US housing policy: Oil, interest rates, and investors

Transcript:

Molly Boesel: 

The office of the chief economist has done some research that says large investors have substantial advantages: they can pay all cash, they can wave contingencies, they have deep pockets. The sellers to these large investors accept an average of a 9% discount on all offers. Ok? So, if we would limit large investors, even if it's a small impact, it would level the playing field a little bit more for owner occupants.

Maiclaire Bolton Smith:

Welcome to Beyond the Buildings by Cotality. I am your host, Maiclaire Bolton Smith, and I'm just as curious as you are about everything that happens in the property industry. On this podcast, we satisfy our collective curiosity, explore questions from every angle, and look beyond the obvious. With every conversation, we illuminate what is possible. The U.S. housing market is closely tied to decisions in Washington, and there's been a lot going on in the federal government that's influencing the country's largest asset class. The Federal Reserve decided a few weeks ago to hold interest rates steady, which is keeping 30-year mortgage rates anchored at nearly 6.5%, even as inflation forecasts tick upwards. Oil prices are surging and experts are looking at downstream effects on manufacturing and construction materials. Executive orders are curbing institutional buyers and efforts by the legislature to introduce more housing are shifting the foundation of the property market. So, to look more closely at these shifts and help us unpack how policy is influencing the housing market this year, we have senior principal economist Molly Boesel and principal of public policy and industry relations Chay Halbert back on the show today. Molly, Chay, welcome back to Beyond the Buildings.

Molly Boesel:

Thanks. It's great to be here.

Chay Halbert:

Yeah. Hey, good to see you again.

Allie Barefoot:
Before we get too far into this episode, here's a friendly reminder about how to see what's coming next in the property market. To make it easy, we curate the latest insight and analysis for you online. Find us using the handle @Cotality on all of our social media channels. But now, let's get back to the show.

Maiclaire Bolton Smith:

All right. Well, I'm excited about this because you've both been here multiple times, but never together. So let's just dive right in — oil prices. So this is on everyone's mind. They've skyrocketed in recent weeks. I know all of us are feeling this pain as we go and get gas for our cars, but while ... I mean, it's impacting morning commutes and making things more expensive. On a bigger picture, it's really influencing the cost of building materials and eventually ultimately housing costs too. So I know we track housing costs really closely here at Cotality. So what are these numbers saying and what do they mean for housing affordability, Molly?

Molly Boesel:

Yeah. So when you look at how oil prices affect construction materials, you can really look at it from like a short term, medium term and long term impact. So think short term are those construction materials that are made of petroleum, right? You've got examples like asphalt shingles, liquid asphalt cement that they use for paving, PVC piping, insulation and paint, obviously. So when oil prices increase, the baseline cost of producing those materials increase and that leaves manufacturers with a little choice, but to raise prices. So that's the short term. We've got medium term. Those are construction materials that just take a lot of energy to produce. Okay. So think cement, concrete, steel, aluminum, glass, brick, drywall. Houses are made of all these things, right? And then finally, when you think about materials that may be cheap to produce, that don't require any petroleum products, they need to be transported. So then you have these kind of longer term impacts of oil price increases.

Maiclaire Bolton Smith:

Okay. So much more than just the cost of gas that we're paying when we go to fuel up our cars. Okay, we have to touch on interest rates, and this really never seems to go out of fashion. So Molly, starting with you, let's just talk about what's been happening with interest rates and why everyone is really, like, paying such close attention to it.

Molly Boesel:

We've done some research in the Office of the Chief Economist at Cotality, and it shows… so if we think back to early 2025, really, we had interest rates starting the year at about 7%, and they fell throughout the year. Kind of if you were to graph that, you'd just see a steady decline throughout the year, ending around 6.2%.Briefly this year, they fell to just under 6%, and, you know, that caused quite a bit of excitement. We haven't seen that number in a while. But unfortunately, with the increases in oil prices we just talked about, and what impacts that's having on the economy, interest rates are headed back up. So, you know, that has a lot of impact on refinancing, housing affordability, and mortgage originations as well.

Maiclaire Bolton Smith:

Yeah. Chay, what about from the perspective of Washington? What are you seeing about interest rates and, you know, maybe what we're expecting for the rest of the year?

Chay Halbert:

Well, I mean, you know, the President has talked quite a bit about wanting those rates to come down, and, you know, it's gotten even a bit acrimonious between him and Jerome Powell, who's the head of the Fed. And Powell's term is up pretty soon—now that's at the head of the table, but, you know, he can actually remain on the board through 2028. But so the signal has been very clear from the President that he's going to nominate Kevin Warsh, whois also on the Federal Reserve, and Republicans in Congress have been very clear that they would, you know, they would approve that nomination. But there are other issues with ongoing investigations at the Federal Reserve that Powell is implicated in, and, you know, there's a lot of complication around that and there's a lot of desire to get that all cleared up, you know, amongst Congressional Republicans before they move on to the next head of the Federal Reserve. And so in terms of who's going to be, you know, not totally in charge but certainly guiding interest rates and having a lot of input in that, there's some clarity, but there's also some unclarity because it's not clear exactly when a lot of the kind of things that are outside of the Federal Reserve are going to get cleared up.

Maiclaire Bolton Smith:

‍
So a lot to be seen for the remainder of the year as we see how this all unfolds. Let's talk about institutional investors. So at the beginning of the year, the President issued an executive order to really curb the large institutional buyers from buying single-family homes. And that was, you know, a simple order; it came with a simple promise that said they wanted to keep homebuying within the reach of American families. The policy has a very well-plain intent, but the reality of the market is a little bit more complicated. So Chay, can you just talk us through what this actually happened?

Chay Halbert:

Yeah, I mean, you can see some of the realities of this kind of thing in the executive order itself. So what it does is that it instructs the Treasury to come up with a definition for large institutional investor, so there isn't one now, and also a definition for single-family home, even as simple as that may seem. You know, it also instructs different housing agencies, regulators, to issue guidance. So guidance is not at the level of a rule, but, you know, it's what it sounds like—it's guidance on tamping down or not assisting institutional investing and also assisting or helping, you know, people, so to speak, to buy single-family homes. It instructs the DOJ (Department of Justice) to look into large-scale purchases just to make sure that there's, you know, nothing bad happening or illegal happening there. And it also crucially does have a carve-out for build-to-rent communities.

So that's really the extent of what the EO does, and, you know, to be frank, it doesn't do too much. You know, it'll be interesting to see what this large institutional investor definition is, because at the end of the day, it's going to be a number. And, you know, whether it's 100, 1,000, 10,000, you can kind of pretty quickly understand some of the difficulties there. You know, let's say it's at 1,000. Well, someone's got 1,001 and they are, and someone's got 999 and they aren't. You know, so, and you can see it's like, well, is there really that much difference between an organization that has 999 doors and one that has 1,000? And, you know, it also immediately raises questions around gaming around that, you know? Again, it just—it's really difficult to kind of work out the details on these kind of things, you know, even something as simple as just defining what an institutional investor is.

Maiclaire Bolton Smith:

Yeah, definitely is very subjective. Molly, from your perspective, is this going to help?

Molly Boesel:

Well, that's a very interesting question, Maiclaire, because as we're trying to figure out or the administration's trying to figure out where to draw that line on what's an institutional investor and what isn't, you know, at Cotality, we track how much is being bought by investors and how large those investors are. So the reality is that most investors aren't large or institutional investors; the majority are small investors, what a lot of people call mom-and-pop investors. They own fewer than 10 properties. So they're pretty small. So I don't think—well, I don't know—but, you know, that's probably not going to be the definition of institutional or large. And the medium-sized investors also own a lot of the next-in-line for the buying investment properties. So when you look at those that own 100 or more, that's a pretty small share of investors. But, you know, there's no magic bullet here for any of the solutions to the housing crisis. And even if the impact is small, it could have an impact. The Office of the Chief Economist has done some research that says large investors have substantial advantages. They can pay all cash, they can waive contingencies, they have deep pockets. The sellers to these large investors accept an average of a 9% discount on cash offers. So if we would limit even large investors, even if it's a small impact, it would level the playing field a little bit more for owner-occupants.

Maiclaire Bolton Smith:

Sure, yeah, it’s such an interesting topic because I know previously we've done a podcast with Tom Malone on institutional investors and many of us just think of investors as, you know, having a few properties, and it's mind-blowing to think that some of them actually have hundreds and thousands and thousands of properties. And that's really what we're trying to talk about here. Moving on to the road to housing. So one of the major bills that passed recently, just last month, was this Road to Housing bill. So Chay, I want to talk about what's happening on the floor at the legislature right now. So from what I understand, it was really a piece of legislature that was far-reaching and included things like incentives for repair, increasing opportunity zones, solutions to unlock the housing supply. Why was this such an important bill, and what does it actually mean now that it's passed?

Chay Halbert:
Well, you know, the name is getting longer, so now it's called the 21st Century Road to Housing Act. So that passed the Senate last month by a wide margin; I believe it was almost 90 to 10 or something right close to that. You know, it combines a lot of ideas that were also in a similar House bill, but, you know, to be clear, the bills are definitely not the same. They do definitely have the same intent—to try to take a kitchen-sink approach, and it's a lot of kind of small-ish things, a lot of small-ish steps, but there's a lot of them in both bills. And it's certainly a positive development. It's certainly good to see that there's a lot of very strong bipartisan agreement that something has to be done to increase supply, to address affordability. And, you know, all the details of these bills, you know, you could look them up pretty easily and you can kind of see how, you know, not any one of them is really going to boil the ocean.

But again, in concert together, you know, it's certainly going to help here and there. And again, just the fact that Congress is looking at this and taking some kind of action, you know, it's a very good thing. I will say that for as much agreement as there is that something needs to be done and as much activity has happened over the last few months—and, you know, forCongress to pass a couple of bills through each chamber on the same subject in a few months is, congressionally speaking, it's light speed. And so that's good, and that urgency is good. But for as much as has been done, you know, there's a lot of acrimony around one of the big issues like we just talked about is institutional investors. The President is obviously very concerned about that, and that's in the 21st Century Road to Housing, which just passed the Senate. But that definition is 350 homes, and it does have an exemption for build-to-rent, but that exemption in and of itself only lasts for seven years.And so industry has been very clear that that's essentially a no-go and just will not work and will probably have the opposite effect of having more homes being built, even if they are for rental. And it's also been very clear that in the House, you know, that's more or less a no-go.

You know, even when 21st Century Road to Housing was passing on the Senate floor, there were members of both parties who were raising concerns about the institutional investor piece. So even as there's a lot of agreement that this is stuff that needs to get addressed and they're all seemingly kind of pulling in the same direction, they are starting to fray a little bit. And it'll be interesting to see what happens next. So the Senate bill will go to the House. They could pass it, although they've been very clear on the House side that they're not going to do that; they're not going to just pass what the Senate passed. And so they can either do the Schoolhouse Rock thing and they can go to conference and they can iron out those differences and they can negotiate and push and pull and try to come up with a product that, you know, both chambers agree on to then get to the President's desk. I think that's a little bit of a lower probability on that. The House could just make its own changes and put its own things that it wants in there, send it back to the Senate, and they can ping-pong like that. Again, that's going to be a little bit of a difficult road. It's a bit unclear what will happen next. But again, it's good to see that there is some speed, relatively speaking, when it comes to this issue, and it's certainly worth watching because obviously something has to be done.

Maiclaire Bolton Smith:

Sticking with executive orders, I want to talk about something else that recently came out of Washington, which was the President's new order called Promoting Access to Mortgage Credit. So I'd love for you to talk a little bit about this one, Chay. I think you know at a very high level, it's a directive asking for a review on things like disclosures, underwriting, servicing, and appraisal rules that were adopted after the 2008 financial crisis. But what would it look like?

Chay Halbert:

Yeah, I think it's all generally a pretty positive and I think probably the best way to look at it is kind of a road map of things that they're in the process of doing, that they said they're going to do, or things that they want to do. And when I say they, I mean a lot of the regulators, a lot of the agencies. So, you know, it's not so much the President or the WhiteHouse coming up with new things to make mortgages more available; I would say maybe a collection of ideas that have been out there, and it's good to see that they're keeping the pressure up and they're staying focused on this. But you know, it's things like modernization, improving technology. Maybe a little bit more substantive when it comes to some of the supervisory posture. So in terms of not dinging lenders for small mistakes, making sure that lenders have a good process in place and understanding that, you know, if they make some good faith mistakes, they're not going to get hit too hard. And you know, that's a good thing in this environment where mortgage lending is down so much. You know, you want to try to remove as many of the barriers as possible. And the barriers that they're talking about removing, again, they're pretty small, but it's like, you know, why have them there in the first place?

Allie Barefoot:

Cotality just dropped new numbers about what's happening in the housing market; here's what you need to know. The biggest risks aren't always the ones making headlines. While hurricanes get the attention, severe convective storms—think hail, tornadoes, and damaging wind—are driving a growing share of insured losses. In some cases, the exposure is surprising. Texas is at the epicenter of the severe convective storm risk, but the city of Chicago outstrips even the Dallas-Fort Worth metro area in terms of at-risk value. The densely packed city has $1 trillion in reconstruction cost value at risk. Nationwide, the reconstruction cost value exposure sits at a staggering$17.8 trillion. Find out more about severe convective storm risk in our 2026 Cotality Severe Convective Storm Risk Report. The link is in the show notes. And that's a sip, see you next time.

Maiclaire Bolton Smith:

This has been so interesting, and I think both of you know that I always like to say, "if you look into your crystal ball when we finish these." But I think if we kind of took a look back to a year ago right now, I'm not sure we would have expected to be where we are right now. So now, let's look forward to a year from now in those crystal balls of yours. Where do we think things are going to go? I guess Molly first, from oil prices, interest rates—what do we think is going to happen? And then Chay, I'd love your thoughts too on some of these executive orders, how do we think they're going to play out over the course of the next year? So Molly, what does your crystal ball say when a year ago right now you're like, "everything's trending down"? What do you think we're going to be a year from now?

Molly Boesel:

Wow, that typically is not that hard a question, but now it's kind of a tough question. But one thing I've noted, rates, mortgage rates started to go up about a month ago, but they kind of stabilized right now. They haven't—even though there's, you know, some not-so-positive economic news—rates have kind of stabilized around 6.5%. That could just mean that while we do have an affordability crisis, you may have buyers or potential buyers who are just going to pull the trigger and just jump in there knowing that rates are probably not going to go down. So, you know, expect kind of look a lot like last year, maybe a little bit better for home sales and originations.

Maiclaire Bolton Smith:

Okay. And Chay, what about you? What do we think is going to happen from a legislation perspective?

Chay Halbert:

You know, I think if you look starting with the executive orders and thinking about them as road maps for the agencies, I think a lot of that road map is going to get traveled. I think a lot of it's going to get done, you know, a lot of it is pretty common sense, even if it's stuff that's a bit on the small scale. And I also think even looking further down the road, you know, I can see a lot of these changes at these agencies being pretty sticky and long-lasting. You know, I think that these are things that, you know, even if you have Congress changing hands a few years from now, even if you have the presidency changing parties, you know, I think this is stuff that you can still see that the agencies wanting to continue with in terms of making mortgages more accessible, in terms of boosting supply, boosting affordability.You know, again, those things seem like they have a lot of durability. When it comes to the 21st Road to Housing, whatever how many extra words we add to it, I think something will pass. You know, I think that there's a lot of agreement.You look at the different votes on these different bills, and even though they are dueling bills, you know, there's a lot of members on both sides of the aisle who are voting for this. And they see and they understand that this is something that's politically very popular and can have a very real effect on people that live in their districts and their states. And so I think something does get resolved. You know, there's going to be must-pass legislation towards the end of the year, such as appropriations, the annual defense policy bill.

So there is stuff that, you know, this housing bill can get attached to, which is probably how it ends up getting over the finish line. ButI think that they, you know, maybe have a little bit of a knock-down drag-out, but I would say that it happens. I'm going a little bit on a limb sayingCongress does anything, but here I am.

Maiclaire Bolton Smith:

Well, let's wait and see what happens. I think it's going to be a very interesting through the end of the year. So Molly, Chay, thank you both so much for joining me today on Beyond the Buildings by Cotality.

Molly Boesel:

Great, thank you very much.

Chay Halbert:

Yeah, it was great talking to you.

Maiclaire Bolton Smith:

And thank you for listening. I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcasts to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life: Producer Jessi Devenyns, editor and sound engineer Romie Aromin, our facts guru Allie Barefoot, and social media duo Sarah Buck and Mikaila Brooks.Tune in next time for another conversation that illuminates the ideas that will define the future.

Allie Barefoot:

You still there? Well, thanks for sticking around. Are you curious to know a little bit more about who we spoke with today?

Chay Halbert holds a position of Principal, Public Policy and Industry Relations at Cotality. He develops and manages relationship-building efforts between the company and policymakers at the local, state, and federal levels.

Molly Boesel is a Senior Principal Economist in the Office of the Chief Economist at Cotality. She's responsible for analyzing and forecasting housing and mortgage market trends, including the single-family rental market. She has a depth of expertise in mortgage market analysis, model development, and risk analysis in the housing finance industry. Her original research appears on the Cotality Insights blog, which can be found atCotality.com/Insights.