perfect as you pointed out, but when you look at the big picture, the aggregate of all the information you look at, Mark, what are your feelings about the strength of the labor market right now?
Mark:
I feel great about the labor market. I mean, it’s rip-roaring. It’s sub 4% unemployment for two straight years. Last time that happened was in the 1960s, and that’s the only other time in history I think that that’s been the case. Lots of jobs, job growth is moderating, but that’s by design because the Fed’s trying to cool things off and get inflation back in the bottle. Wage growth is good. There’s lots of different measures, but if you look at the plethora of the data, it says 4% wage growth and that now is higher than the rate of inflation. If you look at wage growth across all wage tiers across the wage distribution, low wage workers, high wage workers, everyone is getting wages that are increasing at a rate that’s faster than the rate of inflation. That’s been the case now for all of 2023, so that’s all really good.
Probably the best thing, quit rates have come in, which is I think consistent with the moderation and wage growth and that’s probably good because that was things were getting heated. Hiring has come in, it’s more consistent with pre-pandemic, but really, and you mentioned this in the context of labor hoarding, really important thing is layoffs remain very, very low. I mean, we’re talking today on a Thursday in December, we get the unemployment insurance claims data, which is a read on the number of people that lost their job and say, “Hey, can you help me out?” And get a check. That remains extraordinarily low, close to 200,000 per week, which that’s consistent with a rip-roaring labor market. So if you wanted to pick one part of the economy to highlight how well things are going, it is the job market. It is very good. And it’s across industry, it’s coast to coast. It’s not like one part of the country’s doing great, another part’s not. It’s uniformly the case across the country.
Dave:
I think that’s really important because there are a lot of high profile or when a big tech company lays people off that makes the news and I think that distorts a lot of the underlying data about what’s going on with the labor market that although some of the big companies were laying off maybe six months or a year ago, that overall that is not really the case. Initial claims, as you said, Mark, are extremely low. Continuing claims I think are going up a little bit but are still low in historical context, so it shows a lot of strength. Mark, given what you said about the labor market, can you tell us a little bit more about your outlook for this year, 2024?
Mark:
I’m positive, I’m upbeat. We may not get the same kind of growth in ’24 that we got in ’23, but that’s okay. Get GDP growth around two, that’s very consistent with a good solid year, help create a lot of jobs and at least certainly enough jobs to keep unemployment at or around 4%. So it should be a good year. I mean the key to the economy obviously is you and I is consumers, Dave, if we keep spending, particularly if you keep spending, it’s key that you keep spending.
Dave:
Me personally, I’m doing a very good job of it.
Mark:
Although you’re in Amsterdam, you’re not going to help out the US economy from Amsterdam.
Dave:
Oh, I come in hot every time I come visit though. I’m going skiing, I’m doing fun stuff, don’t worry about it.
Mark:
We need those dollars. But as long as the consumer hangs tough and does their thing and spend, not with abandon but just enough, we’re good. We’re golden because they drive the economy, and all the forces that influence consumer spending look pretty good. We talked about jobs, we talked about wage growth higher than the rate of inflation. We talked about unemployment. The stock market’s at a near record high. Housing values, they’ve gone flattish, but they’re way up from where they were just a few years ago. Lower income households are under more financial pressure and they have taken a bigger hit from the previously higher inflation, and so they have borrowed against their credit cards and taken on consumer finance loans and are now paying a lot more in interest because of the higher rates.
But middle income and high income households, they have not borrowed, and they have done a really good job of locking in the previously low record interest rates through various refinancing waves. The average rate on an existing mortgage is 3.5% so that gives you a sense of, it’s amazing. So people are really insulated from the higher rates, and then there’s still a fair amount of excess saving that got built up during the pandemic. Again, high income, high middle income households have most of that, and households are sitting in their deposit account as cash and they call on it when they need it and have used it to supplement their income.
So if you add up all the things that drive consumers and their spending behavior, it all looks pretty good. Certainly consistent with the idea that they’ll hang tough, stay in the game and allow the economy to move forward without suffering a recession. Now, obviously a lot of risk, a lot of things to worry about. There always is. The thing that makes ’24 unique is because we have an election coming, and we could talk about that if you want, but that does pose some potential threat given just how fractured our politics are. But abstracting from the things that are low probability, the most likely scenario is that we have another reasonably good year.
Dave:
I do want to get into the political question, but before we do it, I just would love your opinion, given your belief that there is remaining strength in the US economy, how do you feel about the Fed’s recent, I don’t know if you really call it a pivot, but their more dovish approach in the last couple of weeks?
Mark:
I’m all for it, I think it makes a lot of sense. I was perplexed back previously when they still thought they’d raise rates in 2023. I thought that made a lot less sense to me in the context of fading inflation, everything suggested that they could pause, and now they’re forecasting three-quarter point rate cuts in 2024. That makes sense in the context of inflation moderating and all the trend lines there look really good. It feels like by this time next year we’ll be within spitting distance of the Fed’s target without any rate hikes and some rate cuts. The only thing that’s keeping inflation from its 2% target, the Federal Reserve has a target of 2% on one measure of inflation, is the growth in the cost of housing services.
And that goes back to rents. And as you know, Dave, rents have gone flat to down for the past year, and so that’s going to translate through in the slower growth and the cost of housing services over the next year. And as that happens, overall inflation is going to get back in the bottle so to speak. So I forecast lots of stuff, some things I’m confident in, some not so much. Inflation coming back to target by this time next year, if we have this conversation next year, and I’m on the record here now, I feel confident in that. I think that’s very likely to happen. Stuff could occur, but that’s very likely to happen. And if so, that would be consistent with rate cuts so I’m all on board with that.
Dave:
I certainly hope you’re right. And I do just want to take a minute to explain something that Mark just said, which is rents have been one of the main things that have been keeping one of the main headline inflation indicators that you hear about, the Consumer Price Index, up over the last couple of year or so. But the way that it’s collected for the CPI lags quite a bit. And so that is why we see inflation numbers reflecting higher rent. Whereas if we look at some of the data I look at or a lot of the private sector data into rents, you see as Mark said, they have been flat or even fallen in some markets. And so the Fed, even though the CPI uses this older historical data, they can see from private and other data sources that the rent pushing up inflation is likely to end. So that is, I believe, Mark a big basis of your hypothesis about inflation coming down.
Mark:
Yeah, you explained that very well, Dave. That’s exactly right. Yep, exactly right.
Dave:
Thank you. You mentioned.
Mark:
A, A+.
Dave:
I appreciate that, I’ll take it.
Mark:
I’ll put my professor hat on.
Dave:
You mentioned that an election year could influence the economy. Can you tell us a little more about your thinking on that subject?
Mark:
Well, I do worry about our fractured politics, they are a mess. I think it’s likely that the election is going to be close. Feels like it’s going to be former President Trump against current President Biden again. Obviously, a lot of script to be written over the course of the next few months and the year, but that feels like the most likely scenario and that argues that it’s going to be a very close election. And if it’s a close election, when I say close, it’s going to boil down to 5, 6, 7 states. It probably boils down to one county, two counties in each of those states because at the end of the day, it’s really about, I live in Pennsylvania. That’s a swing state, and the swing county is Chester County, the county I live in because it’s a suburban county, it’s a purplish county.
In fact, I joke my wife is going to determine who’s going to be the next president because we live on a circle. The circle is a mile in length in Chester County, and it’s some legacy farmers and folks you think are Republican. And then you’ve got a bunch of newbies, Vanguard employees because we live very close to Vanguard and got less Vanguard executives coming in and they are more progressive Democrat. In fact, I could go on and on about my neighborhood. It’s a story in and of itself.
Dave:
But the way the elections have gone recently, it really could come down probably not to one vote, but you do see these hugely impactful counties or states coming down to fractions of a percent of the total population. So I agree that, obviously we’re a long way away. We’re still 11 months away, but it does seem like it will be a close election.
Mark:
The point is it’s going to be close, and if it’s close, it’s going to be for sure going to be contested. If it’s contested, well, that could be messy, and I think that’s a threat to sentiment which is already pretty fragile. And at the end of the day, a recession is a loss of faith with sentiment. As fragile as it is, if it takes another knock, people could pack it in. The consumer doesn’t do what I expect and we don’t have the year I expect.
Dave:
I got it, okay. So it’s not necessarily that there’s historical precedent that during an election year.
Mark:
No.
Dave:
The economy behaves one way or another. It’s more just given the political realities right now there’s just more chance for, yeah. There’s just more chance for a surprise I guess, or a loss of faith like you said.
Mark:
Maybe it won’t be a surprise because we’re all talking about it already.
Dave:
Fair.
Mark:
But one of the fundamental strengths of the American economy is the stability of government, the political process, the rule of law. And if that’s shaken, challenged, then that goes to the core of what makes the US economy exceptional, and it is exceptional. And so that poses a threat to economic growth in the coming year. And of course even after that longer run.
Dave:
I’d love to turn a little bit towards our focus here of the show on the housing market. In your report, you detail some interesting information about the housing shortage. We’ve talked about this, but probably not for a while on the show. Can you just tell us a little bit about the nature of the housing shortage in the United States?
Mark:
Yeah, we don’t have enough homes. Particularly affordable homes, both for rent and for homeownership, and this happened in the wake of the financial crisis, the bust. I mean, housing seems to be always at the center of our economic problems, I don’t know why. But before, the financial crisis 15 years ago, the problem was overbuilding. Builders put up too many homes, vacancy rates soared, and that was the basis for the collapse in the housing market that occurred in the crisis, 2008, 2009 into 2010, house prices fell 2020 5% peak to trough depending on the index. The bottom really wasn’t until 2011.
That wiped out a lot of builders. It was such a wipe out crash, it wiped out builders, it wiped out a lot of infrastructure for building. It also raised the cost of building because a lot of local governments that rely on property tax revenue got nailed by the fall in housing values and so then they jacked up fees on permits in construction. And so the fixed cost for building rose very sharply in that period. And so that’s really made it difficult to ramp up homebuilding, particularly for lower priced homes that have lower margins, again, the builder has to cover those higher fixed costs. And it really wasn’t until right before the Fed started raising interest rates that homebuilding seemed to have gotten back to where it needs to be, not to solve the shortage, just simply to ensure that it wasn’t going to get any worse, that we were putting on enough homes to meet the underlying demand.
And by the way, going back to the point about immigration, underlying demand may even be stronger than we anticipate because we’ve got all these immigrants coming into the country, and we probably much more than we think, and it’s adding to the problems at the affordable part of the market and then adding to our homelessness issues and that kind of thing. But if you do the arithmetic, and so right now we have a vast shortage. The vacancy rates are low, the homeowner vacancy rate is at a record low, and we’ve got data back until just after World War II. By my calculation, we’re short by about 1.7 million homes both for rent and for homeownership. Increasingly, it’s less of an issue on the rental side, more of an issue on the homeownership side.
So this just exacerbates the problems potential first-time home buyers have getting into the market. They have this shortage of homes, lots of other things going on, high mortgage rates, high house prices, soft income growth and that just adds up to a world of I can’t afford anything, I’m just locked out of this market. I think it’s one of the key reasons why even though the economy’s good, people don’t think it is, many people don’t because they’re paying more for lots of stuff and one thing that younger people in their thirties and forties know is it’s going to be, unless something changes here, unless mortgage rates come in and the house prices weaken a bit, they’re not going to be able to afford to become a first-time home buyer anytime soon.
Dave:
Yeah, it definitely impacts sentiment for sure. And like you said, it doesn’t seem like there’s an immediate fix. I did have a couple of questions for you to follow up. One of the things I look at quite a lot is that there’s been a lot of multifamily housing for rent, rental units being built in the US over the last couple years. And there’s some evidence that in certain markets there is an oversupply. If you look at absorption rates, they’re turning negative. So how do you square those two things? On one hand, we don’t have enough housing. On the other hand, we’re a little bit oversupplied. Can you help make sense of that?
Mark:
Yeah, the oversupply you talk about is entirely at the high end of the multifamily market. It’s these big apartment complexes that are going up in big urban centers. I live in Philly. If you go down to downtown Philly, massive projects, luxury apartments that are going in. That part of the market is oversupplied. Vacancy rates are rising and rents are flattening out there coming down in many. I say Philly, but that’s symptomatic of what’s going on in DC, New York, Boston, Chicago, Seattle, San Francisco, LA, lots of markets around the country.
Dave:
Oh, yeah.
Mark:
So they’re no problem. It’s really in the affordable rental for people that have lower income. It’s not lifestyle rental. Some people want to rent, it’s a lifestyle. I want to live in an urban center and I have that lifestyle and therefore I’m going to rent. This is rental because of necessity. I have no choice. I can’t afford to own a home, I have to rent. And it’s that part of the market where the shortages are more severe. And by the way, if I exclude the high-end rental, the shortage is even greater than 1.7 million units obviously. That 1.7 million is for the entire market. If I exclude that, the shortage is probably two and a half million, something along those lines, even much worse.
Dave:
So it’s similar to something we see with the purchase market, which there’s just seems to be a mismatch between the product available and what demand is. We don’t build a lot of small homes or first-time home buyers anymore that are affordable and seems like a similar thing happens in the rental market as well.
Mark:
Yeah, exactly. Exactly, it’s the same dynamic playing out. The entry level, builders focus on high-priced homes because that’s where the margins are. They can make a lot more money. They’re not as focused. That was changing right up until when the feds started raising interest rates. You could feel like D. H. Horton for example, the biggest home builder in the country really was increasingly focused on entry-level housing. So that was changing, and I assume that’s going to be the case on the other side of all this mess. But that was very recent. You’re right, builders had been focused on the high end of the market.
Dave:
Mark, do you know what level of construction we need to get to start making a dent in this deficit?
Mark:
Well, I think the underlying level of construction, single-family multifamily starts that we need just to maintain the current vacancy rate for the shortage not to become even worse is probably around 1.6, 1.7 million units. And right now, we’re a little bit shy of that. We just got one more data point though that was somewhat encouraging, but it’s only one data point. For the month of November, housing starts single-family multifamily got to 1.55 million, something like that. So that’s pretty good, I’m pretty encouraged by that. We’ve got to see better than that, but that’s helpful.
The one area where I think it would be good if policymakers could focus is for manufactured housing because the other source of supply on the homeownership side is manufactured homes. That’s about 100,000 units per annum. And of course that’s affordable and that’s where you can get some really good productivity gains through improved manufacturing processes. And so if I were king for the day, I might need a week or a month, but if I were king, I would focus on that market and how to get that going and produce a couple hundred thousand, 250,000 a year. We’ve done it in the past, I mean at the heyday of the manufactured home building.
Dave:
Oh, really?
Mark:
Yeah, it was a bit of a bubble. But if you go back into, I think it was the ’80s, there was a period when we were producing a quarter million manufactured homes a year, yeah.
Dave:
That’s fascinating. I didn’t realize that. It just seems like such an obvious solution. I appreciate all the other things that people are doing, but correct me if you disagree, but to me, the only way to fix the housing market is more supply. We just need a lot more supply.
Mark:
Yeah, absolutely.
Dave:
Everything else is a stop gap. And not that stop gaps shouldn’t be attempted, but we just dramatically need more homes and that seems like a good option.
Mark:
And some things where the intuition is, oh, if I could only help people with their down payment, or if I could only lower the mortgage rate somehow, or make mortgages assumable or portable, that’ll solve the problem. No. I get the intuition.
Dave:
Yeah.
Mark:
I get it. But all you’re doing is juicing up demand if there’s no supply, all that happens is you just jack up rents and prices and not helping anybody and it’s obviously very costly. So I really focus on the supply side. I mean, there’s some demand side things that I think we could do, but there are things that would kick in later once we get more supply coming into the market.
Dave:
All right, thank you. Well, Mark, this has been super helpful, but before we get out of here, I got to know what’s your outlook for housing prices for 2024?
Mark:
Yeah, you remember, Dave, I said I forecast lots of stuff. Some I’m confident, some not so much. This is one of those not so much.
Dave:
Good. Me neither.
Mark:
One of the surprises for me in 2023 because prices started falling when the Fed jacked up rates in ’22 and coming into ’23, it looked like we were going to see more price declines and I expected it to help store affordability. But instead, no, prices have firmed and actually are up a little bit. And the actual prices today are, I think they’re at an all-time record high, not by a lot. Prices really haven’t gone anywhere for a year and a half, but nonetheless, I mean they haven’t fallen to a significant degree. I still believe that we will see some price weakness here over the next couple, 1, 2, 3 years and that goes to restoring affordability. You can only restore affordability if mortgage rates decline, expect that. Incomes to rise, I expect that, but I also think we need some decline in house prices for that arithmetic to work for people to get mortgage payments to a place where they can afford them.
And I think what happens is, I may have talked about this when we met last time, but I think when happens is life happens. Events, life events, divorce, death, children, job change. Those things can happen and you can put off a move for a while, but after a period of time, the helm you’re living in doesn’t make any sense given your demographic need, you’re going to move. And my thesis is that when these folks start moving, then they’re going to have to cut the price at least a little bit to make the arithmetic work for the buyer, to get a buyer for the home. But that doesn’t play out in a month or a quarter, that plays out over two, three years, something like that. Or the other scenario could be that I feel as likely could happen, prices just stay flat for three, four years because there’s a so-called reservation house price. I know this myself, I believe my home is worth what the highest price Zillow ever posted.
Dave:
Everyone does, right?
Mark:
And I’m going to be very reluctant to sell at a price below that so I might just wait, wait, wait until rates are down, incomes are up enough that I can sell my home at the price I think it’s worth, which is the highest I’ve ever saw in Zillow.
Dave:
I think that from my completely observational and anecdotal consensus analysis of economists, I think that’s what a lot of people think is that prices are going to remain relatively flat and you can restore affordability over time by, like you said, by mortgage rates coming down slowly, by wages going up slowly if housing prices just stay flat, affordability will improve. But like you said, it could also be a combination of all three. So appreciate you giving us your outlook. We know it’s very tricky to forecast this right now, but had to get your opinion. Mark, if people want to check out the great reports you’ve put together or follow your work, where should they do that?
Mark:
There’s a website called Economic View, and there’s a lot of free content there. It’s a paid site as well, but there’s a lot of free content. And I put a lot of the work I do write, I post it on the free side of the paywall, so you can take a look at that. I also tweet @MarkZandi, so feel free. I actually, I got my handle @MarkZandi gazillion years ago. Never used it because I, “Well, what’s this Twitter thing? Why would I do that?” And so I entered in right before all this recent turmoil on Twitter, which I still don’t quite understand or get. But anyway, I actually enjoyed the Twitter. This is going to sound weird, but when I was a kid, we had a teacher who taught us haiku, you know haiku poetry?
Dave:
Yeah.
Mark:
Japanese poetry, and it was very rigid in terms of the syllables and the lines and everything.
Dave:
Yeah, it’s 14 syllables or something like that.
Mark:
I don’t even remember but I loved writing haiku and I love writing tweets. I love it because it’s so therapeutic because you have to get into 280 characters and that really hones what you’re saying. And that really, I think really is quite useful.
Dave:
Honestly, I think the economic conversation on Twitter is something you can’t get anywhere else.
Mark:
I think you’re right.
Dave:
I follow so many different economists and analysts on Twitter for something about the format of Twitter just works really well for this economics financial conversation that doesn’t work on any other social media platform in my mind. So I follow you there, and a lot of the guests that we have here, they’re primarily on Twitter. So if you want to follow Mark.
Mark:
We should start a social media for economics. What do you think?
Dave:
It would be 20 of us, but I don’t know if we’d get the ad revenue from Twitter, but.
Mark:
I don’t know. I like that idea somehow.
Dave:
I don’t know. We get a lot of downloads here, so maybe we’ll get our audience over too.
Mark:
Yeah, I like that idea. Of course, I’m going to be dead wrong, but I still like the idea.
Dave:
Well, you’ve got one follower already from me.
Mark:
There you go.
Dave:
All right, Mark, thanks so much for joining us. We appreciate it and hope to have you back again soon.
Mark:
It was really a pleasure, I really enjoyed the conversation. Thank you so much.
Dave:
On The Market was created by me, Dave Meyer, and Kaitlin Bennett. The show is produced by Kaitlin Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at Bigger Pockets for making this show possible.
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Reverse mortgage volume and securities issuance trend lower in December
When assessing December’s Home Equity Conversion Mortgage (HECM) volume data for December 2023, Reverse Market Insight (RMI) used a choice word as the title for its commentary: “thud.”
Amid an already challenging operating environment observed throughout 2023, both HECM endorsement volume and HECM-backed Securities (HMBS) issuance closed out the year on a low note, with both metrics falling lower from the month before, according to data from RMI and New View Advisors.
Endorsement volume falls slightly
While not a pronounced drop, HECM endorsements fell 3% to end the month with 2,190 loans, but that general drop came with a few notable exceptions according to RMI. Geographically, four of the ten tracked regions outperformed figures from the prior month, while four of the top 10 lenders also posted modest gains in the final month of the year.
One of the top 10 lenders that posted gains, however, was Open Mortgage. In its commentary, RMI speculated that this could be due to the company aiming to close out its pipeline of reverse mortgage loans in process following the announcement of the reverse mortgage division’s closure in November, as first reported by RMD.
All things considered, the drop observed last month was not a big surprise, according to Jon McCue, director of client relations at RMI.
“Honestly, the endorsement numbers for December were not all that surprising given the dip in case number assignments we saw in September and October,” he said. “The obvious culprit is still rates. Not only have [HECM-to-HECM] refinances more or less dried up, but it remains difficult to qualify new borrowers as well. When November and December case numbers are published, we’ll have a better idea of what to expect for Q1 2024. Beyond that will depend on what happens to rates.”
How industry consolidation could shape the business
Likely to have a big impact on industry performance metrics in 2024 is all the exits and consolidations we have observed throughout 2023: not only did Open Mortgage exit the business, but Finance of America Reverse (FAR) acquired former industry leader American Advisors Group (AAG), while Guild Mortgage acquired Cherry Creek Mortgage placing both companies in the top 10 in the final months of the year.
“Any time we see exits and consolidations we tend to see a dip in industry production for a time,” McCue said. “In the case of large institutions such as Bank of America, Wells Fargo, and MetLife, we never regained their lost volume. This is a different situation.”
For instance, the AAG brand still remains despite the FAR acquisition, but the exit of Open Mortgage and the ongoing ripples caused by Reverse Mortgage Funding (RMF)’s bankruptcy will likely impact the business more notably, he explained.
“It is the other players such as the production lost from RMF, what will be lost from Open, and even smaller companies who are moving on that we’ll feel for a short time until others move into the space again,” he said.
Securities issuance falls further
HMBS issuance in December totaled $457 million, a figure “substantially off” from the November total of $561 million, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors. A total of 79 HMBS pools were issued in December, which — not including March 2023’s total — is the lowest HMBS issuance figure since 2014, the firm explained.
HMBS issuance in 2023 came out to $6.5 billion in total, less than half of the record-breaking figure of nearly $14 billion seen in 2022. But New View has been warning for virtually the entirety of 2023 that the year’s issuance levels would not come close to those record-breaking levels.
“December production reflects applications and originations from 2-3 months prior when the expected rate was at or near its highs,” said Michael McCully, partner at New View Advisors. “We don’t expect January to be much different.”
Despite what New View calls a substantial drop, the total issuance figure for the year was largely in line with what the firm had been expecting, he told RMD.
“[The figure is] in line with expectations,” McCully said. “HMBS issuance and HECM endorsements were both cut in half from 2022 to 2023.”
Looking ahead
If the rate environment is kinder than what had been seen for much of last year, there are signs of encouragement, McCully said.
“Expect origination volume to increase if the 10-year treasury stays below 4% and home values remain stable,” McCully said. “The increased maximum claim amount [i.e. the HECM limit] for 2024 should help volume, too.”
New View also noted that 25 of the issued pools in December featured “aggregate pool size [of] less than $1 million,” according to its commentary. “Issuers are taking advantage of Ginnie Mae’s provision to issue pools as small as $250,000. This represents $15.6 million of [unpaid principal balance (UPB)] that may not otherwise have been issued in December.”
A Ginnie Mae policy issued in September 2023 allows for the securitization of multiple participations related to a particular HECM in any one issuance month, which could also help the program, New View said.
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Tapping home equity in retirement has advantages and pitfalls: Harvard researcher
Older Americans are forced to navigate a series of serious financial challenges compounded by their needs for both housing and later life care. While home equity can certainly be a beneficial tool for some seniors to deploy, it will not always be a definitive answer for every senior’s needs.
This is according to Jennifer Molinsky, project director of the “Housing an Aging Society” program at Harvard University’s Joint Center for Housing Studies (JCHS) in an interview with NextAvenue.
Published on the heels of JCHS’ “Housing America’s Older Adults 2023” report from December, the growing number of mortgage products available to a wider swath of American seniors could make a difference for those aiming to age in place.
As noted in that report, however, older Americans are hesitant to tap their home’s equity for a variety of reasons, including leaving it in reserve to protect against an unforeseen economic shock or to leave to an heir.
“But what constitutes an emergency?” Molinsky told NextAvenue. “If you could use your home equity to make your life better — to buy hearing aids, for example — maybe that’s a good investment.”
But equity is not a resource that every older American has access to. Roughly two percent of older renters have the same level of wealth as older homeowners according to JCHS data, and there remains a pronounced gap between homeowners of color and their white counterparts, as noted by NextAvenue.
“Having less equity limits your options,” Molinsky told the outlet.
Additional funding for programs that can facilitate home modifications can also make a big difference for senior homeowners’ quality of life, Molinsky said.
Over the past couple of years, the U.S. Department of Housing and Urban Development (HUD) has shown that it’s paying attention to the emerging housing needs of an older population by creating programs that allow for age-minded home renovations.
HUD issued $15 million grants in mid-2022 and early 2023 designed to help with health and safety home repairs for low-income seniors.
“By 2040, it is estimated that 20 percent of the population will be over 65 years old,” said HUD Secretary Marcia Fudge in August 2022. “We must allow our nation’s seniors to age in place with dignity. This funding will give seniors the flexibility to make changes to their existing homes — changes that will keep them safe and allow them to gracefully adjust to their changing lifestyles.”
Other recent data suggests that home renovations may come with a burdensome economic cost for older Americans, amplifying the potential importance of assistance programs that can help seniors age in place.
Reverse mortgage companies have also invested in their own home modification programs. Before their merger, both Finance of America Reverse (FAR) and American Advisors Group (AAG) had explored different options in the modification arena, with FAR acquiring a home modification lending platform that continues today.
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Mortgage rates sit still in the first week of 2024
In the first week of 2024, mortgage rates continued to stick around the mid 6% mark.
The 30-year fixed-rate mortgage averaged 6.62% as of Jan. 4, a slight increase from the 6.61% rate recorded on Dec. 28, according to Freddie Mac‘s Primary Mortgage Market Survey released on Thursday. The 15-year fixed-rate mortgage averaged 5.89% this week, down from 5.93% the prior week. HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 6.68% on Thursday, up from 6.56% recorded at the same time last week.
“Between late October and mid-December, the 30-year fixed-rate mortgage plummeted more than a percentage point,” Freddie Mac Chief Economist Sam Khater said in a statement. “However, since then rates have moved sideways as the market digests incoming economic data.”
Given the expectation of rate cuts this year from the Federal Reserve, Khater expects mortgage rates to continue drifting downward.
“While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise,” he added.
One year ago this week, the 30-year fixed-rate mortgage stood at 6.48%, while the 15-year rate stood at 5.73%.
Lower rates attract homebuyers back to the market but difficulties persist
According to a Realtor.com survey, 11% of surveyed prospective homebuyers said that they would be able to buy a home if rates went below the 7% threshold. Another 12% of surveyed homebuyers said that rates would need to dip below 6% for them to be able to buy a home. Meanwhile, more than a quarter (28%) said rates would need to dip below 4% to bring them into the market.
Currently, the typical outstanding mortgage rate is still under 4%. This discrepancy is not creating any incentive for sellers to sell their homes in the current rate environment, according to Realtor.com Economic Research Analyst Hannah Jones.
However, the cost of buying a home did come down in December, sending an encouraging signal to the market. As per a Redfin study, the median U.S. mortgage payment was $2,361 during the four weeks ending December 31, down $372 (-14%) from October.
According to Bright MLS Chief Economist Lisa Sturtevant, the lack of inventory remains the main issue, keeping home prices elevated.
“Young buyers are having to delay buying a home as it takes them longer to save for a down payment and they often have to make offers on multiple homes before they are successful,” Sturtevant said. “Many first-time homebuyers have been priced out of the market altogether.”
Sturtevant expects the lack of inventory to remain a challenge this year even as mortgage rates fall.
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How to get a real estate license in Texas
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Texas residents interested in becoming a real estate agent must first complete 180 hours of approved coursework to be eligible to sit the state licensure exam. That’s a longer program than in most states. We estimate that it’ll take three to six months to get up and running as a licensed real estate agent in the Lone Star State.
In this article, we’ll take you through the Texas real estate licensing process step-by-step, sharing the costs, time commitment and all the details you’ll need to launch your new career
Overview: How to get a real estate license in Texas
Once you find a broker and file your TREC request, your active license will be issued.
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Requirements to get your real estate license in Texas
Getting your real estate license in Texas comes down to fulfilling your qualifying education requirement, applying for your license, getting your background check, taking and passing the exam, and finding a sponsoring brokerage.
Currently, there are about 154,113 Realtors® in Texas, according to the National Association of Realtors. In fact, Florida and California are the only states with more real estate agents. When it comes to real estate, the old adage that “Everything’s bigger in Texas” seems apropos. [1]
Texas requires you to complete a TREC-approved, qualifying course totaling 180 hours of classroom time.
Texas real estate license: Requirements checklist
According to the Texas Real Estate Commision (TREC), a sales agent is a person who is licensed by the Real Estate Commission to act as an agent on behalf of a real estate broker and their clients. Additionally, a Texas real estate sales agent must be sponsored by a licensed broker in order to perform any real estate services on behalf of their clients.
With the potential to earn $6,559 per month as a real estate agent in Texas, the Lone Star State has ample financial opportunities for anyone pursuing a real estate career. [2] Here’s a helpful checklist to get yours started:
You have one year from the date your application is filed to meet all of the above license requirements. [3]
The Texas real estate license exam
The Texas real estate licensing exam is made up of two sections. To be eligible for your license, you will need to score at least 21 out of 30 on the Texas section of the exam, and 56 out of 80 on the national section, for a total score of 70%. [4]
Passing grade
Before you commit to 180 hours of qualifying coursework and invest hundreds or even a thousand dollars into your real estate career, consider requesting a Fitness Determination, or FD. For $52, TREC will look at your record and identify whether or not you meet the state requirements to become a licensed real estate sales agent in Texas.
Although optional, requesting an FD is a wise move to make before you enroll in qualifying education courses, pay for an application, and take the exam. The results will give you the confidence to take that first step, knowing you are eligible to become licensed in Texas.
Step 1: Complete 180 hours of class time
Your first step to an exciting real estate career begins with your qualifying education. You’ll need to enroll in and complete the following TREC-approved, qualifying real estate courses. Each course is 30 classroom hours, for a total of 180 hours. After you complete all six courses, you’ll have to take and pass the prelicense course exam.
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Step 2: Submit your state license application
Cost: $185 application fee
You can apply for your sales agent license online or by mail using TREC’s paper application. [11] To apply online, you’ll submit your sales agent application and fee using TREC’s online licensing service. [12]
Should you complete any of the six qualifying real estate courses through an accredited college or university for academic credit, you can submit a transcript to TREC for evaluation and possible exemption. [9]
After you create an account as a new user, you will pay the $185 application fee and receive a payment confirmation. Be sure to download and save this confirmation on a cloud drive. It doesn’t hurt to print a copy to have as backup. Next, you’ll be prompted to email your payment confirmation.
Once you file your Texas sales agent application, you’ll need to submit your course completion documents to TREC. You can email all six of your prelicensing course completion certificates to TREC at documents@trec.texas.gov.
Note: Your confirmation and course certificates MUST NOT be sent as one document. They must be sent as individual attachments to your email.
After your online application is submitted and you email your documents, you’ll need to wait for TREC to approve your application. You can track your application status using Texas’ Application Status Tracker.
Upon approval, you’ll receive an email from TREC with your eligibility letter and your TREC user ID number. Carefully read the eligibility letter and follow the provided instructions to the letter.
Step 3: Complete a background check and biometrics
Cost: $38.25 processing fee for fingerprinting
Applicants for a real estate license with TREC are legally required to have fingerprints on file with the Texas Department of Public Safety (DPS) so that a background check can be performed. You can schedule a fingerprinting appointment through IDEMIA once you receive your exam eligibility letter from TREC.
Scheduling the mandatory fingerprinting is as easy as searching for your account using the TREC user ID number emailed to you when you applied for your license. You can look it up using your name and date of birth, as well. [13]
From there, you’ll be able to obtain your IdentoGO ID, which is required to schedule a fingerprinting appointment. IdentoGO by IDEMIA is a provider that collects and submits fingerprints via the Texas DPS. Since IndentoGO doesn’t accept walk-ins, you’ll need to schedule your fingerprinting appointment in advance by booking it through their website or calling 1-888-467-2080. To cover the cost of the criminal history report, a fingerprint processing fee of $38.25 must be paid to IdentoGO. [14]
Your Texas real estate license will not be issued if your fingerprints were taken elsewhere. What’s more, your license will not be issued until TREC receives your criminal history report from the DPS and the FBI clears your background history check.
Step 4: Schedule and pass the exam
You’ve met TREC’s qualifications, completed your required prelicensing coursework, studied hard, and passed your background check… now what? With one year from the date your application is filed to take and pass your exam, it’s time to shift your focus to the Texas Real Estate Salesperson Exam!
You will have four hours to finish the Texas real estate licensing exam and the exam will automatically end when the time is up. When you leave the test center, you will have your official score report in hand – there’s no waiting around anxiously for your results in Texas! [15]
Hours
The time allotted for taking the Texas real estate licensing exam
Administered by PearsonVUE, a testing service company, the exam can be scheduled by clicking here: Texas Real Estate Exam. You can also schedule by calling (800) 997-1248 at least 24 hours before your preferred exam date. While you can schedule your exam up to one calendar day prior to the day you wish to test, this is subject to availability, so it’s a good idea to schedule the exam at least a few days before the date you have in mind.
Questions
The Texas real estate exam is divided into two sections, with 85 national legal questions and 40 state-focused questions
Where to take the exam: Testing centers
PearsonVUE administers the real estate licensing exam at the following test centers in Texas:[15]
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Considerations for active license holders
While you must pass both the state and national portions of the Texas real estate exam, the national portion of the exam may be waived if you currently hold an active license in another state and passed the national portion of an ARELLO-approved exam.
How to get your official Texas real estate license
Once you pass the real estate licensing examination, the scores are sent to the state real estate commission. After confirmation, you should receive your Texas sales agent license document from TREC by email, typically within five to 10 business days. [16]
How to retake the Texas real estate exam
If you fail the examination the first time, your score report will indicate a numeric score relating to the failed portion of the exam. When you retake your exam, you’ll only need to retake the failed portion, but you must do so within one year from the date that the application was filed with TREC.
Be aware that you can’t schedule your re-examination at the test center. You’ll have to wait up to seven business days for processing and re-authorization to be submitted to Pearson VUE before you can reschedule the exam.
If you fail the exam three times, you’ll need to complete an additional 30 classroom hours of qualifying real estate education for each failed portion of the exam before you can register for re-examination.
Step 5: Find a Sponsoring Brokerage
You’ve passed your exam, met all the state requirements, and you’re excited to start conducting business as a licensed real estate agent in Texas! You can do just that, as soon as you are sponsored by an active Texas licensed broker. Until then, your license will be inactive.
You can complete a sponsorship request using TREC’s online services. Once the broker has accepted your request, your active license will be issued, and you can work as a Texas real estate agent.
FAQs to help jumpstart your Texas real estate career
If you’re a prospective or new real estate agent in Texas, it doesn’t hurt to have some additional information when deciding if a career in real estate is right for you. Here, we provide answers to the most frequently asked questions about getting licensed and practicing real estate in Texas.
How hard is it to pass the Texas real estate exam?
As of July 3, 2023, there were 42,857 sales agent exams taken in Texas. Of those, 24,881 people passed the real estate licensing exam on the first try, according to TREC. That’s an average pass rate of 58% for exam takers. [5]
What should I expect on exam day?
When it comes time to take the Texas real estate exam, be sure to arrive 30 minutes before the exam and check in with the test center administrator. To be admitted, you will be photographed for the score report.
Before you enter the exam room, you will be asked to pat yourself down to demonstrate that there is nothing hidden on your body, and empty your pockets so that the test administrators (TAs) can verify that there is nothing in them.
What types of identification should I bring?
On exam day, you’ll be asked present two forms of current signature identification. [15]
The following are the only forms of primary photo identification accepted:
For your second form of identification with a valid signature, you can bring any form of ID on the primary ID list above or a current debit (ATM) card, credit card, or U.S. Social Security Card.
What can I bring or not bring to the Texas real estate exam?
There will be a locker or secure area for you to store your personal items. Don’t forget to turn off any electronic devices before storing them in.
The following items are strictly prohibited during the exam:
Violation of any of these policies will not be permitted, and will result in being dismissed from the test center and forfeiting the exam.
The TA will give you materials to take notes during the exam and any other items specified by the exam sponsor. You will NOT be given a calculator, so it’s recommended that you bring your own. Acceptable calculators include battery, hand-held, or solar-powered financial calculators with no alpha characters (ABC, DEF). Calculators with mathematical symbols (Cos or Sin) are acceptable.
How long does it take to get a real estate license in Texas?
If you consider that the education requirement alone is 180 hours of coursework, that could take you four to five weeks should you choose to treat it like a 40-hour work week. The Texas real estate licensing exam is known for being challenging, so the more time you spend studying for the exam, the greater your chances of scoring 70% or higher the first time around.
Once you factor in the time it takes for fulfilling your education requirement, filling out the application, taking the exam, and finding a sponsoring broker, you’re looking at between three to six months to become a licensed real estate sales agent in Texas.
How much does it cost to get a real estate license in Texas?
When it comes to attaining your Texas real estate license, you’ll need to invest in your education up front. Considering the doors this could open for you down the road, it’s worth the cost. How much exactly? Here’s what you need to budget for: [6]
Estimated total = Between $800 and $2000 [7]
Miscellaneous fees may include courses you take as a supplement to the required coursework, such as an exam prep class. Another investment that is optional but very beneficial is a Fitness Determination that is used to determine if you satisfy the requirements for honesty, trustworthiness, and integrity necessary to be a Texas real estate agent. [8]
Does Texas have real estate license reciprocity with any other state?
No, Texas does not have reciprocity with any other states. While residency is no longer a requirement for becoming a licensed real estate agent in Texas, you will need to satisfy all current state licensing requirements to legally practice real estate here.
Can I apply for a Texas real estate license online?
To save time and money, you can and should apply for your Texas sales agent license online. Not only will an online application process faster than the paper application, but it’s more secure than snail mail and is less expensive (incidentally, TREC charges a $20 processing fee if you submit a paper document for a transaction that is also available online). To apply online, submit your sales agent application and fee using TREC’s online licensing service.
What is the Texas real estate license renewal process?
In Texas, you must renew your real estate license every two years. Don’t worry, you will be sent a renewal notice about 90 days before your expiration date. Until you receive this notice of renewal, you cannot renew your license. You can, however, renew your license up to six months after the expiration date. As part of the renewal process, be ready to complete certain continuing education courses.
If it’s been between six months to two years since your license expired, you can always apply for reinstatement of your license. Don’t let too much time pass, though. If it’s been over two years since the expiration date, you will have to reapply for your license … and retake the exam! [17]
What are the continuing education requirements for a Texas real estate agent renewing for the first time?
To help you provide outstanding real estate services to your clients, the state requires that you complete a total of 270 qualifying real estate courses within the first two years of obtaining your Texas real estate license. [18]
If you already submitted 180 hours of qualifying courses to get your real estate license, you must still complete the following continuing education (CE) courses to renew your Texas salespersons license the first time:
The two Legal Update and Brokerage courses are mandatory. After that, you will need to pick two additional SAE courses to complete the hours needed for your first Texas real estate license renewal. [19]
You can find the list of qualifying real estate courses here: Qualifying Real Estate Course List
Where and how can I take continuing education classes?
You’ll want to complete your continuing education at least 10 days before your license expiration date, and your post-license CE courses must be through a TREC-approved provider. Fortunately, there is a long list of approved CE providers and the courses they offer, which you can find here: Approved Real Estate CE Courses
TREC-approved real estate schools and education course providers typically offer various Texas SAE courses and packages to fulfill your required 98 hours of qualifying (SAE) post-licensing education. Depending on the CE provider, there are several delivery methods available, from in-person classroom learning to online learning and virtual classes.
Once you complete your CE requirements, you need to:
What are my options if my license is expired but I haven’t completed my CE requirements?
If TREC’s records do not reflect completion of CE requirements at the time you submit your renewal application, you will have to pay a $200 CE deferral fee or renew on inactive status. By paying the CE deferral fee before the expiration date, you can remain active for an additional 60 days from your expiration date while you complete your CE requirements.
How do I submit my license renewal?
To renew your license and pay the renewal fee online, you can visit TREC’s Online Services page. You may need to register if this is your first time renewing online.
To renew your license by mail, print out the Renewal Form for Real Estate Sales Agents and Brokers and mail it to the address on the form, along with $110 for the renewal fee. All fees should be in the form of a single cashiers check, personal check, or money order payable to TREC.[21]
How much money does a Texas real estate salesperson make?
According to ZipRecruiter, a real estate agent working in Texas earns $78,719 per year on average, as of October 13, 2023. This is the equivalent of $37.85 per hour, $1,513 per week, or $6,559 per month. [2]
While ZipRecruiter is seeing agents’ salaries as low as $25,684, they can be as high as $132,089. And the majority of real estate agents’ salaries is currently between $59,600 and $91,700, with top earners making $114,661 annually in Texas. Keep in mind that this salary average can vary based on your employment setting, level of education, years of experience, and the property market.
ZipRecruiter scanned a database of millions of active jobs published locally across the nation to determine that Texas is ranked number 25 out of 50 states for real estate agent salaries. ZipRecruiter also reports that the top 5 area/cities where the typical salary for a real estate agent is above average in Texas are:
Real estate agents in TX: By the numbers
154,113 licensed and active real estate agents in Texas [22]
What’s the real estate agent commission rate in Texas?
Based on several recent surveys, the average real estate agent commission rate in Texas is between 5.59% and 6%. This average reflects the total for both the listing agent and the buyer’s agent, and is usually split between the listing agent (2.71% and up) and buyer’s agent (2.88% and up). [23] [24]
Texas housing prices: By the numbers
$300,090
the value of the average Texas home [25]
22 days
the average time it takes for a Texas home to become pending
Tips for finding a real estate brokerage
As a new real estate agent, you’ll want a managing broker that you can depend on for employment, mentorship, and support. To select the best brokerage for you, here are 4 things to consider:
1. Size & Culture
As you look for a managing broker, you need to compare their listings to your personal preferences and professional goals. Is your goal to join a bigger brokerage with an expansive network or do you prefer a boutique brokerage with a local vibe? Do you want to sell high-value homes as part of a luxury firm or help first-time homebuyers make their dream of ownership come true? These are the questions you need to ask yourself as you decide on a managing broker.
2. Support & Training
Choosing a broker that provides all the support you’ll need as a new agent is integral, so look for a brokerage that offers comprehensive new agent training and mentorship programs. You’ll also want a sponsoring real estate broker that offers administrative support, including inputting MLS information, helping with contract follow-up, and handling other office tasks.
3. Lead Gen
While experienced agents may be able to generate business through referrals or past clients, new agents tend to need help with lead generation to get going, especially if you plan to use your license to represent buyers or listings. Your best bet is to find a brokerage that uses a system to generate leads to the office. You’ll also want to find out who gets the leads and how they are assigned.
4. Marketing
As a new agent, make it a priority to pick a brokerage that is committed to helping you with marketing and exposure. When considering a brokerage, find out if it is going to promote your open houses and new listings. You’ll want to ask how the brokerage promotes agents’ listings too. Do they use lawn signs and postcards? What about optimized blogs, email marketing, Google Pay-Per-Click, social media, radio, or TV ads? Consider the brokerage’s internet and social media presence as well. This includes their amount of social media followers and client testimonials.
Lead gen tools, cutting-edge technology, marketing assistance, and training are key to succeeding as a Texas real estate agent, so look for a brokerage that provides the resources and agent services you need to maximize reach for your clients.
The bottom line
Now that you’ve learned how to become a real estate agent in Texas, you’re ready to start a rewarding career in real estate. Starting a new career in real estate should be exciting, not overwhelming! That’s why HousingWire provides you with the housing market trends, tools, news, and information you need for every step of your real estate journey.
Articles sources & helpful links
https://www.nar.realtor/membership/monthly-report
https://www.ziprecruiter.com/Salaries/Self-Employed-Real-Estate-Agent-Salary–in-Texas
https://www.trec.texas.gov/become-licensed/sales-agent
https://www.trec.texas.gov/agency-information/rules-and-laws/trec-rules
https://www.trec.texas.gov/education/education-provider-exam-passage-rates-sales-agents-and-brokers
http://www2.trec.state.tx.us/trecInternet/FastPrintPass/FASTFingerprintPass_locations.aspx
https://www.trec.texas.gov/test-fee-schedule
https://www.trec.texas.gov/forms/fitness-determination
https://www.trec.texas.gov/become-licensed/sales-agent#
https://www.trec.texas.gov/can-attorney-get-broker-license-without-first-being-licensed-sales-agent
https://www.trec.texas.gov/forms/application-inactive-real-estate-sales-agent-license
https://www.trec.texas.gov/fingerprint-requirements
https://uenroll.identogo.com/workflows/11G7QT/appointment/bio
https://home.pearsonvue.com/getattachment/13b8b731-89d0-4e94-8e61-95bdaaef21cc/Texas%20Real%20Estate%20Candidate%20Handbook.aspx
https://home.pearsonvue.com/tx/realestate
https://www.trec.texas.gov/renew-license/real-estate-sales-agent
https://www.nar.realtor/membership/monthly-report
https://www.zillow.com/home-values/54/tx/
Approved Qualifying Real Estate Courses
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6 best Pennsylvania real estate schools for 2024
Vetted by HousingWire | Our editors independently review the products we recommend. When you buy through our links, we may earn a commission.
Ready to get your real estate license in Pennsylvania? You’ll want to enroll in one of the best Pennsylvania real estate schools to gain the skills and knowledge you’ll need to ace the state exam and succeed in your new career. First, you’ll need to meet Pennsylvania’s 75-hour prelicensing course requirement.
We’ve conducted extensive research and narrowed it down to the best approved PA real estate schools to help you make an informed decision. From Philadelphia to Pittsburgh, you’ll find everything from self-paced courses to in-person classes in this guide. Let’s get started!
In this article
At-a-glance: 6 best real estate schools in Pennsylvania for 2024
Best for accelerated learning
The CE Shop
From $419
Pass Rate: 89%
Best for home study
Colibri Real Estate
From $360
Pass Rate: 75%
Best for professional development
AceableAgent
From $299
Pass Rate: 91% *
Best for an interactive experience
Kaplan Real Estate Education
From $429
Pass Rate: N/A
Best for traditional classroom learning
Philadelphia Real Estate Classes
From $499
Pass Rate: N/A
Best for students on a budget
RealEstateU
From $149
Pass Rate: 86%
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At-a-glance: 6 best real estate schools in Pennsylvania for 2024
Best for accelerated learning
The CE Shop
From $419
Pass Rate: 89%
Best for home study
Colibri Real Estate
From $360
Pass Rate: 75%
Best for professional development
AceableAgent
From $299
Pass Rate: 91% *
Best for an interactive experience
Kaplan Real Estate Education
From $429
Pass Rate: N/A
Best for traditional classroom learning
Philadelphia Real Estate Classes
From $499
Pass Rate: N/A
Best for students on a budget
RealEstateU
From $149
Pass Rate: 86%
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*AceableAgent publishes its national pass rate. Other pass rates are state-specific.
The CE Shop
Best Pennsylvania real estate school for accelerated learning
Overall Rating: 4.6 out of 5 stars
Rating: 4.5 out of 5.
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Enroll + SAVE 30%
Use Promo Code HW30
Overview
The CE Shop is an education provider that specializes in online real estate education. The school reports its student satisfaction rate as 96%, which it attributes to the intuitive interface, features, and support offered.
Leveraging a proprietary content delivery platform, LEAP, the CE Shop ensures that students engage with content needed for passing the licensing exam. All course content is offered live online with self-paced delivery, giving you the option to learn in the way that works best for your learning preference and schedule.
And every topic covered is based on real-life scenarios commonly faced by real estate salespeople in Pennsylvania.
Prelicensing Courses
Compare course packages at The CE Shop – Use promo code HW30 to save 30%
Pricing
All of the CE Shop’s prelicensing classes meet Pennsylvania’s 75-hour prelicensing requirement. The CE Shop’s post-licensing courses meet Pennsylvania’s 14-hour continuing education requirement for first-time renewals.
Save 30% on all prelicensing courses with The CE Shop using promo code HW30. Click to learn more about their prelicensing course packages and Exam Prep Edge.
ENROLL NOW & SAVE 30% Use Promo Code HW30 at checkout
Pros + Cons
Pros:
Cons:
Features
Course Formats: Self-paced online.
Course Access: Six months from the date of purchase.
Money-Back Guarantee: The CE Shop offers a money-back guarantee to students who are not satisfied with the course they purchase, but only if it is within 30 days of the purchase date and the course is less than 50% complete.
Student Support: Support is available seven days a week via chat, email, and phone during hours of operation.
Exam Prep: Prelicensing Standard, Value, and Premium packages all feature Exam Prep Edge courses, which include an initial assessment, after which the school’s interactive dashboard guides you through each topic. You’ll receive feedback in real time, so you’ll know what to focus on prior to exam day.
Final Exam: After you complete all the coursework, the state requires that you take a proctored final course exam. You must pass the Prelicensing Final Exam with a 75% or more. You may take the exam as many times as needed to pass.
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Real estate exam prep: The ultimate guide to acing your state’s real estate exam
Colibri Real Estate
Best Pennsylvania real estate school for studying from home
Overall Rating: 4.5 out of 5 stars
Rating: 4.5 out of 5.
Visit Colibri
Overview
A state-approved real estate education provider, Colibri Real Estate offers a variety of course formats for a customized learning experience. Its online courses are best for students who prefer to study at their own pace, while livestream classes appeal to anyone who studies best with a regimented schedule. If you’re working to get your Pennsylvania real estate education requirements complete while still holding down a 9 to 5 job, you’ll especially appreciate being able to take the evening classes at home.
Prelicensing Courses
Compare course packages at Colibri
Pricing
Colibri’s prelicensing classes meet Pennsylvania’s 75-hour prelicensing requirement. Colibri’s post-licensing courses meet Pennsylvania’s 14-hour continuing education requirement for first-time renewals.
Enroll Now
Pros + Cons
Pros:
Cons:
Features
Course Formats: Self-paced or livestream courses.
Course Access: Six months from your registration date in most cases.
Pass Guarantee: Colibri’s Pass or Don’t Pay Guarantee is available with all prelicensing packages, with the exception of the Basics package. Colibri will reimburse the original cost if you don’t pass the Pennsylvania real estate licensing exam within 30 days of completing a course’s exam prep program.
Student Support: Prelicensing packages enable students to email or call local experts with your questions. In general, live chat can be used to connect with an Education Specialist or Advisor. Or reach out via email or phone during business hours (detailed on the website).
Exam Prep: Colibri’s exam prep packages include audio review guides, flashcards, simulated practice exams, and a readiness assessment to help pass your real estate state exam.
Final Exam: Once you complete your prelicensing course, you must pass a proctored course final exam.
AceableAgent
Best Pennsylvania real estate school for professional development
Overall Rating: 4.5 out of 5 stars
Rating: 4.5 out of 5.
Visit AceableAgent
Overview
Featuring interactive games, videos, and bite-sized lessons to help students successfully meet Pennsylvani’s 75-hour prelicensing coursework requirement, Aceable Agent’s courses are built by learning license experts. The school’s workshops, practice tests, and other study tools are designed to give those starting out in real estate a boost of confidence. And students appreciate that accessing the course any time of day from an iPhone or computer is easy and the content is laid out in an engaging way.
Prelicensing Courses
Compare course packages at Aceable Agent
Pricing
All AceableAgent’s prelicensing classes meet Pennsylvania’s 75-hour prelicensing requirement.
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Pros + Cons
Pros:
Cons:
Features
Course Formats: Self-paced online.
Course Access: Your prelicensing course must be completed within one year of the day that the course was purchased, including taking and passing the course’s final exam.
Ace or Don’t Pay Guarantee: Students who take one of AceableAgent’s Prelicensing courses and don’t pass the licensing exam after three attempts are eligible to get their money back.
Student Support & Engagement: AceableAgent’s prelicensing courses provide several resources for students, including support from a real-life, State Real Estate Agent Commission-approved instructor. Once enrolled, you can email your instructor Monday-Friday if you have a question or need clarification about course content. And AceableAgent’s Student Concierge Support Team is on call five days a week to help answer questions submitted via the school’s online form.
Exam Prep: The Basic Prelicensing package features Lite Exam Prep, including 1,000 unique Real Estate Exam practice test questions, while the Deluxe and Premium packages’ include 1,660+ additional national and state exam practice questions.
Final Exam: At the end of your prelicensing course, you’ll take a proctored, online final exam.
Kaplan
Best Pennsylvania real estate school for an interactive educational experience
Overall Rating: 4.2 out of 5 stars
Rating: 4.5 out of 5.
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Overview
With more than 65 years of experience helping thousands of students begin and advance their real estate career, Kaplan provides courses and expert instruction through a flexible, online video delivery format. These video courses feature multiple segments with expert instructors. And students consistently appreciate how the videos are complemented by text-based content to reinforce key concepts.
Prelicensing Courses
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All Kaplan’s prelicensing classes meet Pennsylvania’s 75-hour prelicensing requirement. Kaplan’s post-licensing CE courses meet Pennsylvania’s 14-hour continuing education requirement for first-time renewals.
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Pros + Cons
Pros:
Cons:
Features
Course Formats: Self-paced online.
Course Access: Six months from the date of purchase to complete the course.
Pass Guarantee or Refund Policy: For web-based courses and classes, Kaplan’s students are eligible for a full tuition refund within 30 days of purchase if the class has not been completed.
Student Support: Customer or Technical Support staff are available to answer any of your questions via email, the chat feature, or phone during business hours. The Student Support team is also available via email or phone.
Exam Prep: When you enroll in one of Kaplan’s prelicensing online courses, you receive comprehensive real estate license exam prep featuring the practice and repetition needed to confidently pass the Pennsylvania real estate licensing exam.
Kaplan also offers stand-alone Exam Prep Packages that include the National and Pennsylvania Drill and Practice QBank.
Final Exam: The Pennsylvania Real Estate Commission regulations require that students take a proctored final exam for courses. If you have to retake an exam, the proctoring process must be followed for each exam attempt.
Philadelphia Real Estate Classes
Best Pennsylvania school for traditional classroom learning
Overall Rating: 4 out of 5 stars
Rating: 4 out of 5.
Visit Philadelphia Real Estate Classes
Overview
Voted one of the top five schools in Pennsylvania for live instruction, Philadelphia Real Estate Classes offers traditional classroom courses in Philadelphia and live streaming, instructor-led courses for those outside of the city. Students appreciate that the teachers are professional and accommodating and the classes feature quality content.
Prelicensing Courses
Compare course packages at Philadelphia Real Estate Classes
Pricing
Philadelphia Real Estate’s prelicensing classes meet Pennsylvania’s 75-hour prelicensing requirement.
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Pros + Cons
Pros:
Cons:
Features
Course Formats: Livestreaming or in person.
Course Access: Course can be accessed on dates and times of scheduled classes.
Refund Policy & Price Guarantee: From the date of registration up to two business days preceding the class registered for, you can request a tuition refund (minus a $75 cancellation fee per class). If certain criteria are met, students also have the option of transferring from the canceled class to another class offered by the Philadelphia Real Estate Classes.
Student Support & Engagement: The school’s owner can be contacted with any questions by email, phone, or submission form.
Exam Prep: Not available.
Final Exam: Students must take and pass a course final exam with a score of 75% or more. If you fail the exam, you can contact the school to request a retake.
RealEstateU
Most affordable Pennsylvania real estate school
Overall Rating: 4.2 out of 5 stars
Rating: 4.5 out of 5.
Visit RealEstateU
Overview
Founded in 2013, RealEstateU is an online real estate school offering real estate licensing, continuing education, and real estate investing courses. For more than a decade, the school has been offering comprehensive, state-approved programs across the country. More than 225,000 students have taken courses through RealEstateU. And students appreciate that RealEstateU is an affordable option for earning your real estate salesperson license from anywhere, day or night, using your computer, smartphone, or tablet.
Prelicensing Courses
Compare course packages at RealEstateU
Pricing
RealEstateU’s prelicensing classes meet Pennsylvania’s 75-hour prelicensing requirement.
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Pros + Cons
Pros:
Cons:
Features
Course Formats: Self-paced online.
Course Access: 12 months to complete your course.
Refund Policy & Price Guarantee: RealEstateU has a “100% Satisfaction Guarantee.” Try the entire course for 30 days and if you aren’t 100% satisfied, RealEstateU will give you a full refund.
Student Support & Engagement: While there is no live instructor support, additional support is available 24/7 to answer your questions via email.
Exam Prep: To help you focus on the exact information you’ll need to know for the licensing exam, RealEstateU’s Exam Prep course includes sample questions, six practice exams, and lessons that are connected to the full course for quick reference.
Final Exam: State law requires a proctored final exam for each course.
Methodology: How we chose the best real estate schools in Pennsylvania
To determine the very best Pennsylvania real estate schools, we immersed ourselves in research, rating each school based on the following:
Finally, we considered the unique features and professional development opportunities of each education provider, which can lead to long-term success for real estate agents like yourself.
Frequently asked questions
HousingWire is here to provide the resources you need to start off on the right foot. So to help we’ve collected and answered some frequently asked questions below.
What are the steps to getting a Pennsylvania real estate license?
The requirements for taking the PA real estate exam and becoming a real estate salesperson are as follows:
Can I take my real estate licensing exam online?
Yes, you can take your real estate licensing exam as a remote proctored exam by scheduling it through Pearson VUE. You can also take the licensing exam in-person instead of online, as on-site testing is still available for those students who prefer it.
How long is the Pennsylvania licensing exam?
The PA Real Estate Licensing Exam consists of X questions and is based on the 75-hour prelicensing curriculum. This 120 question test has two portions, covering both state and national requirements. The number of questions on both portions are as follows:
How much does it cost to get your Pennsylvania real estate license?
To become a real estate agent in Pennsylvania, you’ll need to make a worthwhile investment. Here’s what to budget for: 169
Estimated total = Between $317 and $668
What is the average salary for a Pennsylvania real estate agent?
According to Glassdoor.com, the estimated average salary for a Pennsylvania real estate agent is $103,301 annually. This value represents the median. Additional pay is estimated to be $70,009 per year, which may include cash bonuses, commission, profit sharing, and tips.
The full picture: Best Pennsylvania real estate schools
Now that you know which Pennsylvania real estate schools offer courses that can help you launch your career on the right foot, you can choose the online course that’s ideal for your schedule and budget.
From the best prelicensing education package to exam prep for passing the Pennsylvania licensing exam, HousingWire provides information and insights from licensed agents to help you start your real estate journey and succeed as a Pennsylvania real estate professional.
Helpful links for Pennsylvania real estate schools
We’ve gathered the links and websites that prospective real estate agents visit the most for the most helpful information on obtaining a real estate license, choosing a school, and other requirements in Pennsylvania.
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‘Silver tsunami’ could have a bigger impact on 2024’s housing market: analyst
The “silver tsunami” — a colloquialism referring to aging Americans changing their housing arrangements to accommodate aging — could have more of an impact on the housing market this year, according to analyst Meredith Whitney in a conversation with Yahoo Finance.
“[T]he other major demographic trend you see is the aging of America,” Whitney said. “So what’s called the silver tsunami is 10,000 people a day turning 65. And by 2030, the entire baby boomer population or generation will be over 65.”
That will grow to encompass 21% of the total U.S. population, and when combined with the outsized rate of homeownership among older Americans, the potential exists to dwarf the most active year the U.S. has seen for home sales, she said.
“[T]he AARP estimates that 51% of people over 50 downsized their home,” she said. “And people over 50 are 74% of total U.S. homeowners. So if you just take half of that, you’ve got about 30 million homes that should be coming on the market. And the peak in existing home sales was 2005 when you had around 7 million transactions.”
Whitney referred to this trend as a “python” that could begin coming to fruition in the latter half of 2024, which could then persist “for the next several years,” she explained.
“[T]hat, I think, is what’s going to be reshaping housing in America,” she said. “And I think that’s what will put regional pressure in terms of more and less on home prices.”
Most analysts who are active in the housing space have observed that the silver tsunami’s transformative potential for the U.S. housing market has not yet materialized in any meaningful way, but Whitney says that home prices could moderate in the future because of its potential impact.
“[I]f you lower the overall home price, the serviceability becomes more affordable,” she told the outlet. “That’s what I think is invariably going to happen because you’re going to have more seniors, the silver tsunami, selling and there are fewer buyers so the give is going to be lower home prices.”
If this came to pass as Whitney predicts, then some seniors may not have as much of a need for a product like a traditional reverse mortgage through the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program. However, HECM for Purchase (H4P) — a comparatively lesser-used HECM variant — could be used to allow more older Americans to purchase a new home using a reverse mortgage.
H4P has struggled to gain traction in the already-niche reverse mortgage market, though some reverse mortgage industry professionals have aimed to amplify its potential among their peers.
Last October, FHA introduced a proposed seller credit for the H4P program. When news of this proposal reached attendees during a panel discussion at a recent industry event, audible cheers from the assembled professionals broke out.
But industry professionals also tend to see H4P as a bit of a hard sell for borrowers and, critically, real estate agent referral partners.
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