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Home prices rise as inventory remains tight

Craig Lazzara, S&P Dow Jones Indices Managing Director for Index Investment Strategy, joins Yahoo Finance Live to discuss the rise in U.S. home prices, migration throughout the U.S., and challenges in the housing market.

Video transcript

- Home prices are rising nationwide as inflation remains stubborn and mortgage rates remain high as Americans compete for fewer available homes. Home prices in March were up 4/10 of a percent compared to February. Now, that's the second month in a row that we have seen gains after 7 months of declines. Annually, prices rose 7/10 of a percent.

For more on this, we want to bring in Craig Lazzara, S&P Dow Jones Indices managing director for Index Investment Strategy. Craig, it's great to see you here. So 2 months in a row that we have seen the price of homes begin to rise once again. Is this the start of a new trend?

CRAIG LAZZARA: It's hard to say. 2 months certainly does not a trend make. But I have to say, it's very encouraging. We had a huge surge in house prices from the beginning of the pandemic until roughly June of 2022. Then as you mentioned, 6 or 7 months of declines. And now, we're beginning to see the first increases. It doesn't say things couldn't turn around and go the other way. But I think there are at least some hopeful signs that we may have hit a bottom.

- Yeah, Craig, it feels like so much of this is being driven by the lack of inventory really and a lot of homeowners who are still saying-- or home buyers in the market we're still staying the course, despite the higher rates. Where are you seeing the biggest growth right now?

CRAIG LAZZARA: Well, the biggest growth is really coming from the Southeast region of the country. And that's been true for the last 6 months or so. The leading-- we monitor 20 metro areas. The biggest increase in the last month was from Miami followed by Tampa followed by Charlotte. Atlanta is typically in the mix as well.

So very strong growth in the Southeast. Where it's weakest is in basically in the West or the Pacific and Mountain Time zones. Seattle and San Francisco on a 12-month basis are both down in double digits. So one of the most interesting things about following these markets has always been to see the regional differences. And that's certainly been very apparent in the last year or so.

- Craig, what do you think is driving-- what do you think is behind the differences? Because Miami was a little bit of a surprise to me, the fact that it's still up so significantly year over year. And this is a city that has seen a tremendous amount of price increase over the last 2 and 1/2 to 3 years.

CRAIG LAZZARA: Yeah, I think-- the only insight I can offer, but I think it's an important one, is if you look at any studies from any number of places on the extent of internal migration, it's not hard to find out that California is losing population for the first time in its history as far as I'm aware. New York is losing population, New Jersey.

Where is population growing? Florida, Texas, the other kind of warm weather, low-cost, low-tax states. So you have this big demographic surge moving toward the Southeast. And you know what? It's not surprising, given that that we see the regional patterns that we do.

I mean, if you would expect to see house prices be relatively strong in areas where there's internal migration, prices to be relatively weak where there's outmigration. And that's more or less what we're seeing.

- But, Craig, you talk about some of those markets that we saw strength pre-pandemic that have obviously moved to the downside. Looking at the numbers here in terms of price changes on a negative level, San Francisco, Seattle, when you talk about sort of these major markets that we saw before the pandemic, what is it going to take for those markets to see a turnaround?

CRAIG LAZZARA: Oh, my goodness, I think that California is looking-- has had to deal with-- is having to deal with an outward migration. You can attribute that to any number of things. I mean, you pick up any story about San Francisco. You'll see mentions of rampant homelessness, crime problems, lack of law enforcement, and so forth. It's expensive. We know that. Tax rates in California are very high. We know that.

All of those things together have helped in my view to produce the trend toward outward migration. Now, on the other side, the technology business, of course, is dominant in Silicon Valley. It's not surprising that California has held up as a very high housing prices, even though they've come down.

To me, it's-- part of what has to be, I think, figured out is, what is the future of remote work. Are people able to have jobs at Apple and Google and NVIDIA, now the big Silicon Valley companies, and have to be there? Or are they allowed to work remotely? Because clearly, one of the things that's driven a lot of the trends in the past several years has been the rise of remote work.

I have three colleagues normally in our New York office every day, who are in Texas and Florida now. Those are just the three I know about. So if that-- write that on a large scale, and it's a difficult environment for places like California to overcome.

- It's certainly extremely challenging for those types of cities. Craig, what about-- when we talk about the overall challenges, obviously, that are facing the housing sector right now, higher mortgage rates are obviously one of those headwinds. Also, just a slowing economy. What's your assessment of that and what that means more specifically for home prices here in the near future?

CRAIG LAZZARA: Well, the-- both of those things are clearly headwinds. Interest rates now-- mortgage rates are certainly dramatically higher than they were a couple of years ago. By historical standards, they're not so bad at all. But there certainly has been a trend for people, who, if you bought a house with a very low mortgage or refinance to a low rate over the period of extremely low rates, it's understandable that people would be reluctant to let go of that attractive rate.

So that's clearly a headwind as it becomes more expensive to own as rates go up. And then the other, I think, is the uncertainty level. What does the economy do? I mean, do we manage to come to a slowing of inflation without a full-fledged recession? I mean, obviously, if that's possible-- and I'm not certainly going to forecast that it is or it isn't.

But if that's what happens, you would expect that to be relatively benign for housing prices if we have either continuing high inflation and higher rates or a recession that successfully reduces inflation. Either of those things would be bad for from a housing standpoint. So it's not-- it wouldn't shock me if prices remain at least have some tailwind for the next several months.

- All right. Craig Lazzara, great to have you. Thanks so much for joining.