This is a partial transcript from Your World with Neil Cavuto, August 26, 2002, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.
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TERRY KEENAN, GUEST HOST: I don't know what's been hotter this summer, the scorching temperatures or the red-hot housing market. Home sales looked like they are on course for a record year, and two new reports out this morning confirm just that.
And that is great news for the guys who build these homes such as Larry Hirsch, he's the CEO of Centex , and Bruce Karatz, the man who runs KB Home. Low mortgage rates also a big reason for the boom. And that is good news for Barry Habib as well, Mr. Mortgages we call him around here, he is the national sales trainer with GMAC Mortgage.
Gentlemen welcome. Mr. Hirsch, let me start with you. we got these record home sales numbers, or near record numbers out this morning, housing prices up about 7 percent year-over-year for existing homes. A lot of people say, you know, can't get much better than this. Can it?
LARRY HIRSCH, CEO, CENTEX: Well, you know, I go back to what the Chairman Greenspan said, the same guy who talked about irrational exuberance in the stock market, and was right, said there is no housing bubble, that we have solid demographics, that demand is going to continue, and we have restricted supply which is an awfully good equation for housing.
KEENAN: Bruce Karatz, are you seeing a similar pattern to what Mr. Hirsch is seeing, no housing bubble here?
BRUCE KARATZ, CEO, KB HOME: Terry, I think that much too much has been made out of the housing bubble. There is a very good balance of supply and demand in our industry. Interest rates, as you have said, are at historic lows. And we have to remember that we are dealing with a consumer product that is not something like a hula hoop, but something that is very important and the most important purchase so that when we see families buying homes today, they have made a very wise decision. And I anticipate that we are going to see very good housing demand for the foreseeable future.
KEENAN: Barry, no question about it, huge demand for mortgage refinancings right now. How do you think that is going to play out? I know it has been busiest month for you guys on record.
BARRY HABIB, GMAC MORTGAGE: Everybody is refinancing right now, and you should be. If you haven't refinanced, obviously it's time to jump on the bandwagon. But in the past we have seen corrections like this. You've got a lot of supply coming into the market, there is a lot of people closing loans now, that supply has got to be sopped up.
KEENAN: And when you say "supply," supply of new mortgages.
HABIB: Supply of new mortgages, all these loans that people are refinancing have to be absorbed into the marketplace. In addition to that you've got corporate bonds coming a little bit more into vogue with CEO certification on fourteenth, and the spreads are very attractive. And if stocks start to get on the mend here and start to move higher, there is evidence they may do so, I think there is going to be some competition for those dollars. And that could drive interest rates higher in a short period of time. That could also be trouble for housing market.
KEENAN: So you think if you haven't refinanced yet, you'd better do it quick, because rates could turn on a dime here.
HABIB: They have all the time, that is the way it has worked in the past, we have seen them change dramatically.
KEENAN: Bruce Karatz, are you at all concerned that this refinancing boom will kind of run itself out and its going to start to cut into your sales and affordability?
KARATZ: I don't. And the issue that was just raised about the potential for higher interest rates, the industry today has record low interest rates. And believe me, interest rates could rise by 200 basis points and you would still see very solid housing demand. And remember that today we have mortgage instruments that allow people to have lower qualifying rates, and have a five-year fixed, which has become a - and then refinance at market rates after that, which is a very acceptable form of mortgage financing today. So I think that affordability should remain very attractive for the foreseeable future.
KEENAN: Larry Hirsch, are you at all concerned that if mortgage rates start to back up, it will start to hamper your business?
HIRSCH: Well, I think you have to look at the reason for that occurs, if in fact what's happening is mortgage rates are backing up because employment's get better and the economy is rebounding, I think we are in great shape. If in fact you had a situation where rates went up and there wasn't any response in the employment side, then things would be more troublesome to me.
KEENAN: Barry, are you at all concerned that people through the refinancing process, and also by taking out home equity loans, are becoming much more leveraged in their home and they are not necessarily using their home as a piggy bank the way they used to?
HABIB: Well, here is what we have seen that's pretty interesting, is this refinance boom, so many people have switched to 15-year fixed. So while initially they may have taken out some more cash to pay down debt and to pay off non-tax deductible items, I think over the long haul they're going to be in much better shape because the amortization on these loans will give them a lot more home equity. Because choosing a 15-year fixed rate is not that big of a difference in payment than a 30-year, or if you go with a 20-year, it's a very good alternative. But what it does is it builds up a lot of equity. And that is something that you can use in the future. So I think that is actually going to make us stronger.
KEENAN: Larry Hirsch, you know, you were talking about Alan Greenspan a little bit earlier, another factor Mr. Greenspan has cited for the strength in housing is strong immigration trends. Do you agree with that? And do you see immigration numbers coming down, and does that concern you?
HIRSCH: Well, on a much longer period, it would make a difference. But right now, if you look over the last 10 years, we have had about a million people come in and immigrants each year. And statistics show that about a decade after they come into the country, they come into the housing market. So you have about 10 million people who have entered the country in the last 10 years, who are now forming households, and are going to provide probably about one third of the new housing demand over the next decade.
KEENAN: All right, we are going to have to leave it there. Thanks, interesting discussion, my thanks to Lawrence Hirsch, and Bruce Karatz as well as Barry Habib here with me in the studio.
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