Decoding the 2025 Housing Market with Bill McBride

Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market data video series with the top of Mind podcast, we seek to add context to the discussion about what's happening in the market from leaders in the industry Each week, of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. We make the insights available to you before you see it in the traditional channels. People really need to know what's happening in the housing market right now. So if you need to understand the housing market or communicate about this market to others, but altos research.com and book a free consult with our team. Let's review your local market and how do you use market data in your business.

(00:45)
Alright, let's get to the show today. I have a great guest today. I have a long time compatriot in analyzing the housing market and it's Bill McBride of calculated risk. Bill is a housing market expert and author of the popular economics blog and newsletter Calculated Risk, which I know Nobel Laureate economists have cited as their go-to website for housing matters. Bill may be best known for accurately calling the housing bubble in 2005 and the bottom in housing prices in early 2012. We both started doing this work 20 years ago or Bill maybe even more than 20 years ago. I've been a fan of Bill's work for that entire time. This is the second time Bill's been on the show, but it's been three years. So Bill, welcome back.

Well, thanks for having me, Mike. It's great to be back.

Really looking forward to diving in today. Three years ago was the moment at the end of the pandemic, but January of 22 things were still really hot and we knew that rates were rising and going to change soon. But man, there were some things like I got right about the ensuing three years and some things I did not get right. Tell me about your view of the last three years since we've talked.

Well, I think mortgage rates obviously put a big tent in the housing market. It was in 2022, I believe that I wrote the seven years in purgatory post where I argued that because we weren't going to have a bunch of distress sales, we wouldn't see a big price declines. But on the flip side is we wouldn't see prices going up too much and probably less than inflation and seven years was just a great title, but every time we've had a run up without distress sales taking the market down, what we've seen is prices just kind of rust away, if you will. They might still rise in nominal terms, which we've seen over the last two and a half years, but in real terms, they're actually below the peak in 2022. This is kind of what I expect and I expect it to continue,

And I think I was roughly aligned with your view at that time thinking that home prices drove way up. There wasn't any signal in the data of home prices crashing down. The thing I missed at that time was how much sales were going to crash. Did you get that?

Well, you know what? I follow inventory a lot closer than I do sales, so I would be looking at the huge increase or a significant increase in months of supply. So at first we actually didn't see it because what happened is inventory decline just as much as sales, and I think you've been hitting on that pretty well. A fair portion of sales are to people who are from people who are going to buy. So you always see people focus on new home buyers, but a large portion is people selling their home and buying a new home. And if they didn't feel that they could sell their new home or they didn't want to change mortgage rates for a new home, they just didn't list their home. So they both declined together. It was only more recently that we've seen inventory rising much quicker than sales. So the month supply is going up pretty significantly.

Why

Do you focus

On inventory instead of sales?

Well, one is I think it's easier to get the data. People like Altos research sales demand is a little harder to get a feel for. They're both equally important supply and demand but supplying, I remember in 2005, I mean we knew, well a lot of us, most of us knew that house prices were going to decline and probably decline significantly because of all the loose lending. And I kept saying, I don't know when it's going to stop, but let's watch inventory. And when inventory really took off at the end of 2005 and especially in early 2006, that was the sign it was over. And so that's kind of why I watch inventory. It was the same thing as when you mentioned the call I made in early 2012 where I said, Hey and through the ling bottoms here, and there were plenty of people saying, oh, we're going to go down further. But it was the real decline in inventory that gave me the clue. This is a little different because we have what's really impacting supply and demand is the real jump in mortgage rates from the ridiculously low 3% to what I've been calling the new normal six to 7%.

And I would agree with you that the way I put it on the difference between inventory and sales is that it is, you can't gauge housing demand from a sales number in a supply constrained market when for the last decade or for most of the 2010s inventory was constrained and there would've been more home sales, there was more demand than there was available than there were available properties. So home sales were actually limited by inventory. So that's one of the reasons I like looking at the inventory numbers rather than sales numbers.

I think that's why prices go up. Yeah,

Exactly. Prices go up and surprisingly, reliably they go up. Now we're in a year though where this year inventory is 27% higher than where we started 24. So alright, we look at inventory like you famously say watch inventory, what does that tell us?

And also this year in the past I haven't really tracked or focused as much on months of supply, but this year I am because of what's happened to sales, not only is inventory up what 27%, but monthly suppliers back to 2019 levels. Now that shouldn't be too scary as far as price declines because prices went up in 20 17, 20 18 and 2019. But what I'm thinking is we might get above those levels. We might get into the five months of supply, five and a half months of supply later this year. It is 2025 and a month of supply that I use. I mean there's some people seasonally adjusted, but I use the n seasonally adjusted and that number's really rising and what I know we'll talk about this, but if you focus on some regional areas or some local areas, months, the supply is going through the roof and Miami. Miami, there are so many housing units on the market in Miami right now compared to demand. And there's actually more housing units. I think in Miami you would know better than me just in general, but the month of supply is just through the roof and we're seeing that in some other areas, some other regional areas too. So this is going to be a year to watch regional and much more than national,

Right? So Miami actually a lot of the Florida markets, Western Florida markets, Austin, the inbound migration states where people have been moving from the north to the south, we've stopped moving and that's why inventory is super tight in the north and it's super growing in the south, at least for now, stopped moving. So the question is what if we get to five months of supply nationally this year or what if we get to eight months of supply in Miami? Are prices going to fall? I think with eight months of supply as they

Definitely will fall with, I mean I would be, prices are sticky downwards, so what you need is distress sales unstick, but we're not going to get a big wave of a distressed sales. So what else? If you get a loss of supply, some people just need to sell and if you've had a runup of 20 or 30% over the last few years, you're probably willing to give up a few percent. So yeah, I do think we're going to see some price declines in areas with higher supply, but they won't be these 40% price declines. People thought I was nuts in 2005 when I said, Hey, I think some four areas will see 40% declines because we've never seen anything like that before. Now we've seen it, but that's not going to happen because we're not going to get this flooded distress house Miami's got. And Florida in general has a number of problems.

(10:36)
First of all, climate change is huge, so the insurers have really cranked up the insurance rate. A lot of people either can't get homeowner insurance in the low lying areas or their homeowner's insurance is more than their mortgage. So that really making, that's one key reason why supply is coming on the market down there and long term they have a problem. The whole state's built on limestone and you can, unlike out here in California where we can build walls and they have done that locally. They keep raising the wall Florida, that doesn't matter. The water just comes under the ground.

There are some real fascinating challenges in those Florida markets. Okay, so let's think about this nationally. So if we're watching months of supply and the number you have is still 2019 levels, which is, I don't know, it's like three months of supply or three and a half or something like that. Is that about what

You're looking at right now? Yeah, I think right now, because this is the low time of the year, it's like three seven or something,

Right? Three seven or something. And so mortgage rates are, now we're rolling into the year over 7% for the 30 year six. What's your sense of that? What's going on there?

Well, first of all, I think people have to realize that during the pandemic, those mortgage rates were unusually low and for a number of technical reasons, but obviously the Fed lowered rates to zero. Actually mortgage rates were unusually low for the whole decade previous to the pandemic and then went way down during the pandemic. We're back actually to a much more normal situation right now, one of the things, if you add a few numbers together, you can see why six to 7% is probably what we're going to see. And those numbers are if we have 2% inflation, which we're still slightly above, if we have a regular yield curve, so the Fed and we have a regular neutral rate, so we have say one in three quarters on stop at 2%. So the feds fund rate at three in three quarters positive sloping yield curve puts the 10 year up, I don't know, call it 5%. And then you add one in three quarters to that for your 30 year mortgage, six in three quarters, it's pretty easy to get to six and three quarters with a normal structure. And so I know some people were saying, oh, we're going back to 5%. Mortgage rates don't see that in the near term without a real economic weakness. If we have a recession, sure, we will get back. We'll see a five handle for sure.

Yeah. Okay. So I think that's roughly aligned. When we did our housing wire forecast on mortgage rates for the year, we were assuming the high end of the year would be seven and a quarter. But maybe if we're lucky with some good economic news and some tightening of the spread, we sneak under six and see a five handle for a little bit during the year.

Well, it's not impossible. It's not impossible. And by the way, Logan lives near me and we go to lunch every once in a while.

That's great. And yeah, Logan of course has all kinds of great takes on where things are headed, but I think it was really interesting because many of the forecasters of mortgage rates, even in November, not that long ago, were assuming that 2025 would spend the year in the sixes, but I didn't see anybody calling for over seven except for us as saying that it seemed like it was very possible to get over seven.

Well, I cheated and just said six to seven, I gave it a wide range, and actually I wrote that a couple of years ago, and this structure is the same. So whether it's seven and a quarter, what really surprised me is that one day we hit 8%. When was that? A year ago or something? For a day? Yeah, a

Year and a half ago. Yeah. Yeah. December or

November. Oh my gosh, I hope it doesn't go any higher. That'd be really wrong. But also for the economy, eight percent's really, I think that was too high. And all those people have refinanced by the way. That's why we've had a little teeny micro bubble of refinance activity. But I think when you think about it, this is going to suppress demand for a while as people get used to it over time. And we're seeing that, I know you've posted the graph of what percentage of people have what mortgage rates and the number of people with 3% and below and 4% and below 5% below is still really high, but it's been slowly declining. And that's what does that mean? That means those people are selling their homes and other people are buying homes with 6% or even 7% today. So time is probably going to be the biggest factor in that, and over time people will

Adjust. And when you said suppress demand for a while, a couple of years ago you wrote seven years in purgatory, and it's really been two and a half years right now that I would say our demand dropped off a cliff July one of 22, and we could see prices adjust down in 22 in July and then again in October, but then sort of flat on home prices since then. And as you point out, inflation adjusted in real terms, home prices have not gotten back above that June and 22 level. So when we say a while, what are we looking at?

Well, at least this year, when you look out too far, there's so many variables that come into it. The possibility of a recession this year I think is very low, but it's way too early to assess the possibility of a recession in 2026 and mortgage treats would drop. Now people were getting unemployed, but it tends to be the people that are renters that get unemployed more than buyers. And people with a secure job in a lower mortgage rate might decide that it's time to buy even during a recession. And especially when you're coming out of the recession, recessions are rare and they're not very long in the United States ever since almost a hundred years now, other than the Great Depression, and I mean we've had the great recession, if you will, which was housing driven, but we're not going to have a real housing driven recession this time.

(18:27)
And I'm not forecasting a recession at the moment, but I'm just saying that so much will depend on that the further out you get. And there's all kinds of things that can happen in the world. I gave a talk, I just want to just say in 2019, I spoke at a conference and I said things were going to look pretty good in 2020. And luckily I said, this doesn't count if there's a major meteor strike, a supervolcano or a pandemic, it's right there on the speech. And I went, oh my God, I wasn't predicting a pandemic, but of course I changed my mind in March of 2020. And that's the thing is we might change our mind if something like that happens again. But right now I think it's going to be somewhat more of the same for this year. More inventory sales will probably pick up some, I think I forecast new home sales up 5%. I don't usually forecast existing home sales, but they should be up. I know you do, or I think you do, but I think inventory will rise faster than sales this year, which will push up months of supply, and that'll pressure prices, especially in certain areas.

Okay. So I think yes, we're aligned and yes, we are forecasting about a 5% home sales growth in existing sales in 2025. So from 4 million to 4.2 million sales.

Yeah, it's still really low. I think you're below a lot of the other forecasts.

Yeah, we are a little bit below some of the optimistic ones.

Yeah. Hey, last year I saw people at the beginning of the year saying, oh, we're going to be over 5 million this year. I went, what?

Yeah,

No.

Yeah, exactly. And while it's tempting to say things will get back to normal and normal is 5 million, also the thing we see in that home sales dynamic is it's very easy for buyers to stop and so for home sales to fall quickly, but they tend to grow slowly. So maybe a 10% home sales growth year is a big year of growth, and that would require some kind of really big a government intervention or rates to drop dramatically, something like that. And so since those aren't in the cards, seems like it's more like 5% seems more likely.

I think one of the big unknowns going into this year and the next four years of course, is any housing policy changes. I mean, they're talking about things like privatizing Fannie and Freddy and a few other things like that, which I doubt will happen, but it could, and if they privatize it, it wouldn't put the mortgage market at risk immediately. That would be a longer term issue. So where does more supply come from? Those questions is not a policy issue. I don't think we're going to have a policy change this year.

Yeah, I tend to agree there's been talk of the GSEs, but it seems like they're going to be, people get in there and go, oh, this is a lot harder than I thought it was, and it'll not happen. There's been talk about that privatization for a long time. I should probably find someone to have a podcast on what happens if we do privatized. I don't have any clarity on what actually is going to happen in the mortgage markets if those two entities, do you have any take on that?

Well, it would depend really on what the structure is. I mean, I think the initial reaction is that the mortgage market would get tighter, it would be harder to get a mortgage, but that's not completely clear. And the last, back when it was sort of privatized, it was completely backstop by the government. So the question is, is it going to be completely backstop by the government again? And if that's the case, then that's all you're doing is privatizing profits and socializing losses. And really nobody should want that no matter what their political position is.

Yeah, yeah. The devil is in the details for sure. Okay. So we've been talking about supply, we've been talking about inventory, some about sales, but let's talk about prices right now. There's a few things. You mentioned the downside sticky phenomenon, which I think is a really fascinating factor that I talk about a little bit, but I'd love to hear your take on it. But also measuring home prices is kind of weird. There's a zillion different indexes, there's metros behaving this differently. How do you reconcile home prices?

Well, I think first of all, the repeat sales indexes are great, and they do give very similar numbers. I mean, the case Schiller is the one that most people are aware of. FHFA is the one that they set all of the fanny limits on conforming loan limits. They pretty much track. They could be off of 1% in a year or something that the Freddie Mac index is another good repeat sales index. So the ice, which used to be Black Knight has excellent numbers. I think the NAR uses the median income or medium selling price. And so that can be distorted by the mix. So we always have to be careful on that. But it does get released before most of the others. So it might have some useful information that way. Just on timing, the case jewelry index is a three month average and some of those contracts were entered six months ago. So you just get a report in November and you're going, oh yeah, we know what happened in June. Yeah, I mean it's also, some of them entered contract in October and close in November too, but they're spread over a six month period.

(24:54)
So I think it's a really hard question. And those are indexes, different markets. I mean, if you're talking San Diego versus Fort Wayne Indiana, you probably, there's no real comparison between the houses. I mean the same house in Fort Wayne, I don't know if sell for

Half or less or maybe significantly less than half. So that's a really interesting take. And just to recap for listeners, so the repeat sales, the case Schiller and FHFA and some of these others that you mentioned is looking at the sale of the same house over time. And so the last time this house sold was 12 years ago, how much did it sell for then and how much does it sell for now? And that's different from say, the altos or the way NAR does it, which is these are the homes in the market and if you walk into the market today in the Altos number, this is what you can pay and it's going up. And so if there are times when there are more expensive homes on the market, that would be one reason that the number tends higher. We've found in the Altos number, with things like the K Schiller, we can predict the changes in the K Schiller. It's really like it's 90 or 120 days before the K Schiller index comes out. And so that's why we do the view we do. But it is an interesting take about what are home prices right now? And I think Kay Schiller as of November is up like 3.6% for the year.

That's correct.

Up a little bit nationally.

Yeah. We're going to finish the year up three to 4%, probably closer to 4% up year over year on those repeat sales And those models, they're pretty sophisticated. They exclude certain things. They try to identify people that have done renovations. So any outlay outliers one way or the other, they get rid of them. So they're pretty sophisticated on the sticky prices. That's more behavioral economics. It's easier in a community where a lot of houses are very similar, and Joe down the street sold his house for $720,000. You don't want to sell for less. So in areas where the houses, there's a wide variance of houses, it's a little harder to really say the sticky, but people just don't want to sell for less than they saw their neighbors sell for. It's just that simple.

Or even the amount that they got a quote for at one point or they did a listing presentation,

Right? Yeah, a real, to break the behavior, we got flooded with distress sales and banks aren't emotional about prices, so they just were trying to unload them. And then when you see that guy down the street sold for 30% less than you thought you were going to get and you want to sell, you're going to have to compete with him. And so the sticky prices is a real phenomenon in that sense. It's kind of like sticky wages too. People don't like their wages to go down. So you can have a lot of inflation and give nobody a pay raise and they won't be unhappy or too unhappy. But if you try to, you have no inflation, you try to lower their rate by three or 4%, that will be TikTok.

Yeah,

It's a complete behavioral thing.

And on the behavioral side, you mentioned want to sell, and one of the things that seems interesting right now is that because I have so many people in the country that say, I have a ton of equity and an ultra cheap mortgage, I have even less likely to give into that. I am more likely to be sticky on the downside because you know what? I'll just keep it. I

Have seen several people too that really want to move and they've become landlords and you have that cheap mortgage and and it kind of makes sense, but a lot of people don't like being a landlord, so they try it and say, it was not for me.

It was not for me. And now I have a condo in Florida that I need to unload. Okay. So that's an interesting thing. So that downside stickiness in pricing is one of the reasons that even though home sales are way down and demand is obviously down, that home prices don't necessarily just happened at crater. There need to be other factors going on.

Well, I do think it's interesting to look back at what happened in the end of 2022. We did actually see some national price declines on a nominal basis. And what happened, and it kind of fooled me too for a little while, was we just got a real surge of inventory. It wasn't like muscle supply were up that high, but I think people, there's a certain memory of what happened in 2006 or 2007 and people were going, I'm getting out and I'm getting out now. And they were willing to take less to get out right away. And then all of a sudden people realized, well, wait a second. It's not collapsing. And I think that ended that pretty quickly. But when you look back, and especially in certain cities like Phoenix, the inventory just skied all of a sudden and then it kind of calmed down and we're back to this more normal build.

And that actually gives me another question. So Phoenix is a great example, and we measured this very clearly though in June and again in October because we had a second spike in mortgage rates in October of 22. We've measured price declines like monthly price declines nationally, June and October of 22, looking at a place. And that happened in a place like Phoenix Inventory spiked in 22 in Phoenix, and then looking at 23 in Phoenix, there was the quest going into 23. My question was, there's a bunch of investors in Phoenix, do those investors panic and sell into and exacerbate a downturn or do those investors say, wow, this is the first opportunity to buy. I have in years. So I ended up buying and putting a floor in. That was my question at the beginning of 23. And it proved out that in 23, those investors put a floor in for places like Phoenix. They bought the inventory, came down, prices climbed again, recovered. Those was at the beginning of the year. I didn't know. That was not a foregone conclusion, but they came in and did that. It gets to my question to you, which is what happens with that investor class and especially some of those investor heavy markets in 25, are there signs that they are going to exacerbate any downturn or are they looking for opportunity and create a floor?

I don't think they're active either way, overly active either way. I don't think they're buying or selling more than a normal level. When things pencil out for an investor, it'll just ride through most periods. So I know there's some short-term rental investors that always get surprised that it's not as easy as they think. And so we see those people buy and sell, but the bigger investors, and I'm not even talking about thousands of homes, just tens of homes or fifties, a little more sophisticated on that. They're not going to panic on that. And the thing is, in 2005, there were a lot of investors pouring into certain areas like Phoenix and Las Vegas that were novice investors, but there were these people pitching, build an Empire Mortgage your house in California and buy three homes in Las Vegas. And I unfortunately know some people that did that and that didn't work out very well, but they weren't really penciling out what made sense. People today, they have a property they're renting, it makes sense to them. They're not going to panic one way or the

Other. Yeah, yeah, exactly. So the difference is even the novices today that did it in 2021 have a 3% mortgage,

And they can withstand that. Well, they have a 3% mortgage if it was owner occupied. So those people that, or fraudulent, I do know. Well, I do know, yeah, well, there's some fraud where people do that. But I do know people that it's not fraud to buy a place and then move a year or two later and keep it and keep the old mortgage. I think you just have to have the intent for a year or six months or a year. I forget what the rule is exactly, but there's plenty. There's a fair number of those people, whether they like being landlords or not, I don't know. That's always an issue for those one or two bomb and pop landlords.

I know I don't like it. I do data. I'm not being a landlord, renting houses seems like a lot of work to me, but so you see investors as not a big variable for 2025?

That's kind of my gut feel. Yeah.

Okay. That's great. Are there systemic risks to housing that we're not talking about in the short term? Well, in whatever period you think is important that we should be

Thinking about? Well, there are policy choices that could impact the housing market. If we deported 20 million people, the demand would drop off like a rock. We will not deport 20 million people, but if we do pick up deportations and we do slow down net migration, that would impact demand. Now, a lot of the demand from net migration is for rentals, but rentals, rentals and existing homes, they're kind of part of the same market. People move from one to the other. And so if there's a demand onto the rents, people might buy. And if the rental demand continues to be soft, which it has been a because of a policy, then that could make some people who are going to buy go rent because the rents have been falling or they're not rising at least. So there are policy issues out there.

(37:06)
I think I am kind of in the Jerome Powell school is let's wait and see what he actually does as opposed to, because we really don't know. Sometimes when you get a new administration, you have a clear sense of what their priorities are going to be. We do know some of the priorities. There will be a focus on illegal immigration. There will be a focus on tariffs, but we really don't know what those will be. I mean, there's an article out today saying they're going to be much more targeted now than they thought they were going to be. So we do know that there'll be a real emphasis to we knew the tax cuts and that won't impact the housing market significantly at all. So as far as the systemic risk this year, no, I don't really see anything major. I mean, you always have the outlier events, hopefully not another pandemic or super volcano. I hate to even say that again, but no nuclear wars please. But there are some building risks in the background.

(38:21)
Not only did I really bearish on housing in 2005, but I was very worried about a financial crisis. And the reason is very simple financial crisis. The origin is usually from an area that's kind of a run around the regulations. So what you always want to be looking for is parts of the financial system that are unregulated or poorly regulated. And we do have one area that's been growing fairly rapidly that's sort of part of the financial system and so far the SEC and the FDIC, and everybody's kind of been forcing people to be hands off of it, but that's the crypto area. And so that has the potential to be, it is an unregulated, essentially area of finance. So if it, now, if people start borrowing against it, that's when you start getting the risk. I don't see that as a 2025 risk, and it might not emerge into a risk at all, but that's what you always look for. Financial crisis areas of the financial system that are unregulated or poorly regulated. In 2005, the mortgage market and the banks were, they were regulated. They just were poorly regulated. And we had had this shadow banking system that was really unregulated, and that was really why we were thinking we might have a financial crisis on top of a housing bust.

And so most of those, there are very few analogs to that now in this world.

Well, the only area that I'm concerned about is, like I said, is crypto. I know that the Federal Reserve just took a good look at it, and they didn't think that it was large enough or integrated enough into the system to pose a risk in the immediate term. You always have to be looking for those areas. And that would be one of those areas that, and it could be some other unregulated area. There's always, the way I say it is there's always some wizards out there finding ways around the regulations. Every generation's got their little Wall Street wizards and maybe in this case tech wizards. So we just watch out for 'em.

Yeah, yeah. Okay. But nothing popping out there as super out of whack. Okay. So that's really great. And you mentioned that you don't expect recession this year. It seems very unlikely. What about other macro factors that you're watching to inform your view of the year, especially with respect to housing? Well, I think you're paying attention to employment rates, jobs, inflation, any of those numbers.

I think that inflation will probably be around the same, or maybe it could increase slightly later this year, which could make it so that the Fed doesn't cut. Right now they're forecasting two rate cuts. They might not materialize. They respond to the data. And so as far as employment, I think that, I just wrote an article about this because what's interesting to me is that we are in that period where people in my generation are leaving the workforce and in pretty good numbers. So it's very likely that the overall participation rate will decline this year in 2025, it has been declining, but that includes basically everybody 16 and over. So if you're 90 years old and not working anymore, my dad was still working when he was 90 because he just enjoyed it.

(42:39)
So there's a lot of, once people get to 65 or so or the numbers, the participation really does drop off. And so if the participation rate's dropping, if the population growth is going to slow, which I expect this year, I estimating maybe 1.2 million population growth that could get offset by a lot of that by the people retiring. And so if we do, I mean, I think job growth will slow, but I think, here's the weird thing, job growth will slow, but the unemployment rate will probably fall. And I think that this year for housing, as long as people are employed, that's a healthy sign for housing.

Okay, tell me more.

Yeah, if you have a job, you're going to make your mortgage payment, or if your income's going up, you're going to be interested in buying. Or if you're an existing homeowner, that may motivate you to sell and buy and get that extra bedroom or that nicer neighborhood. The typical thing in housing is you buy a place whenever you buy your first place and it's not exactly your dream house. And then maybe five, 10 years later, you get a bigger house or a different community. Maybe you move for work, but you do that. Most people don't buy one house and live in it for 40 years or 50 years. Okay. I've lived in my house for 40 years, but that's actually pretty unusual. So what we've done right now is we've kind of slowed that little move up market down, but with a solid employment, a decent economy this year, more people are going to decide, yeah, it's time to move up.

So that's a fairly optimistic take, but that would then sort of feed into the expectation that maybe we get 5% home sales growth for the year. Is that sort of roughly what you'd see?

Yeah, that would make more sense to me. I mean, it could be 10%, but we're not going to 5 million. And in 2025, that would mean we would have to see. Yeah, I don't even know how somehow the mortgage rates dropped dramatically and get people, and you know what? Inventory will respond a little bit too. It's interesting when you look back at 2020, because I, one, we had the mortgage rates drop, which really spurred demand. But on the flip side is, at first the inventories declined dramatically because people didn't want people coming through their homes. And so we had a weird kind of thing where all of a sudden demands going up and supply's going down, and then of course, you can never catch up at that point, especially when we started getting 2.87% mortgage rates and stuff. And then let's also mention this too, the demographics for home buying was incredibly favorable. Then we had the largest generation in history, even larger than the baby boomers hitting the prime home, buying years, early thirties, early to mid thirties, prime home buying. So we had a powerful demographic tailwind at the same time as we had sub 3% mortgage rates. And that tailwind is still probably there a little bit. It's not as strong as it was five years ago.

Not as strong as, but still pretty still a tailwind. Yeah. The interesting, even if mortgage rates, so mortgage rates would be one of the vectors if something happened where they dropped into the low fives or something that would really spur sales. The other thing that happened was in 2009, we had a really substantial first time home buyer tax credit, and that really moved the needle on sales all the way through April of 2010. April 1st, 2010 when that it expired and it pulled a lot of demand forward. And so that kind of program worked to getting home sales to happen. And then as soon as it stopped, then it dropped again for the rest of 2010.

Right?

(47:35)
Yeah, of course. At that time I opposed that policy. Did you? Oh, yeah. For a number of reasons, but that wouldn't make any sense at all. Right Now, since you had no inventory or very low levels of inventory spurring demand, as you say, it just pulled forward some buyers. We did have a lot of inventory on the market at the time, so that was a positive reason for it. But also I was looking at it from the perspective of the new home builders, and at first they thought, oh, this is a good idea. And then they realized, well, wait a second, where the real problem for new home builders in 2009 was there was all these distress cells that were at below what they could build a house for. So there was no way, they didn't really help as much as they were at first hoping. And they actually, the National Association of Home Builders actually opposed the second round of that.

Interesting.

Yeah, because it's not really helping us. Don't see, I haven't really heard it. I know Biden or Harris might've talked a little bit about a first time home buyer credit, but I haven't heard Mr. Trump talk about that at all. And I think it's very unlikely not the way he approaches anything.

Right. And demand stimulus is not really what we need. We have an affordability problem, but as we're approaching an hour already, amazingly, I always love talking with you, bill. I really appreciate it. But the conversation brings me to two kind of points that I want to get your take on. We have still an affordability crisis in the country, and sometimes we try to address the crisis with a tax credit or whatever the demand side stimulus affordability things are. We have some places where we have maybe falling home prices this year, so that'll help affordability. But how do you think about affordability and the crisis of that? And then what do you think about the second half of the decade? Suddenly we're looking at 2030 is right around the corner. So tell me how you think about those, that side of the housing market.

Well, the affordability issue is that would really, I mean, I don't think the way to address it is artificial low mortgage rates. So I think what you want to do is if we could build more lower cost housing, there was a really great proposal last year, I probably won't ever go anywhere, but it was to have a program from the federal government that was really targeted at local governments that provide them with resources to find ways to build housing at lower cost, and really to get over the, not in my backyard kind of stuff, because that's really, I mean, more supply is really what lowers prices or keeps prices from going up.

(51:09)
I think it's something that nothing's going to be done this year. So the only way to really improve affordability is for wages to go up, people to make more income. And of course, if I'm correct on the seven years in purgatory, which is seven years is just like a random guess, but that means that wages will be going up faster than house prices for seven years, and that erodes the affordability issue. And so over time, that's a real positive. Now, you bring up a really interesting discussion for 2030. My parents' generation generations aren't monolithic, but my parents' generation, a lot of people started moving in around 80 years old into retirement communities.

(52:10)
The average age of the boomers right now is 70, so they range from about 60 to 80. So that's this big generation. There's some that are already moving into retirement communities. I've actually talked to one retirement community and they were telling me they're seeing a pickup in demand. So the leading edge of the boomers are getting there. But by the end of this decade, five more years from now, now you're going to have about maybe a fourth of all the baby boomers hitting that age where retirement's very, not just retirement, but moving into a retirement community, which means they'll consider selling their existing home.

(52:55)
Now where I live, everybody keeps their home and rents it until they die just because of tax things. So there is a potential policy there where you could say, well, maybe if you've owned a house a long time, you don't have to. You can get around this, wait until you die thing to get the step up basis. And of course on the other, the flip side is if they just got rid of step up basis, then people wouldn't have to wait until they die too, because then they say, well, it doesn't make any difference miles of sale now. But if somebody's healthy in their 80 and they move into retirement community, they may want that money to travel and do stuff. So towards the end of this decade, we might start seeing a real pickup of those people listing their homes a material pickup. I know your coworker, Logan always says the silver tsunami has been predicted for years.

(53:53)
And I went, well, if it's ever going to start, it's going to start in around 2030, not 2020 or earlier. So we might see these homes coming on the market. The homes will be older, they'll need to be renovated or demolished and rebuilt, but what the real positive is they're going to be in the desirable areas. So they're close in, they're close in. If you're in Southern California and you're driving to Riverside and all of a sudden you can get a house in Tustin, that difference in commute is huge if you're working in Orange County. Yeah, I do think that there's the possibility that we're going to see a pickup in inventory at the end of this decade. Some may have are early in the 2030s. So not for me. I've been here for 40 years, I'm going to stay.

Yeah. Well, I think that's another part of that silver tsunami hypothesis, which is it assumes that we don't have all this money and great situations in the existing homes, and we have this generation. The wealth is that home and having that home paid off is all of those things is like my mom's 85 and she's not moving out of that house and is not until she is basically forced to. Right?

Yeah. Well, my dad lived to 102 and never moved out.

Never moved out.

Yeah. I mean age in place is really number one choice for every person almost. But then a lot of people get to a certain age and they decide to move to retirement communities. So we are going to see, like I say, that's why I said that it's not monolithic Asian places. I think always people, they want to be near their friends. They want to be near their community. They know their neighbors. Assuming you like your neighbors, which I do. You kind of want to stay in place. And so I think that your mom's making what's the most common choice. But like I say, that there'll be a certain pickup in people that will move and assuming that there's places to move to in their retirement communities, I'm sure that the developers are thinking about that right now, really upping the number of available units.

And I am sure they are. And I also can imagine it could be fascinating. In five years, we get an uptick in boomer selling finally get, maybe it's not a tsunami, but it's a nice wave of silver sellers. But it could be at the same time that the millennials are past their peak.

Oh, yeah. Well, they'll definitely be past their peak buying of a first time buying by then. And then we'll be hitting a smaller generation. So it's interesting, when you look back at say, the last 40 years, you've seen these ebbs and flows. And I remember talking to an agent, I don't remember when this was, but nobody was coming to their open houses. And I said, just wait a couple of years and you'll have people in line. And then when people were in line, I went back and talk to that agent and I go see all these people in line, just wait a few years and there'll be nobody coming again. And that's housing. It's cyclical. But of course, technology has changed that a lot as you're well aware is that people like to look, there's always been looky-loos and people like to look and you can look online and that really, and then you see something that's kind of interesting, you might go see it in person. The ebbs and flows may not be as significant or dramatic, but they still will happen. I think in California in 1995 or something, you were the only one that showed up. The agents were so happy that somebody walked in the door.

Yes, for sure. Yeah. And on those generational cycles, I don't think it's a coincidence that 2006 Gen X, that's me. We were mid thirties and we were that low point in the demand cycle right at that moment. I think that was a big deal. Anyway, okay, bill, it's been a terrific hour. I appreciate so much the work you do and the insights you bring. Thank you so much for your time today. Calculated Risk is the blog you've been running for over 20 years now. Yeah,

20 years this month.

20 years. And now it's a substack, so you can subscribe.

Yeah. If you put in calculator risk, you can see my blog. And then there's definitely a link to the Substack. The blog talks about a lot of economic data. The Substack is really focused on housing.

It's the best. And you do great work. Oh, thank you so much, Mike. It's a real pleasure being with you. Alright, great to see you. Alright everybody, this is the top of mind podcast. Thank you so much. If you enjoy the show with conversations with Thinkers, like with Bill, please give us a review on your podcast app. Wherever you're listening right now, thumbs up in the five star reviews, help other people find it. So thanks everyone, and we'll be back with more