National Association of Home Builders CEO Jerry Howard joins Zack Guzman to break down the latest developments in the housing market, as mortgage rates fall to a historic low.

Video Transcript

ZACK GUZMAN: We talk about this recovery. There are a few sectors you can actually see a V-shaped recovery. Housing appears to be one of them. Right now, when we think about the builder confidence we're seeing there, and we got that update from the National Association of Home Builders and Wells Fargo Housing Market Index, showing that index jumping 14 points to 72 in July.

Remember, anything about 50 indicates positive territory. But it's all the way back to exactly the confidence index that we saw, the reading in that index back to what it was in March in the pre-pandemic economy. So what does it signal about what we're watching play out in housing? Here to join us on that is Jerry Howard, NAHB's CEO.

And Jerry, it's good to chat with you again. Obviously, that's strong in terms of that reading there. But we also got the other update there. Housing starts increasing 17.3% to an annual rate of 1.186 million units last month, quoting the Commerce Department. So what are these two readings really telling us about what's going on in the housing market and home builders, and what they're feeling right now?

JERRY HOWARD: Well, you know, we were starting off-- before the COVID recession, we were starting off to have an absolutely tremendous year, Zack. And I think what these numbers show is that the underlying demand that had been pent up for so long during the Great Recession is still there. And it's even being underscored by the demand now from people who've been cooped up and cramped into their apartments for three months and are now saying, hey, you know, the notion of a single family house with a backyard is something we really want to get into.

And we're seeing a huge uptick in people coming out into the suburbs from urban areas and even going out into the exurbs. What the numbers show is that we are now building, right now, exactly what we should be doing. We were about a million housing units short of coming into this year. And if we can build at this pace, we'll have the exact number of equilibrium that we want for the marketplace going forward. Very exciting news for us.

ZACK GUZMAN: Yeah, just to put that housing starts number into context here, that 17.3% jump, that was the largest increase we've seen since October of 2016, just to throw that out there. But Jerry, also when you talk about that surge in interest in, you know, home buyers looking to flock to the suburbs, that's something we've been wondering about in this pandemic because a lot of people are moving around, anecdotally, even people here talking about moving around.

But how do those catalysts really weigh out when we think about the economic questions and the consumer sentiment index reading we got this morning being a little bit weaker? Are there still some concerns that, as we're seeing cases pop up here, that this could turn back in the opposite direction in housing?

JERRY HOWARD: You know, I think, obviously, we're-- I think the most overused phrase of the last three months is uncharted waters. We're still in these uncharted waters. But the underlying demand for housing is there. Family formation is still high. And that will generate, we think, the appropriate amount of demand, barring another economic shutdown or barring some other geopolitical event that no one can foresee or control.

ZACK GUZMAN: Well, the one thing that does seem to be here for good, at least if you believe what we just heard from that fed discussion that we just had a couple minutes ago here-- I mean, mortgage rates right now are the lowest they've been, falling below 3% for the first time in history.

I mean, obviously, that's a big factor when we're thinking about people actually getting into homes. It doesn't seem like that's really going to change anytime soon. So how does that kind of also fuel what you're seeing play out?

JERRY HOWARD: It is an incredibly large factor in a person's decision to buy a house, particularly the first-time home buyers who struggle to save for the down payment. If they can have their monthly payments be lower, it's a major, major plus for housing. And from what we understand, we don't anticipate significant interest rate increases for the duration of this year and probably well into next year.

ZACK GUZMAN: That's kind of the guidance we've gotten to in terms of what we've been watching play out. But also, last time we talked, there was an interesting kind of dichotomy in terms of the regions that we're seeing housing strength. And that was closely, I guess, kind of tied to what we're seeing with the economy shutting down, obviously, California announcing that they're going to be closing down restaurants and bars, things moving in the opposite direction there. But when you look at it regionally, what is it looking like in terms of strength that we've seen happen?

JERRY HOWARD: Well, it's not a shock to us that the more pro-growth regions are showing the stronger and faster recovery in housing. And by pro growth, I mean the regions that have the lowest amount of regulatory burden on housing. What we generally can say is that regulations account for about 25% of the cost of new construction of a house nationwide.

However, in places like California, it's closer to 40-50%. In fact, in San Diego County, it's closer to 60% of the cost of a house is regulatory compliance. So what that means is the housing is much less affordable there.

And so it's a more-- a much heavier lift to get them back in tune with the marketplace. And we're seeing that play out all over the country. The South, the Rocky Mountain states are growing faster in terms of the housing recovery, the Pacific coast and the Northeast going slower.

ZACK GUZMAN: On that last point there, just to wrap up, that was something that you talked about last time in terms of the OSHA requirements here, masks, obviously, playing a much larger role in terms of our handling of this pandemic. And you had mentioned, the last time we chatted back, I guess, back in March, when it was a problem to really have the masks, when there was questions about N95s and what people would need to protect themselves, have you seen that kind of not become a larger issue here in holding you guys back in building?

JERRY HOWARD: No, the personal protective equipment has not been an issue for us at all. We're really proud of the way-- well, most-- I think we talked about this in March. 44 of the 50 states considered residential construction to be an essential industry. So our builders around the country have been complying with really, really strict safety guidelines that have either been put in place by their local governments or that we've advised them to. And we're really proud of the way they've reacted. And right now, there's not an issue.

ZACK GUZMAN: All right, well, a lot of reasons to believe the optimism we're seeing on the housing front, at least for the time being. Jerry Howard, NAHB CEO, I appreciate you taking the time to chat.

JERRY HOWARD: Thanks for having me. Good being back.