00:00 Speaker A

Well, the housing market does remain challenge. Home building activity sank in May with residential housing starts declining 15%. The latest home builder confidence survey showed that affordability continues to pressure the industry. Some states are doing a bit better than others. Realtor.com released its latest report grading each state. Joining me now on the Scott Danielle Hale, realtor.com’s chief economist. Danielle, always good to see you. Let’s start, Danielle, actually on your your methodology for this report because it looked to me like you’re grading on affordability, but also you’re looking at whether states are are building enough enough homes for the future. So just walk us through that.

00:54 Speaker B

Yeah, thanks for having me. So the idea on this report is to give states a grade on how well they’re doing at providing housing for their residents. And the reason current affordability matters is because it’s a measure of how likely people are to be able to get into the market right now. And then home building is important because as you were just talking with Claire about, we need to build more homes. We estimate that nationwide we’re in short supply uh to the tune of about 4 million homes. We’re building roughly a million homes a year. So it’s a several year problem that we need to contend with. So in order to um make sure that states that are affordable now continue to be so in the future, we need to continue to build homes. And so that’s why housing construction is the other component of that index. We look at current affordability, construction and what that says about future affordability, then we rank all 50 states based on those findings.

02:00 Speaker A

All right, let’s talk about the winners. Why is Indiana the new number one state, Danielle?

02:11 Speaker B

So Indiana is your very well-rounded student. It is affordable right now. It’s also doing a decent job of um building for the future. So it’s kind of ticking all the boxes there and that has propelled it to the top of the list. It um has a median home price below the the US median. It’s actually just below $300,000. And people aren’t um having to put that much of their income towards buying a house. The income share to buy the home, the typical home in the state is 28% and that’s well below the 30% threshold that’s typically associated with affordability. So, Indiana is a well-rounded performer earning at the top grade in this report card.

02:49 Speaker A

It also looks here, Danielle like, okay, so Iowa, I see South Carolina, Texas, North Carolina, they all round out looks like the top five there. What what are those states all doing right in your opinion?

03:07 Speaker B

So in all of those states there is a significant amount of current affordability for the most part, especially in the Midwest. And then when we think about building, Midwest is doing okay, the Carolinas and Texas are really doing a great job of building for affordability. So that’s why we’re seeing those states score really well. Um, you need to have both, but obviously if you outperform on building, uh that can help boost your your score. Um, same with affordability, current affordability, but the best performers are are really exemplifying both trends. Homes are currently affordable and they’re building, not just building high-end homes I should point out. They’re building homes that are affordable to the median uh household or median family.

03:54 Speaker A

All right, so those are the winners, Danielle. Those are the winners. Let’s talk about some states not doing so great. New York finishes dead last. How come and what has to move, what has to change Danielle for for New York to move higher up on that list?

04:14 Speaker B

Yeah, once again, New York was at the bottom of the class. Uh homes in New York are very expensive. Um affordability there, you know, it costs more than 50% of your income in order to buy the typical home for sale and it’s really just not building, especially when you look at its size of the population relative to the US, it’s building less than half of uh the number of homes you would need relative to its population share. So things aren’t affordable in New York. They don’t look like they’re building, so we don’t have high hopes that they are going to become more affordable. and unfortunately, that puts it at the bottom of our class ranking.

04:47 Speaker A

Yeah, I’ll tell you who else doesn’t look so good here. Uh, California, Massachusetts, and Hawaii, they all get F grades. What keeps those states from improving?

05:00 Speaker B

Very similar things. so uh a lack of affordability and not not a great track worker when it comes to recent home building trends. California is interesting because the state uh has obviously passed some legislation to try to make it easier to build to try to reduce some of the regulatory burden at the state and local level. Um we just haven’t seen it play out yet in the data. So California is an interesting one to watch. still at the bottom of the class for now, but hopefully we’ll see it move up in the years to come.

05:39 Speaker A

Yeah, my home state, not looking so good. Uh another trend you point out here in this report, newly built homes in some states, uh Danielle, they’re actually cheaper than existing homes. That’s interesting. How do you explain that?

05:54 Speaker B

Yeah, that’s true. Some of that has to do with where those homes are being built. so they tend to be built on the outskirts of uh metro areas where land is a little bit more affordable. um whereas close to the metro, you can still see a premium. And builders are um have been aware that entry level buyers really struggle to get into the housing market and they’ve been trying to address that. They’re scaling down their footprints a bit, trying to think about how they can reduce the prices of those homes that they’re selling. uh and what we’re seeing is that in some parts of the country, particularly in the south, they’re having success. And so, um new construction homes can in fact, uh cost less than a typical home in some states. It’s not happening everywhere. And in fact, if you look regionally, in the northeast and the Midwest, uh newly built homes are much, much more expensive than existing homes, but in the south, it’s possible to find one for less than the typical home.

06:48 Speaker A

Finally, uh Danielle, just some news in your world. It does sound like leaders in the house and Senate have announced a deal on this housing bill. Bloomberg is calling it the largest housing legislation in a generation. One step closer here to becoming a law. I’m just curious, you know, your take on that Danielle and what kind of impact you think that could have on affordability.

07:14 Speaker B

Yes, we’ve been talking for a long time about the lack of housing supply in the US. Uh, this landmark legislation aims to make it easier for builders to build and to incentivize communities to invest in expanding housing supply and adopting policies that are conducive to creating more housing supply. So, I’m very excited to hear that there’s progress that we’re going to get close to getting this across the finish line. I think it’s going to be good news for housing supply across the US.

07:44 Speaker A

Danielle, always great to see you. Thank you.