Housing market: Flexibility has homebuyers looking 'beyond the suburbs', economist explains

Realtor.com Chief Economist Danielle Hale joins Yahoo Finance Live to explain how mortgage rates are affecting both homebuyers and sellers, along with how many are flocking to the suburbs.

Video transcript

DAVID BRIGGS: All right, we've got some more bad news on the state of the housing sector today. Single family starts tumbling more than 10% while a full 16-plus percent of homes that went under contract in July were canceled. That's the highest number ever on record, with the exception of the early days of the pandemic. Are we, as the National Association of Home Builders said, in a housing recession?

Danielle Hale is realtor.com's Chief Economist. Nice to see you. What did you make of that statement and all the data we've seen pouring in the last two days?

DANIELLE HALE: Well, it's clear that home builders are pulling back. They've been building at a frenzied pace. The housing market itself has been operating at a frenzied pace through most of the pandemic.

The fact that mortgage rates have moved significantly higher over the course of the year is being felt by home buyers, and now home sellers, including builders, are starting to feel it too. There's a rebalancing going on in the housing market, and that means a pullback from the heights of activity that we saw in the middle of the pandemic.

SEANA SMITH: Danielle, do you expect this pullback to continue? And I guess, how long until we see more of a correction in the housing market?

DANIELLE HALE: That's an interesting question. So builders right now have a record-- or very close to record high number of homes under construction, so there's a lot of pipeline that is still yet to come through the system. We're going to see plenty of supply then from new construction. We are also seeing, on the existing home side, the number of listings tick up. So home shoppers in today's market have lots of options.

That's taking away some of the sense of urgency that they felt over the past couple of years when the number of homes for sale was very scarce and they needed to act quickly. Couple that with the fact that we've got a bit of stability in mortgage rates over the past couple months as the bond market has been a bit more stable, and that means we're likely to see the housing market kind of move sideways as buyers and sellers figure out where they can meet in the middle over the next few months.

DAVID BRIGGS: It will be an interesting time to watch. All right, realtor.com is out with new data on the hottest ZIP codes in America right now, a fascinating top 10. Let's first talk about a region that really stands out here. It appears to be New England. Tell us about some of those markets and why you think New England has stood out.

DANIELLE HALE: Yeah. Well, in an environment where prices are going up, mortgage rates are going up, buyers are facing higher costs, they're really looking for affordability. And the fact that they've got more flexibility than they've had in the past means they can go beyond the suburbs all the way out into these smaller towns. And New England is really where they're finding those smaller towns where they can get good real estate bang for the buck but not be too far away from big cities like Boston and New York and even Washington, DC, in some cases. And in these markets, thanks to this influx of home shoppers, homes are selling quickly, and they're getting a lot of views from shoppers on realtor.com. So that's keeping those housing markets relatively competitive, even though, in a broad sense, we are seeing a housing pull down nationwide.

SEANA SMITH: Danielle, what about Worthington, Ohio, one of the cities that's obviously not in the Northeast, what do you think it is about that ZIP code that's attracting so much attention?

DANIELLE HALE: So Columbus metro area, which is where you'll find the Worthington ZIP code, is a very affordable region. You've got great quality of life there between the state capital and the Ohio State University, and that's attracting a lot of home shoppers. Because that area is more affordable as a whole and has good job opportunities, the Worthington ZIP code kind of bucks the trend a little bit. It's more expensive than its surrounding metro. But because Columbus is so affordable, buyers are still feeling like they can get a good deal in that Worthington area, and so that's propelling it to the top of the list.

DAVID BRIGGS: Though top on the list came in as a big surprise, at least to this guy, Brighton, New York, nowhere near New York City. What makes it stand out? And largely, when you look at this top 10, does this give you a pretty good indication that work from home is here to stay?

DANIELLE HALE: Yes, I think that people are taking advantage of work from home. So Brighton, New York, as you mentioned, is the number one ZIP code on the list. It's in the Rochester area. It's about 10 minutes or so from downtown. It is one of the most affordable ZIPs on the top 10 list.

So the median home price in that ZIP code is under $300,000, which is a great steal. It's not necessarily a commute distance from, say, New York City if you're going into the office every day of the week or even a couple of times a week. But if you're going in once a month, maybe a couple of times a quarter, that is a real great way to get some value for your real estate dollar by relocating to Brighton, where, as I mentioned, the median home price is under $300,000.

SEANA SMITH: I also have to shout out number six on the list, Bethlehem, Pennsylvania. It's home of my alma mater, Lehigh University. But Danielle, when you talk about the changing trends that we're seeing in the real estate landscape and the priorities that people are placing when they are now hunting for a home, is this something that you think is here to stay because we are seeing more and more companies demand that their workers return to the office?

DANIELLE HALE: Yeah, so I do think that flexibility is around to stay. Even though companies are wanting workers back in the office more frequently, the fact that it's become so expensive to find a home and to make ends meet in some of these biggest cities means workers are trying to find that flexibility where they can. And the jobs market remains competitive. So offering flexibility is a great, very low-cost way, in some cases maybe even there will be some cost savings for companies that offer this flexibility to give workers what they want and compete without necessarily having to increase the bottom line.

DAVID BRIGGS: Lots of surprises on this list, Johnson City, Tennessee, number seven. A lot of these places I feel like I must visit now. Danielle Hale, realtor.com Chief Economist, great to have you here. Thank you.