A Conversation with Pete Carroll, Shawn Telford, John Rogers, Howard Botts and Frank Nothaft
We are wrapping up the season by bringing back five of our favorite guests from the year to get their take on 2021 and their outlook for the new year ahead.
Maiclaire Bolton Smith:
Welcome back to Core Conversations, a CoreLogic Podcast. I am your host, Maiclaire Bolton Smith and I’m the Senior Leader of Research and Content Strategy with CoreLogic. In this podcast, we’ll have conversations with industry experts about key topics from housing affordability to the impacts of natural disasters on property.
After the massive disruption of 2020, everyone started 2021 with great hope and excitement for things to return to normal. At the beginning of the year, vaccines were on the horizon, the economy appeared to be turning around and everyone was filled with optimism that life, as we once knew, it would be back. Yet, 2021 has come and gone and made its own mark while yes, the economy did bounce back, home equity skyrocketed and the increase of popularity of work from home led to even more demand for unconventional metros. There was still great disruption.
Construction material shot up impacting housing costs and response to natural disaster. The Delta variant of COVID-19 led to a resurgence of the increased restrictions, sending much of the optimism into a downward spiral. And the growing impact of climate change was reflected in damaging hurricanes, floods and wildfires. So for our episode today, we’re bringing back some of our favorite guests from the year to get there to on 2021 and their outlook for the year ahead. First up, we have Pete Carroll, Executive of Public Policy and Industry Relations who’s previously joined us three times on this podcast. Pete, welcome back to Core Conversations.
Pete Carroll:
Thank you MaiClaire. I’m delighted to be here today.
MBS:
So Pete, when you joined us earlier this year you talked about the end of forbearance in the affordable housing crisis. Looking back on 2021 now, what’s your biggest reflection on the past year and what’s your outlook for 2022?
PC:
I appreciate the question. I mean, certainly when I reflect on 2021, I think, one of the biggest headlines for me is just how well the mortgage markets and homeowners fared, particularly homeowners were facing hardship as a result of COVID-19. Not only did industry marshal a response that helped keep people in their homes and seems to be continuing to keep people in their homes but it’s actually been a bright spot in our economy.
And I think that’s a testament to the policies that have been put in place over the last decade, which have created the preconditions for a stable, strong, vibrant housing market that has been important contributor to our economy just by way of numbers. In the bit 2000s, we had six million homeowners and forbearance for their mortgage payments due to hardship from COVID-19. That’s down to about a million homes now.
That’s still a lot but I think that really is a reflection of the very effective policy response, a Bipartisan Policy response that included the CARES Act and the ability for homeowners facing COVID-19 hardship to forbear their mortgage payments. And then response of the federally backed mortgage lending programs, Fannie Mae and Freddie Mac, FHA, VA rural housing and Ginnie Mae who all came together to come up with a COVID-19 natural disaster loss mitigation program.
They created innovative new loss mitigation options so that when homeowners or borrowers were exiting their forbearance programs, they had options of really positioned them for success and being able to pick back up where they left off and continue making their payments once they’ve been reemployed and were in a position to continue on with their lives and the wake of this unprecedented pandemic.
So that to me is a huge headline. We still have more to go. There’s still a million homeowners in forbearance and we can’t rest on our laurels. There’s still more work to do to make sure that these homeowners have the options they need and the support they need and the counseling they need to be able to position them for success to the maximum extent possible to retain their homes. And I’m hopeful we’ll do that.
There’s been a lot of support, marshalled economic support, marshalled from this pandemic. And I’m bullish on the ability to do that. And again, the housing market has been just such a bright spot. I mean, we’ve seen such house price appreciation, particularly this year and last year. And I think we expect some of that house price growth to moderate but still be very, very healthy. And that’s continues to put a strain on affordability.
So I think, another trend we saw in 2021 over reflection on 2021, is that we still face this massive supply gap in our housing system. Where we just have a massive under supply of housing in particular single family entry level housing, which is the housing that’s most need us. The housing staff most needed for first time home buyers and low to moderate income. Perspective home buyers who are disproportionately people of color.
And this as we pivot into reflections for, or forecast for what’s in store for 2022, I think it’s already becoming clear the emphasis for much of this year and well into next, if not all of next is going to be, how do we position our housing system to promote greater equity and home ownership so that all races and ethnicities have the opportunity to share the benefits of home ownership which continues to demonstrate it’s one of the best ways for families to develop assets that accrue in value and provide real wealth generation capabilities that they can span generations of families.
So this is a very important topic and it really comes down to, as I mentioned before, this need for new single family entry level stock. This is really, I think a very heavy emphasis for 2022 is, how do we make sure that cities, counties, home builders, construction investors, mortgage lenders. How do we make sure they have the tools they need to figure out what kind of housing to build and where to build it.
That’ll be a combination of policy responses, get down to the local level including zoning and land use regulations. But it’s also, I think a demonstrative of the need for good data analytics and models that can help really figure out and optimize what type of housing to build and where to build it and maximize the chances that we can get this new single family entry level stock into the system, which is very important. And what goes hand in hand with that is, it’s one thing to put new stock into the system but if you’re doing it for home ownership, you need to make sure you have the right products in place, responsibly underwritten but affordable mortgage lending products, that low to moderate income perspective homeowners can afford and have the ability to repay.
And this gets to issues in appraisal gaps, when you’re trying to add new stock into communities that don’t haven’t traditionally had that investment of new single family entry level stock. You have this catch 22 or chicken and egg where you’ve got to get, you have to have the market comparable properties to be able to appraise the properties that are being built. So there’s some very innovative appraisal gap programs in place that are designed to help catalyze and stimulate the development of market comparables, so that we can try to get appraised values in line with the actual market value of these homes, because there is tremendous demand for this type of housing.
And then certainly we’re seeing the need for other innovative programs such as rehabilitation products that make it easier for low to moderate income perspective homeowner to find a home that perhaps needs some work, take out a mortgage where they can rehabilitate that home and live in it afterwards and have the mortgage payments. They need affordable mortgage payments, they need to stay in that home.
And then finally, I’d say we need more incentives for home builders to produce more of this housing. We did a whole array of subsidies spending the entire housing system of all income levels but at least with respect to this issue of single family entry level stock, it really is about, how do we, very important contributor to solving this problem, is making sure that we are providing the incentives to home builders to actually build the stock.
And there’s some very innovative tax credit proposals in Congress that are being considered as part of the budget reconciliation process that’s going on right now. Discussions for budget reconciliation that would create tax credits much as we have done with the low income housing tax credit for rental that could be applied for the home ownership side.
And this would be really be designed to give the investor in a single family entry level development, the incentive to want to invest because it covers much of their risk where if their cost of construction all in exceeds the market value of what they’re able to sell the homes for, they can have a tax credit that will cover that difference if it ends up costing them more than then the price they’re able to obtain in the market.
And again, that’s another good, very, very powerful mechanism to try to stimulate new supply in the system, which we very badly need. So these are the themes that I think are most top of mind for me and CoreLogic is very eager to engage with all of our insights and data and analytical knowledge to try to contribute to solve his problems.
MBS:
Thanks, Pete. And that’s a great segue to talk about appraisals. So with that, I want to welcome back Shawn Telford. CoreLogic’s Chief Appraiser. Shawn, it’s great to chat with you again on the podcast.
Shawn Telford:
Great to be back MaiClaire, thanks for having me.
MBS:
So Shawn, when you joined us at the beginning of the year, we talked about how the pandemic had really shaken things up in the world of appraisals and really forced the move to a digital world. So looking back on 2021, what’s your biggest reflection on 2021 and any outlooks for the year ahead?
ST:
Yeah. Wow. I mean, it’s been a really interesting year for appraisal that’s for sure. Probably my biggest thought about 2021 is, more events happened in 2021 that will shape the future of appraisal than probably anything else that I can remember in my career. This pandemic really drove the demand for digitally and automated based valuation products and services. And most importantly, it’s served as a catalyst to open doors for testing and learning on some of these new tools.
So for example, when the pandemic was at its peak, we couldn’t go out and inspect properties in many cases. And certainly couldn’t go in people’s homes. We just didn’t know what was going on but yet the rates were great and people wanted to refinance. And so we had to pivot and the GSE, which stands for government-sponsored enterprise, which really, when we say that term we mean Fannie Mae and Freddie Mac. Then the GSEs pivoted and allowed desktop appraisals and exterior appraisals and other flexibility that allowed data collection by the homeowner.
Things that weren’t normally allowed, all these things were able to come to fruition and that allowed us to test and learn on what really worked. And ultimately what we saw was appraising can continue just fine based on data and information that’s in the public record and data that was collected from homeowners. And because of that, it’s opened the doors for the GSEs, FHFA is allowing Fannie and Freddy to now make desktop appraisals a permanent part of how they operate. So FHFA is the Federal Housing Finance Agency. So we’ll see that in 2022.
Now they are going to require a sketch, which is going to be interesting for a prey and others to fulfill. But the bottom line is it opened up a lot of really cool new doors and you combine all that, the pandemic related issues with the volume that we saw, just tremendous pressures on appraisers to keep up with the demand and that fed waivers from the GSEs, appraisal waivers and those are based on automated technology and data that’s collected.
And so we saw a lot of waivers being utilized because of the rate and term refinancing that was happening, but also it continued to drive the opportunities for the GSEs to prove out that other types of appraisals can be important and can be accepted in the mix of appraisals. And that appraisers continue to play a very important role in risk management for lenders and it’s just been really interesting and one last thought on what we’ll see in 2022, the volume demands on appraisers also affected how we think about how appraisers become appraisers. And will continue to, I think or have already, and will continue to drive changes in how appraisers become appraisers, because we need a more elastic supply of appraisers rather than the current flat, immu-elastic supply that we have. So, I could go on for another half an hour about all the really cool things but it’s been a really interesting year.
MBS:
Thanks Shawn. And now we’re going to shift to talk about innovation. So next up, we’re going to hear from CoreLogic’s Chief Innovation Officer, John Rogers. John, welcome back to Core Conversations.
John Rogers:
It’s fantastic to be here. Thank you.
MBS:
John, last time we chatted you spoke about how innovation plays a role in the property marketplace. Can you reflect on the types of innovation that we saw in 2021, anything new and exciting and how it might affect 2022?
JR:
Definitely. So obviously, the one that comes first in mind affected all of us was obviously working remotely and that changed a lot of, fast forwarded a lot of technologies into our lives, where we all work remotely from our houses. And then as I think about the property landscape, what’s definitely moved forward a lot in 21 and further it will happen further in 22 is obviously the health of the home, the internet of things. So all those little senses and devices, everything from security, lighting devices. So as IoT devices become more pertinent in our world and how we can extract value and insights to really help the homeowner in looking after their home, you can see it rapidly taking presence across the globe and in the United States.
The other area is okay, it’s taken hold in 2021 but it will further scale out in 22 is really the rise of data exchanges. So at [inaudible 00:16:32] obviously with being a data and analytics company, we’re really at the forefront of enabling our clients really to find new insights on their book of business, whether it’s an insight for new leads, competitor analysis, price optimization models, propensity scores to predict events in the future, how do we simplify that process for their data scientists to get access to the data, the tools, the relevant insights, the relevant models, really to drive their business. So a lot to come in 22.
MBS:
Thanks John. And now moving from innovation to natural hazards. I’m thrilled to welcome back Dr. Howard Botts, Chief Scientist at CoreLogic. Howard, so happy to have you on the podcast again.
Howard Botts:
Oh, thank you. MaiClaire. It’s a pleasure to be invited back.
MBS:
So Howard, when you joined us this summer, we talked about climate change and how it affects our homes and properties. If you look back at 2021, what’s your biggest takeaway on the year? And I know we can’t predict natural hazards but from a climate change perspective, is there anything we can say about what we can expect in 2022?
HB:
Yeah. What a wonderful question MaiClaire, thank you. Looking back over 2021, we had once again, another record year of billion dollar climate events in the United States. This year, we had 18 so far, which is well above the historic average. As we expected, this has been a very active Atlantic hurricane season. We’ve had 20 named storms. Overall hurricane Ida was the costliest disaster this year, exceeding $60 billion in losses and counting and Ida devastated, not only the coastal areas of Louisiana where it made landfall, but Ida like hurricane Harvey and most other recent hurricanes, we’ve seen more losses from flooding than wind damage. And Ida losses extended really not only through coastal Louisiana but all the way up through the Mississippi River Valley and eventually to New York, Pennsylvania, other places on the east coast, which experienced significant floods.
A drown in the west has continued to cause problems. We’ve recorded record wildfire events primarily in California, in the Western US with over six million acres consumed so far by wildfires this year. We also in 2021 was interesting in terms of temperature extremes. We saw this winter record cold temperatures in Texas, where electrical generation and distribution systems failed. And we saw major residential property loss. While the summer, the Western US had record high of temperatures with significant heat waves causing loss of life, economic damage, particularly in the Northwest Washington, Oregon in particular.
California officials believe this trend is going to continue and they’re now currently developing a heat risk scale analogous to the Richter scale of earthquakes or the Saffir-Simpson Hurricane Scale. So they’re here to stay and they’re about to be named. So it tells you something about the future. Climate change is continuing to drive increased flood losses, particularly flash flooding from intense rainfall events.
We saw a major loss of life and property in Tennessee, Pennsylvania, New Jersey and New York this year. And we expect that to continue into the future. I think the other big takeaway for 2021 is the growing awareness on the part of US regulatory agencies on the need to understand the impacts on the US economy of climate change, particularly in the need for disclosure rules and planning for resiliency.
CoreLogic continues to be an active participant in these discussions and we think that it’ll result in major impacts in 2022, as banks, mortgage companies, others are looking at disclosing climate risk as part of how they do business. For 2022, my crystal ball tells me if we stay in the current, the Longen pattern, we’re likely to see drought in the Western US persisting along with continued wildfire risk, as we’ve seen in 2021. And I think a very active 2022 hurricane season like we’ve seen the previous two years along with continued flood losses.
I guess if I had to say one positive thing about 2022, we think that mitigation and resiliency efforts, in part funded by the recently passed infrastructure act, will hopefully start to offset some of these hazard losses that we’re seeing particularly related to flood and wildfire. And so that MaiClaire is my 2021 summary and my look forward to 2022.
MBS:
Thank you so much, Howard. And finally, we can’t end the season without speaking to our own celebrity, Dr. Frank Nothaft, Chief Economist here CoreLogic. Frank, welcome back to Core Conversations.
Frank Nothaft:
Well, hi Maiclaire, thanks so much for having me today.
MBS:
So Frank looking at the housing economy, what’s your biggest reflection from 2021. If you had to speculate on 2022, anything you could share for an outlook?
FN:
I tell you MaiClaire, 2021 was an extraordinary year for the housing market. When I look back on it, what did we have? We had record low mortgage interest rates. We had the fastest annual growth in single family home prices and rents ever. And we had foreclosure rates at a generational low. And on top of all that, we had the largest number of home sales in 15 years. And if you were a home seller this past year, you saw a market where, there your home was selling quickly, often above the list price and you had multiple buyers competing to get that winning bid. So it was truly an extraordinary housing market.
When I look into the new year, into 2022, what we see is the following. We do expect some upward pressure on mortgage interest rates. As you know, the Federal Reserve has announced that it’s planning to taper or gradually scale back a lot of the monetary policy that it’s put in place, that’s kept long term interest rates so, so low over the last couple of years. So as the fed continues with its tapering exercise, I think that we’ll add to some upward pressure on interest rates.
Not a whole lot, but we do see mortgage rates on average being about one half of a percentage point higher in 2022 than they were on average during this past year. So a little bit higher but still remain at historically low levels. The other thing we expect to see is that, we’ll probably have a little bit more for sale inventory come onto the market for sale. And with that, that should help to moderate some of this really torrid home price growth that we’ve seen over the past year. So in the CoreLogic home price index forecast, we are expecting home price growth, which average about 15% over the course of 2021.
We expect that to moderate to about 5% growth in home prices on average in the CoreLogic national index. We also expect rent growth to moderate as well. We’re seeing double digit, single family rent growth in the latest data here at CoreLogic. And we do think that that’s going to moderate in the coming year as there’s additional rental homes that come onto the marketplace.
Finally, in terms of delinquency and foreclosure rates, gosh, delinquency rates have been very low because of the growth and jobs and income over the past year. Foreclosure rates have been at a generational low, but that’s partly because there have been foreclosure moratoria in place and because we’ve had the cares act forbearance program in place. Now, many homeowners have come to the end of that forbearance period, are coming out of it. And we may see a little bit of an uptick in foreclosure rates in 2022.
Just an uptick though, from an extraordinarily low level, we’re not expecting to see a big increase but undoubtedly, there are still some families who are experiencing some financial challenges as a result of the COVID pandemic. And sadly for some of them, it’ll probably result in a distressed sale in the market over the course of the coming year here.
So overall I do think that 2022 will be another strong year for housing. All be it a little bit higher mortgage rates and we do think home sales will continue to rise and actually reach a 16 year high in 2022. And we expect delinquency rates overall on home mortgages to actually continue to remain quite, quite low.
MBS:
All right, thanks so much Frank. And thanks again to Pete, John, Shawn and Howard for joining me today for this year in review and look towards the future. That’s a wrap for season one. We’ll be back in the new year with a new season of Core Conversations, at CoreLogic Podcast. Until then for more information on the property market and the housing economy, please visit us at corelogic.com/intelligence.
