Jim Davis is editor of Scotsman Guide Residential Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.
Chief economist, Genworth Mortgage Insurance
By Jim Davis
Tian Liu is chief economist at
Genworth Mortgage Insurance,
where he is responsible for tracking
U.S. and regional economic trends.
He also writes the company’s Weekly
Economic Report and provides
regular updates on U. S. and regional
economies, as well as the housing
and mortgage market. Liu began his
economics career in the Australian
Treasury Department in 1997 and
has worked for building-materials
company Cemex and roofing-materials
company Owens Corning. Liu joined
Genworth in 2014.
Builders could soon pivot to more affordable homes
The U.S. housing market faces the double pressure of rising interest rates and escalating home prices.
That’s beginning to hurt affordability, said Tian Liu, chief economist for Genworth Mortgage Insurance.
“I think that’s a headwind for the housing market right now,” especially for first-time homebuyers, Liu said.
Add to that the concern that a recession could be in the offing within the next couple of years and that makes
for a dicey situation.
If the economy does take a downward turn, the housing market could actually be the cure, not the contagion,
this time around, Liu said. He recently shared some of his thoughts on that subject with Scotsman Guide readers.
How do you see the economy in the next five years?
If the economy is to continue to (expand), we need to look at new areas of growth. Homebuilders could be
looking at areas with lower price points. For example, homebuilders are building $200,000-plus homes.
That’s not really affordable for many first-time homebuyers, who are looking at maybe the $140,000 to $200,000
price range. I think that’s a potential for growth, where there’s a lot of demand and (there) hasn’t been a lot of
One of the drivers I’m very excited about is millennials and the pent-up demand from the last cycle. You have
had 3 million first-time homebuyers locked out of the market over the last 10 years. Some of them are back in,
but a large number haven’t bought.
That’s a large pool of potential buyers. Those are people in their prime homebuying age. We think another
2 million to 3 million [new millennial homeowners] could be added over the next three years.
There needs to be more affordable housing built for millennials, however, right?
There does. I think the recent slowdown in single-family housing starts shows us a signal that there could be a
saturation at the higher-price points. I think homebuilders are in the adjustment phase. They will look at which
price points and what types of homes where there is strong demand.
With such a migration to cities in the past 20 years, is there a limit on buildable land?
I think there’s a lot of land available in the United States. I don’t think there’s any natural barriers in terms of
housing. I think the artificial barriers are policy, such as density.
I think homebuilders coming out of the recession have switched their strategy. They thought the affluent
market was one where there was a greater demand, and they focused on that market. Seven years is a long time,
and I think they will need to look at other areas where they could bring in additional volume.
Why did builders focus on high-end homes?
If you think about 2011, the housing starts [total] was about 500,000 units per year, some very low numbers.
The historical average is about 1.5 million. If you have a third of the historical market, how can you survive?
You focus on a market where a homebuyer can get a mortgage and be able to afford the price.
You also had a lot of competition from foreclosed homes. So, they had to differentiate themselves from what
was available on the market. That’s why they focused on the high-end price points.
Is it possible that even if there’s a recession in next couple of years, the housing market could help bring
the economy out of it?
The housing market could stay very resilient during the next downturn. If you look at where the housing market
is the strongest, it’s with the first-time homebuyer. Homebuilders have reported some slowdown in orders,
but all of them have reported that there’s strong demand at the lower end of the market.
What else can you tell me?
The last thing we want is a rollercoaster ride in the housing industry. I think getting the largest cohort in history
into homeownership in the next five to 10 years is going to be very exciting. And I think it’s going to have very
long-lasting and a deep impact in society.
You see a bright spot with baby boomers, too, right?
I think they could be part of the solution in terms of supply. A lot of them are selling their homes and buying something more suitable for their needs. I think that could provide the supply that’s not seen in the market. It’s not really
just new construction. It’s also how the existing stock of housing is allocated between the age groups. n