Homebuilders, lenders are ‘being more conservative’ to prevent repeat of 2008: Marcus & Millichap CEO

Real Estate

The U.S. housing shortage may be frustrating consumers, but the housing market is in a “very healthy state” compared with a decade ago, Marcus & Millichap CEO Hessam Nadji said Friday.

“The lack of speculation now being applied versus other expansions by the developers … not only is that not happening because of lenders being more conservative, but builders themselves have become smarter,” he said on “Power Lunch,” adding “they are preventing the lessons — if you will, the hard lessons — learned in 2008-2009 from happening again.”

Marcus & Millichap is a real estate investment services firm with offices in the United States and Canada.

There were about 1.66 million homes on the market at the end of November, which the National Association of Realtors says is the lowest on record for the month. Supply is down 5.7% from the year prior. When low supply meets high demand, prices surge. The median sales price for existing homes came in at $271,300 last month, which is also a record-high reading by the realtors association.

A contractor uses a hammer while working on townhouse under construction at the PulteGroup Metro housing development in Milpitas, California, Oct. 25, 2018.

David Paul Morris | Bloomberg | Getty Images

The shortage is more prevalent on the starter-home category, where the supply of homes under the $100,000 figure is down 15%. That pushes more millennials, first-time and other younger buyers into the rental market.

As mortgage rates fall, housing starts picked up more than projected in November with permits for future homebuilding reaching a 12½-year high. Yet higher labor and materials costs are pushing construction companies to focus more on higher-end homes, Nadji said.

He said it “doesn’t pencil out at the entry level, therefore most builders have to now build higher-end units in order to increase profitability. We’re seeing that both on the for sale and the apartment rental side.”

However, Nadji argued that the real estate industry could be considered the “turnaround story of the last half century.”

About a decade ago, the red-hot U.S. housing market collapsed under the weight of an over-leveraged banking system blanketed with subprime mortgages that were dressed as mortgage-backed securities and flipped on Wall Street. Subprime loans are offered to people with low income or credit issues who do not qualify for conventional loans.

Those mortgage-backed securities spiked in value and plunged after a large number of homeowners were unable to keep up with their payments and defaulted on their loans, which ushered in the financial crisis of 2008.

“Ten years ago, over-leveraged houses and overbuilt houses caused the global financial crisis. Today we have a shortage of inventory. Very cautious lenders caused that [low] inventory, to a large extent, and higher cost of development,” Nadji said.

“All of that is frustrating from a consumer perspective, but it’s actually very healthy from an investment and economic perspective for the U.S. as a whole,” he said.

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