HousingWire’s Logan Mohtashami - Straight Talk on the Housing Market

Welcome to the Top of Mind podcast from Altos Research. This is the show where we talk to real estate industry insiders and experts about the trends shaping the market today. Enjoy the show.

(00:17)
For three years now, we've been sharing our latest market data. Every week in our weekly Altos research video series with the Top of Mind podcast, we like to add the context to the discussion about what's happening in the markets from leaders and thinkers 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. And we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. The market was frozen so solid last fall, and now surprisingly, the landscape has has changed again. So if you need to communicate about the market, this crazy market to, to your clients, to buyers and sellers, go to altos research.com and just book a free consult with our team.

(01:08)
We can review your local market and how you use market data. Ian, your business with the people who need to know what's happening right now. All right, let's get to the show. I've got a great guest today, Logan Mo Shami. Logan is a housing analyst, financial writer and blogger covering the US economy specializing in the housing market. He is the lead analyst for Housing Wire, and my colleague, the last time Logan was on was before he was my colleague. So Logan's astute analysis of economic data and years of direct lending experience allows him to present unique, informed, unbiased per perspective on the financial markets. We're gonna talk about bias today and he may be best known for highly prescient predictions on the state of the housing market and mortgage rate trends. So we're gonna get into some predictions today too. So, Logan, welcome back to the show.

(02:07)
It is wonderful to be here, <laugh>. So great. All right, so now we're colleagues. The last time we talked was actually like a year and a half ago, and we talked about, we were going into 2021 or 2022. We were talking about the, the market was still in its pandemic craziness, still as hot as it ever was. We were, we were talking about the things that might derail it, the, the market and what we could expect for the year. Let's start there. Let's start with looking back you know, last time we talked, so give me your take on 22 and like what happened and what we should be, should have been surprised by and what we shouldn't have been surprised by. So, obviously, years

2020 to 2024 mean a lot to me. It's pretty much all my housing work for the last 10 to 11 years. And what happened in 2020 into 2021 is that housing demand broke out pre cycle highs before covid inventory broke to all time lows. We got in a very, very bad spot on the inventory level. And unlike the housing boom crash boom and bust from 2002 to 2005, then 2005 to 2008, we never had sales exploding higher or credit exploding higher. We just had too many people chasing too few homes. So I had a price growth model for this period, just because this was what I was worried about the most. And number one was that if home prices exceeded over 23% in this five year period, there's a risk to the marketplace. Once the 10 year yield and I move everything off the 10 year yield, once the 10 year old breaks above 1.94%, the housing dynamics could change.

(04:02)
Well, 2020 to 2021, we pretty much had 30% home price growth in that period of time. So what happened in 2022 early on was what I call the savagely unhealthy housing market. January, February and March inventory got solo. We had so many multiple bids, it became an, an, an unattainable housing ecosystem. It was February of 2022 where I said, that's it. I threw in the towel and said, this is it. This is the savagely unhealthy. We, we need rates to go higher or we're gonna have another 20%, you know, home price growth here. it took till March for that to happen. And then the entire economic landscape changed as the Fed pivoted to a more aggressive stance. The Russian invasion drew commodity prices really high early on, and then chaos happened with mortgage rates and with a chaotic mortgage rate system, which we haven't dealt with in the previous expansion.

(05:01)
Previous expansion was very calm, three and a quarter to 5% just that range for, for that decade. It created a very unique backdrop to track housing data, and to me it was really, really interesting how inventory channels were working during the biggest housing inflation spike ever in 2022, especially the second half. As soon as mortgage rates got to six and a quarter, I think we actually were like two weeks. We did a, we did a podcast two weeks before this new listings data started to collapse on a year over year basis. And that led the groundwork for what we're dealing with today in 2023 that we're not seeing any kind of inventory growth in any meaningful fashion. Homeowners are, as always in a very, very good financial spot. They were in a great financial spot before covid, they even got better. So the whole notion of my work is that home sellers don't sell as much.

(06:00)
So if you have mortgage demand pickup inventory levels fall and they're okay, they'll be okay in that regard. It's only a job loss recession that could create maybe stress to where you see people sell their homes. So it's, I think it's strange for everyone to see the biggest collapse in home sales ever recorded in history, which I don't think we'll ever see again happen in one year and not even get inventory levels to anything that we saw from 2005 to 2008. And I think that has shocked people. But if you understand credit channels and inventory channels, it would make sense because during this period of time, majority of the people were employed, right? Unlike the 2005 to 2008 period where the unemployment rate was falling, but inventory started to skyrocket. We actually peaked in inventory in 2007 before the job loss recession of 2008. So much different dynamics, but I could get everything in there as long as people understand that credit cycles and inventory cycles matter, and it all changed after 2010. And then if you look at it in that light, the inventory data starts to make more and more sense.

That's terrific. There's a bunch of things in there that I wanna don't wanna pull on. first let's start where you started, which is Europe 2020 through 2024 model, which is really a demographic driven, it's a, it's a millennials, right? Millennials hitting their peak earning and home buying years. tell me more about 2024 and like that's right around the corner.

Yes. And one of the reasons why I've never mentioned 2025 and on is that in the back of my mind, let's assume that housing breaks out in 2020 to 2024 in that inventory level gets worse. So we need to see how much damage is done during this period price-wise, to then think about where we want to go in 2025. that's why I've kept it completely off the books until I get to the end of 2024 and see where everything is at now, to have that much price growth in that such short amount of time, the material damage that can do to demand, because there's no more exotic loan debt structures or anything, right? Mortgage buyers run the show. So you have to be able to qualify. Well, we had that on top of the biggest mortgage rate increase in in recent history. That's why I've kept 20, 25 always off the books because I need to make sure that prices do not get out of hand in this period.

(08:39)
That's why in the summer of 2020, I said, oh boy, we all have a problem here, right? This isn't the housing market of the past, right? We have the best housing demographic patch ever in history, right? It wasn't, you know, investors pushing, you know, demand with credit debt. It's none of that. Millennials were the biggest home buyers before they started picking up buying into 2020. But as rates started to rise, they get hit harder than the baby boomers. And now the baby boomers ended up surpassing them last year because they don't finance their homes as much as millennials. And now we're stuck in this situation. And being stuck is actually was my biggest fear. So what's happening in housing right now is actually what I was worried about the most, because when you have the best loan profiles in history and you have really good demographics, but if housing inflation takes off, it can materially damage demand. and we saw what happened just in less than one year how fast housing demand has collapsed.

So boomers bought more homes than millennial in 2022, is that right?

Yeah, they actually suppressed them. Now, of course, on a percentage basis, we would consider Gen X as the biggest percentage buyer, but nobody cares about us.

nobody cares about us.

Yeah, nobody cares. So we just, we're just are gonna ignore them. It's just the boomers versus millennials, but out on a percentage basis gen X bought, even though they're, they're so much, they're smaller than the other two. the millennials and boomers are so big that they just, they almost have two separate age categories and they don't finance their homes as much. So they're like, those pesky kids are gone. I could go in there and comfortably bid and get seller concessions and life's great for them, but for the millennials, boy, it's tough. Yeah.

And that demographic and the Gen X demographic, of course, we hit our prime earning and home buying years in 2008, right? Like we were right there right at the, when there was fewer of us to pull anything out of the, out of the doldrums. Huh. Okay. So that's an interesting note. You mentioned also you talked about how demand last year slowed way down at six and a quarter percent or six and a, I think you said six and a half or six and a quarter percent. this year, rates are still there. Why is demand not slowed now?

Technically demand is slowed. It's just, we've already collapsed. And I think this has, this has been, this has been the trickiest thing to kind of explain to people because people who are familiar with my work always know, I always say this, it's really, really rare post 1996 to get existing home sales under 4 million, right? It just w with the civilian labor force and how many people are working even with rates at 8%, 6%, 5%, we tend to not get below this level. because there's a certain group of home buyers that no matter where rates are or home prices, they, they're typically can buy a home. Like the baby boomers last year bought homes because if they sell their house, they have a lot down. There are things that they can do. There are still millennials that were buying last year as well.

(11:46)
So we never broke underneath that level. And in, in fact, I think it was on November 9th when I wrote that article for Housing Wire, I said, you know, if you look at new listings, data collapsing and forward looking purchase application data, it looks like we want to get to 4 million, which would be like ex an astonishing level. And it did, and we bounced off that level because one thing changed in housing last year. Mortgage rates started to fall, and when mortgage rates started to fall, the forward-looking purchase application data started to get better. And because people were so focused on the level of sales being so low, they forgot to think about what if home sales stopped declining? Do we still have the similar market in 2022, if home sales stopped declining? I heard nobody talk about this because the forward-looking data got better because we got to such an extreme level and we never broke under 4 million last year.

(12:51)
That we are just at like 10 year lows of sales with extremely low levels of inventory. And that's how we should look at housing, because we can't ever say this is a v-shape, recovery in demand or anything in that. There's nothing, there's nothing strong about that. So we still have that low level of sales, but it's a more stabilized marketplace because I, the chaos that happened, especially in the second half of 2022 is one for the record books. Imagine yourself as a seller thinking, okay, mortgage rates just went up 3%. So that six and a quarter then went down to 5%. People like, okay, I feel more comfortable. Then it went from five to seven and a half, basically in a very short amount of time. People said, I'm not touching this market, I'm done. Right? And exactly at that time, we saw the new listings, that the seasonal decline was there, but it was negative.

(13:43)
And I think that's another thing is that we always have that seasonal decline in new listings, but this was more than that. This went negative. And that is a material change in the dynamics of housing, because before then, new listings data was trending a little bit higher than 2021. So we were getting a little bit more out of that. And that whole market changed because homeowners are in a much better spot this time. They get to pick and choose what they want to do or what housing market they wanna play in. And they said, Homa, I'm done. Right? And we haven't been able to get any traction after that, you know, five to 7.5% move, but as rates did fall, demand just stabilize, home sales bounced off that 4 million level total active listings are low. So we should just have to think of this housing market, low sales, low inventory until something flips the switch there.

Yeah. So let's talk about that new listing volume. So new listings way down, it's whatever it's like 20% lower week on week from last year. It's it is, some of these weeks have been lower than the first pandemic weeks. Fewer homes getting listed than, than when we were first in lockdown. Talk to me about the psychology of that. Why we've, and and the reason I'm asking, right, we, we talk about rate lock in, like are people locked in or, but you don't think there's a, a rate lock in with the home seller. So tell me about why, why we have no listings.

I do not fundamentally believe in the mortgage rate lockdown concept for, for this very reason. Back in 2018, mortgage rates got to 5%. And then people said, well, people are locked in with their low mortgage rates. When mortgage rates start to fall, active listings will grow because a bunch of people are all gonna come in and start selling their homes. And if you look at after kind of 2010 with normal 30 year fixed loans and people staying in their homes longer and longer than normal, people are remembering what happened from the year 2000 to 2005 where we had booming sales and we had total active listings grow every year. So they naturally still believe that's the case. The credit channels back then facilitated that demand and that listing of homes. Now, you know, it's not the case. So I don't believe that people sell their homes that much like they used to.

(16:15)
So naturally, when rates fell new listings data, the new listings count in 2021 was what near all-time lows. Mortgage rates were at 3%, 20, 22, even with rates, there was no material difference. And this has been in a long-term downtrend for over a decade and nobody cared about it because they just naturally assume people act like how I call it middle-aged men, stock traders. They look at housing as an asset, not as a shelter. We are so in love with our homes now. We have TV shows that tell us how to make our homes better. You just don't pick up and move your family just because you are afraid that you're gonna get a margin call on your house because that's not how homes work anymore. So as rates fell, we didn't get the total active listings growth that a lot of people have talked about.

(17:09)
And even today, people are, people are trying to make this a thing. Well, if mortgage rates get to 4%, everyone's gonna rush to the market and inventory will flood and nobody can buy homes cuz affordability's bad, that's never been in the data for 10 years. So I believe it's a clever marketing gimmick. I think it's very easy to say mortgage rate lockdown, even though your total home price right, determines the majority of what your payment is. so we don't talk about a home price lockdown or property tax lockdown or insurance lockdown. We talk about the mortgage rate and that rate variable has other things into it. That's the component. So I always say, well, somebody tells me, I I, I'm locked in my rate. I say, well, can you buy another house? No. Then you're not locked down. You can't afford it, right?

I mean, okay, so, but to be fair, we do, for example, in California have a an equivalent of a property tax lockdown, right? Like I have Prop 13, my property taxes never go up and therefore it, it, it encourages me to hoard my my house, right? Like, never move, never put it on the market. It's too good a deal, pass it to my kids, let them get the tax deal. Like all of that stuff you know, so that the longer you hold that house, the better that deal gets. And isn't that right?

You could, but, but one of the things I've, one of the things I've always tried to stress with, with housing, housing is a fixed debt product and your wages rise every year. So for a lot of people, their total housing costs to where they are, especially if they're in their forties and fifties, is so low to their wages. Unless you really had to move you are taking a financial benefit to your family and taking it away for another area that if you can qualify, you would do it. I mean, we have people buying homes this year. They're giving up their low mortgage rate because they can afford that house and they do it. So the reason I don't like the the mortgage rate lockdown premise is that it assumes that nobody is ever gonna sell. and, and we're, we're stuck in this very low period, but when rates fall, then the spigot will come out and all these people would flood the market with homes.

(19:28)
And a seller is a traditional buyer. So when they list the home, they know where rates are. So whenever they sell their house, they're gonna buy another one, like 75 to 82% of the time a seller seller's a buyer. So I, I just think it's a very, very nifty marketing thing that people use for 10. This is like 10 years plus the mortgage rate lockdown, but it has never created the more active listings that people have talked about. And now we're in the, well, when rates get low enough, then the market will be flooded and nobody can buy a home cuz of affordability. And that will create the big spike in inventory that hasn't been in the data for over 10 years.

So I actually have the, the sort of opposite hypothesis, which is the path to greater inventory is multiple years at higher rates because then each of those purchases that we do now at the higher rate has higher holding costs and therefore it makes less sense for me to hold onto it when I move up to the next one. Or that, you know, rent, I don't get as much rent, it doesn't get as much cash flow, any of those reasons. And so the path to to greater inventory is not higher, not lower rates. It's higher rates.

That's exactly my model. That inventory can grow in this country, but it needs rates to stay high enough, long enough to impact demand long enough for days on market to accumulate. And it has to happen for a while.

Well, it took us 10 years to get here, right? 10 years of decreasing rates. So it's like 10 years of, of rising rates to get us back to normal.

Yeah. And it's just that I'm a 10 year yield guy, so I know it was crazy last year, who is crazy enough in that environment to, you know, put a stake in the ground and say, okay, I believe the 10 year yield is peaked and we're, we're gonna have a case for lower mortgage rates next year or during that period of time, who is crazy enough to actually want to do that? And by October 27th, that was, that was the case made on housing wire. I said, okay, I b now this is, there's a lot of market things here that are not gonna make sense to people, but we saw so much drama in the bond market in, in that summer, you know, especially September, going to October that I thought, okay, just because this traditionally goes with when 10 year yields peak October 27th, the fed's main recessionary indicator has gone off in that structure.

(22:03)
Usually the next big move is lower, not higher. So from that point on, mortgage rates started to fall. And then this is why tracking weekly data matters. You can't make like two, three year forecasts in a sector that can change like this. So what occurred from November, December, January, February, March, this has happened now four times in the last 10 years, the 10-year yield falls, mortgage rates, fall, demand gets better. People are stuck in the market from six months ago, and now we're sitting here today, I was, you know, laughing on Twitter is everybody's starting to say, oh my God, why aren't home prices crashing? Well, the forward looking data started to get better. And if you don't go with it, that means you've ignored every single housing cycle data that has been here since the 1990s. And I think that's, that's the confusing part because I don't think anybody thought that the market could stabilize with rates above 6%.

(23:01)
And and to be fair, there's a lot of people that are getting much lower rates. The buy downs, you know, the builders are, are, are paying down. There's all these things that are happening there, but once the forward-looking purchase application data gets better, then you gotta go with it. If it's negative, you go with it. But you can't just come six months later and go, what's going on here? We're like, hello. It's, we've had more positive prints. And that's, that's, you know, when, when I do the purchase application data re runs every week since November 9th. If you take the holiday adjustments. We've had 17 positive prints versus 17 versus seven negative prints. That wasn't the case in 2022. We just had a waterfall collapse dive. And if that waterfall collapsed, dive kept ongoing, you stay negative with pricing, with housing demand and everything, but it changed and people didn't want to go with it because they look at the low level of sales and they think, well, home sales are back at 2007 levels, inventory has to go back up to 2007 levels and prices have to start coming down like it and it didn't work, right?

(24:07)
Because credit channels and inventory channels are different and you just gotta go with the data. If you don't go with the data, then you're stuck. Like I'm seeing today, people are now just making up excuses for what's going on. They can't do it anymore. Right? The fed hates housing, mortgage rates are still high, you know, we're 14 million vacant homes supposedly, you know, the shadow inventory is still out there, you know, the bust, all these things, none of it happened. Yeah, because the data told you that.

Okay, so that brings up another couple of questions. this is great. So, so you talked about the case for lower rates. So you were looking back in November, you're like 10 years peaked, it looks lower. And it seems to me that for some home buyers right now, there is, you know, six and a half percent mortgage rate and maybe they're getting buy downs and things, but maybe the other thing they're doing is they're gambling that in a year or two, mortgage rates fall back down and I can refinance, you know, when it hits four or something and the house I'm buying now just grows more affordable in the future. Is that a legitimate, is it wise? Is it founded in, in data? Is it vibes? What are we talking?

I actually don't believe that concept for one reason. Okay.

You don't, you don't believe the psychology or you don't believe the logic,

The psychology, yes, everyone's used to this, you know, happening, they keep on saying rates go down, but if you can buy a home at six and a half percent, that's a fixed product. That means you're qualified. There is no, in a sense house poor anymore. Like it was from 2000 to 2005 because you can purchase a home then and not be able to qualify it tied on your rate recasting here. If you're buying, I would say this, if you can buy a home with prices here and rates here, you're doing pretty good. You know, you're not, you're, you're, you're probably the upper income bracket or you have so much equity that you're bringing into the transaction that your house cost is not like what, what I've seen is that there are people out there that are putting like really big down payments now, and the total housing cost for them were the way is not very, is not much.

(26:17)
So the, I I don't believe in the concept that the people here are just like, in a sense, gambling because they all can qualify. That's, that was the whole premise of the 2010 qualified mortgage rules. You can no longer assume that rates have, will come down to make the home affordable for you to live in. You already have an affordable home to live in, and then next year wage rise and the year after that, your wages rise. So your house becomes cheaper for you just based on your wages rising because it's a fixed payment. If you refinance, hey, all the better for you. But we go into this, we go into every single purchase knowing that these people can all afford the house. And naturally millions and millions of people buy homes every single year. I mean, people have to create families. They need bigger space.

(27:07)
They do that this time around. It's not like the gambling, like the gambling in 2002 to 2005 was that you had two years before this loan blew up on you, right? So you were, there's no hope you had to refinance out of this loan within a certain period, or you're done here. We don't have that issue anymore. So this is, these, these people that are all home buyers now, I would say are the middle and upper middle class. They're gonna be okay even if rates never fall down. But rates staying this high has kept demand at a 10 year low. And we, we can't latch out of it, right? I think the we had like one of the biggest month to month sales reports recently, you know, when we bounced off 4 million, I I used to always tweet this, that, hey, listen, we're gonna get a big bounce.

(27:55)
Don't overread it. It's just, is it the first move is gonna be really big. We had a big move off of that and I I don't think we could even break above that unless rates comes lower. So low level of sales, everyone is in a fixed debt product. The risk at this point really is tied to the cycle. Anybody who buys a house with a low down payment, if they lose their job in, in the upcoming recession and home prices fall, they are at technically a foreclosure risk. Everyone else, okay? They're, they're, they're, they're in a good spot. So i I, I don't necessarily look at them as their gambling because that was actually what happened in the early part of the century. we don't have those products.

It's like the opposite gamble now, right? It's like before, it's like, I'm gonna be able to, this house is gonna go up in value when before it gets more expensive this way. It's like I'm, I'm already can afford it and it, and maybe I'm stretching more than I want to, or, but, or maybe those payments are higher than I was hoping, but they get better in the future.

I think the, that's, that's the emphasis on why people focus on payments and not so much price. Like, like normal home buyers look at that payment. like people on Twitter just care about price, but it doesn't really, it's not relevant to them. People don't I always get this thing thrown at me that when prices fall, people will just all sell out of their homes and get out. That's what, that's what stock traders do, okay? Stock traders are on leverage. They're inherently born with this mindset. Homeowners, you have to acquire another form of shelter. So the housing stock, right? The majority of the housing stock, the majority of owners are in a really, really good spot. So it's just, and this is what 10 plus of data has shown us. we don't flip the switch and assume that behavior changes that way. We can do that during covid, right? In covid, everybody just stopped doing everything for about six weeks and then they're like, okay, we're still alive. Let's go buy homes again. So to

Put a bow in this one. So the future, thinking about the future of, of mortgage rates and whether buyers are gambling on it or, or just hoping for it, what's, what's your take at this moment sitting here in, in the middle of May, 2023? like what do, what, what do you think about the 10 year, end of year, next year? The, and therefore mortgage rates, what, what, what are we expecting?

Okay, so I take my 10 year yield forecast very seriously, and I thought for this year, I'm gonna have to bring out Gandolph from Lord of the Rings. And the forecast was 3.21% on the downside, four and a quarter on the upside, we are ranges, I believe in ranges on 10 year yields are really important because it gives people a kind of level to work with, right? Rates just don't stay at one spot for the entire year. So you work off ranges, that means 5.7, five to seven and a quarter mortgage rates. And we do not break under 5.75 until the jobless claims or the labor market breaks. So this area around 3.37 or 3.42, it's gonna be really hard to break through it. So I just, you know, started the year I said, listen, this is gonna be our gandolf line. We've tried eight times, we haven't broken it, right?

(31:17)
So this is like a historical level. And the reason why is the labor market is still firm, right? I think if the bond market really wants to break lower, but it's not committed until the labor market breaks. So the growth rate of inflation has been falling, right? That peaked last year. It's really hard to re-accelerate that anytime soon. So we'll see if the labor market can break and then that gets to the sub 6% mortgage rates. If I thought we would have kind of sub 6% mortgage rates, we'd have single digit, you know, price growth in 2023. So I'm hold my line in the sand at 5.875 and up, right? And that ties with the 10 year yield forecast that ties with mortgage rates, that ties with mortgage rack, security spreads being bad. That's assuming all that so far this year. As crazy as it's out, everything has worked.

(32:08)
The banking crisis though, puts a new variable into this. and it's made the mortgage market even worse than it was before. So rates normally right now would be five and a quarter to five and a half. if we were in a normal market, I didn't assume a normal market anyway, but because of the banking crisis, the spreads have not gotten a little bit better or anything. They've gotten worse. So that's, that's the new variable that, you know, we have to incorporate into the weekly data. and so people could say, I mean, we would have a much more robust housing market if we had normal spread. So I don't know if the Fed even wants that. They like freaked out when mortgage rates got to 6%. One of 'em came on TV and said, oh no, this is gonna make our life more difficult. People buying homes, having sex, having kids buying stuff for their house, no, we can't get inflation down if you, people are still consuming, so stop it. So that's why, you know, if you see them getting upset about lower mortgage rates, it's because of that they can't have the economy expanding jobs in the way that it was or wage growth growing. So that's, that's why they target or they'll make comments about mortgage rates.

Okay? So the banking crisis adds a new variable. but really, so really what we're looking at is we're still in this range for the next year or so, this five and three quarter percent, seven and a quarter percent mortgage rates unless employment, unless jobless f break. Now what if they break the other way? What if we, what if they stay higher for longer? Do, do we have rates, we have risk of rates pushing over sevens

If the labor market stays firm and the economy reac accelerates. Now the, the history of this happening with all the data we have now doesn't look good for that. But if that occurs, you could get rates. I mean, you can make a case for rates to be seven and a half to 8% actually as the spreads are bad. but just going back in history, usually when all these indicators are coming at once with the banking crisis on top of it and credit getting tighter, it's usually toward the end of a cycle rather than the beginning of one. So even the Federal Reserve is like, this is just my take. They're like banking crisis. Yes, credit gets tighter, now we're gonna get the job lost recession we wanted because they are so bent or they're so afraid of the 1970s inflation that it, to me, it's like a badge of honor for them that they created a job, lost recession to fight inflation because none of 'em, they all want to go to their graves thinking, Hey, now I'll be, I'll be considered like Paul Voker, I'll be a hero for life. So we're in that kind of camp right now.

Yes. Okay. And I, I buy that and, you know, and we could indeed see a big job loss recession coming up, you know, like we've been a, the signals have been there for a long time. It hasn't hit yet. It's, it's still, it's taking a long time to, to hit. But, but there's still a lot of signals out there that, that that could hit,

You know, you know, I think just looking at the Fed and seeing how they're looking at the labor market, the job openings data to them is, is very critical in their minds. There are a lot of people who hate the job openings data for their own reasons, but I believe they, they don't see a big job loss recession as long as job openings are above 7 million and we're at nine and a half million right now. This is why they're, they're talking really tough and, and still hiking rates, even though they knew the credit was getting tighter before the, you know, banking crisis even hit, they just kept on going with it. And they're talking about higher rates for longer. Cuz in their mind they believe that the credit getting tighter will help them get their job loss, recession wage growth will fall down and inflation will come more.

(35:58)
And they're yet their badge of honor. And then they could go to fed heaven thinking that they're like Paul Volker. But I think the, the interesting case that some of the Fed members have talked about is that they say, well, if the economy gets weaker, long-term rates should come down and that'll help the economy while we keep short-term rates high. That premise is not a housing reset premise. That is, they're assuming that long-term rates falling, that mortgage rates will fall down with it. And this sector that's in a recession housing will get out of a recession and keep the economy at bay. You know, even when Buller talks about this, and he's the one of the biggest hawks ever, they mentioned that, that to me looks like they're, they're, they're counting on that to happen when the job loss recession happens. And because credit the last thing they want to be known for is foreclosures, bankruptcies, everything all when everyone told them, you're, you're hiking too much. So I think they're counting on that when the job loss recession happens. But again, jobless claims are still too low, job openings are too high and for the labor market to break. And that's my whole, you know, the whole premise with the 10 year yield and mortgage rates for 2023.

Okay, that's fair. I think that's useful way to look at it because, you know, I don't predict mortgage rates. I have no idea where they go.

No, nobody wants to predict mortgage rates. It's just, it's, it is only crazy people <laugh>.

That's right. If I could predict mortgage rates, I would be a mortgage trader, not in the housing data business. So though, let's talk then about, the other thing that's interesting to forecast for the year and for end into next year is home prices. First of all, you know, when we talked last time, a year, year and a half ago, you said you were like hoping for home prices to fall. And the question is, did they and are they, and will they? So how do you look at it now?

So this is the interesting aspect. My 2022 price forecast had a big price deceleration in it, even with inventory levels being low. I just assumed last year that when global yields could rise, the 10 year yield can break above 1.94% and mortgage rates will get to four to 5%. And that'll cool down home prices to match the forecast

(38:22)
That was wrong. Home home prices and demand didn't get hit hard enough with four to 5% mortgage rates. So even though the forecast was technically right, maybe I was a little bit too low for the year, it took rates to get to 7% to really create the damaging demand. And when I talk about damaging demand, I was looking for 18 to 22% year over year declines in purchase application data. I thought four to 5% would do that. It didn't, we only had single digit year over year declines. That's not good enough. So this is why even back then last year I was like, oh my God, what if rates fall again? If rates, if rates go from, you know 6% back down again, we're gonna be stuck. It didn't, the, the housing markets severely cool down when rates got to seven, seven and a percent.

(39:12)
And we saw that collapsing demand. Part of this is people stop listing new listings. Data started to fall. People just said, you know what, I'm not gonna be a buyer in this market, so I'm not gonna be a seller. And that brought demand to a very low level. Now, the 2023 forecast, home prices can decline, but rates have to stay high enough, long enough if we go below 5.875%, and that's the year we're gonna have single digit home price growth didn't happen because not part of the forecast, but rates between six to seven was enough to stabilize the marketplace. So it wasn't like we saw demand really pick up in a big fashion. It just stabilized the marketplace. And guess what happened? It happened toward the end of the year. Now this is my working theory about why why do we have seasonal bottoms late?

(40:11)
now it's not in a, in a normal year, January would be it, maybe February. And we have that traditional rise at the end of 20 20, 20 21, and 2022, all three years have had mortgage demand pickup. And because it's forward-looking, it seeps into the January, February and March data. And that prevents active listings from really growing in the seasonal cause. We're working from such low levels that even, even the little demand that you get toward the end of the year can push out the seasonal bottom all the way out. And that's what we saw in 2023, the longest time ever in history to get to the seasonal bottom. And here, one of the, one of the, what what I love about having altos research now, which is not fair, because now I spend my Friday nights just looking at the data. I go, okay, I can do this and that. I know you

Scoop me every week, you get to the data before I do <laugh>.

Yeah. So it's just, it's just so much fun for me. But one thing that I've noticed is that from April 22nd to April 29th, active listings grew 16,311. Just that one week. If we take the seasonal bottom now, and then, you know, this is, you know, by, by the time this podcast airs, it'll be a little bit different. But from right now on May 16th, we haven't even had that much active listings growth for the year. This is basically the walking dead. This is a zombie the spring we had one week last year that amounted to all the growth from the seasonal bottom this year, and we're in the middle of May. That's not normal.

Did you say you have a, a hypothesis about why we're at a, why this happens later now?

Yes. It's, we, we have very abnormal late cycle or late, not late cycle, late end of the year. Demand runs that aren't traditional. Like, like a a a perfect example is this, usually purchase application data starts to rise the second week of January to the first week of May. And then after may, total volumes fall at 2020 can be explained because the Covid 19 delay and the rebound in demand, okay, that's, that's that you, we could understand that 2021 was extremely abnormal. We, for the first time in my lifetime, we had a volume increase October, November, December, right? And that pushes demand out 30 to 90 days. So that created the savagely unhealthy housing. In fact, I remember writing this on October of 2021. I said, my biggest fear is that mortgage demand starts to pick up and it's gonna hit into the data lines early in the year.

(42:46)
And we have this unbelievable bidding war. It happened last year, even sales collapsed. But starting from November ninth, we really had positive purchase application data all the way into the first part of the year that pushes out, you know, the active listings because demand kicks in. We see it in the sales data, right? We saw the stabilization, then we saw the big balance that prevents active listings from growing in a normal fashion. When you have normal levels of listings like we did pre covid, it's not that much of a deal. But here, oh, we could move the markets. And I think that's one of the things I'm worried about for next year. What if rates do fall, you know, in November, again in December, and all of a sudden volumes pick up again. We could have another year in 2024, which active listings take a while to get back to normal.

So you don't, you think it's d pretty directly based on the, the shift of the mortgage rates that happened in November rather than, for example shift in remote work because now we can move in November, December. We're not tied to the, you know, summer schedule or things like that.

So the three years this happened, the three years it tied to very late demand pushes. And it's very hard for active listings to grow from these levels when demand picks up. and we've had three different reasons for this demand to occur. Each of them have also pushed things out later on. So I mean, we've had, I mean, some of our best home sale prints in the previous expansion lot, not a lot of people know this, but we've had our best home sale prints in the winter. It's not in the spring or summer. I encourage everyone to go back and read the existing home sales report. Our best sales came in the winter months. but here we're working from such low levels of active listings that anything just moves, messes up the entire inventory channels. So this year is like the textbook of, wow, we could have very low le 10 year low levels in sales and we're still starting the seasonal bottom increase at April, right? It's not April 14th was the, was the bottom. And the growth from this level in one month doesn't even equate to one week last year in April. So it's just one of those frustrating things to see, but you try to connect the dots. And that's the one thing that to me is different than what we had, you know, from, you know, 2010 to 2019, even though we have had our best sales prints in the winter.

So, okay. and in, in my view in the data, like we're now assuming because it's been so late to get to a bottom and to have inventory start climbing that we're likely gonna end the year, year over year with a decline in available inventory. Last year inventory spiked, but, but this year inventory's gonna decline again year over year. it was growing inventory was a one year phenomenon. it seems like at least this point, and in my view that therefore implies that 2024 is probably an up year in home prices. not dramatic because there's a lot of different val variables going on, but, but you know, if inventory is shrinking year over year, that implies that we have home price gains the next year out. what's your view of home price changes here?

Here's the thing. Rates fall with inventory here. Demand picks up. That means prices are firm and up. There's nothing, I mean, there's there, there's sometimes you have to keep things as simple as possible. And in this kind of environment, the only thing that's kept the housing market from even the biggest crash people from changing is that the spreads are so bad that it's kept mortgage rates from being at five to five and a half percent. We have that data. Now you really have to be gungho crazy to think prices can decline in a meaningful way with active listings this low. So I think the next stage of this discussion is what does the economy in housing and mortgage rates and credit looks like when we're in a job loss recession because we have over 155 million people working, right? You cannot simply have the 2005 to 2008 supply model anymore, right?

(47:26)
It took four years of credit stress data to build up in the system to then have the housing collapse and have active listings, you know, over 4 million, whatever the N na r wants to use that as. We don't have that marketplace. So just like in Covid, in Covid, everybody thought, well, home sales have to crash because people are unemployed. We had 20 to 30 million people unemployed during covid. The housing demand just came back wide because we had 133 million people working. Now we have 155 million people working. Can you lose enough jobs or can credit get tighter? And this is where it gets a little bit of a, of a complicated discussion. A lot of people tell me where mortgage rates fell from 2005 to 2008. It didn't boost demand. That's if mortgage rates were driving the market back then credit availability went from 300 to 900 in the index and then credit availability collapsed from 900 to like 100, right?

(48:25)
That drove the marketplace here. Every time rates fall, demand stabilizes or get better. So can we lose enough jobs early on to make a dent in the 155 million people working? I was, so, I I I I projected this way. I have an army of 155 million people. Assume you have 1 million in yours, who's gonna win this war? We're bigger than you, right? So can those 155 million people that are still working in getting their wages and incomes, do they disproportionately get a benefit when rates fall? Yes, they do. And the vice versa happened last year, right? We had an awesome labor market last year, right? What happened? Housing had the biggest collapse ever recorded in history in terms of sales in one of the best, if not the best labor market ever. Why? Because mortgage rates disproportionately impacted in a negative way. So when rates just go from 7.375 to 5.99% and that stabilizes the data at a very low level.

(49:30)
I'm not sure how many people want to take the other side of this when you have 155 million people working and we're working from low levels already. Like if we were, if sales were trending at six and a half million, that's a whole different subject, but they're not, right? So disproportionately housing gets impacted in a positive way, not a negative way, because credit can't really in scale get tight anymore. We actually have never even recovered back to the pre covid credit availability index. That's how, you know, credit is shot, but it doesn't really matter cuz Freddie and Fanny aren't stocks that are publicly traded, not in conservatorship. If that wasn't the case, I would have a much different take on housing and credit. But since they were nationalized for this one reason that the credit system for the mo majority of all home buyers flows always that was the benefit during Covid, that's the benefit. Now imagine if there were publicly traded stocks, their stocks would be going down right now, banking crisis, they don't have enough money to, you know, in that environment, credit could get tighter. This case not so much. So different dynamics going into the next recession.

Okay? So what I think I'm hearing is that credit not just rates, but credit availability drives the potential changes for price. And that you feel like it's unlikely that credit is going to get tighter for homeowners in the next recession. it also feels like even if we have a big job loss recession, we're coming off such high numbers that there and, and such low inventory that like there's more buyers than sellers because people, even if we had start getting some big job losses, we still have a lot of people employed. And therefore most of those scenarios are pretty positive for home prices in the next year.

So when we talk about foreclosures and recessions, we have to do time models because 30, 60, 90 day lates are at all time lows. That first wave of credit delinquency data, which then the Fed has to reverse its course, right? You're not gonna have a federal reserve that wants the economy in a recession or crashing everything. They will change their minds. It's gonna take minimum nine to 12 months before that supply hits the market. So if you're looking for foreclosure supply, where we are right now, it's a 2025 story. And that assumes that the recession is now in a very aggressive deep recession and credit gets tighter. So you have to take all these different variables. And also I think for a lot of people is it is a valid premise to say, well, I want the 1970s back again and rates went up during the recession.

(52:15)
This is true, right? In the, in the seventies and in the early eighties, that camp wants everything to crash. But that is actually a valid premise. A lot of people forget that mortgage rates went up during the recessions back then different marketplace, right now, different economy. I don't think we have this seven, if we had this 1970s recession, the 10 year yield would be three 4% higher right now. But it isn't. And the path for inflation now the arithmetic plays against you, right? Just because shelter inflation is gonna cool down, it's really hard to reac accelerate higher without rents taking off. This is why I like to show those year over year rent inflation data lines. You could see what happened. We had three spikes in the seventies and early eighties. and after that shelter inflation cooled off for decades. it, so the, the comp, the how, how we measure CPI inflation or PC inflation, it's really difficult for that to have like a seventies redo without shelter and rent inflation taken off, or we just don't have that backdrop.

So what you're saying is there's, there are some like stagflation kind of economic scenarios, which would be obviously bad for housing, but they seem like the lesser lesser probability, and therefore, at least for the next year, it looks like our price stability on homes.

Well, one of the things with stagflation and demographics and labor, you know, Japan has been in and out of economic growth recessions, but they have a very low unemployment rate, right? Because their elderly workers are dying off or leaving the system. Here. We, every month we have baby boomers leaving. They need to be replaced because productivity is not great here. So that demographic backdrop can keep, you know, the unemployment rate lower than, you know, what we would traditionally see as one of the biggest generations in the history of the world retires off and then they die, right? So we are talking about current data, not what's gonna happen at the end of this decade. So replacement workers, that's why I always say that the US advantage is that we have a lot of awesome young people and they can replace the workers that are older leaving and they can replace them as consumers, right?

(54:28)
Japan doesn't have it. China doesn't have it in Europe, doesn't have it, the US does, right? We j we have the millennials gen Z, gen A, we have younger replacement workers. So it keeps things at bay, right? And I think that's, that's, that's such a huge dynamic difference in just the whole economic discussion here in the US versus Japan. Like I, I have to deal with people every day. I say We're Japan. We're Japan, we are not Japan. There is no data in the history of the world that shows we're Japan. Japan's total population is gonna be dead. 40% of it by the end of this century. We don't have that. We have a very, very big young workforce. They replace them. So that is what I call replacement demographic, consumer home buying. It just keeps things at bay where other economies, they just have to find workers to offset their dying population off. And then we we're okay with that. That's our muscle, that's our demographic muscle besides of king dollar and having the biggest military and friendly neighbors, we have all these awesome things in America that other countries don't have. So let's not put Japan into the us.

Well, that actually gets to what, what, maybe we should wrap up and let me let it be our last question. So one of the things I like to do is look longer in the future. Now, I know you said, you know, you don't model 2024. You've gotta, we gotta like finish this cycle before we can really forecast out. But let's talk about the variables that are later in the decade, 20, 25 and beyond, like the baby boomers dying, right? You know, and whatever other, whatever other variables we should be thinking about with housing, right? And with the real estate market, you know, the after the, after the millennial boom goes through, they, it population falls back down again. So, so what should we be thinking about long term?

No country has a dory and gray labor market and everyone dies. The baby boomers are coming toward the end, right? And toward the end of this decade, more and more of them will be dead. Their homes will not go with them to the grave. There are homes that have to be demolished because they can't be lived in, but they will pass that on to their children. And what their children do is the question mark toward the end of this decade. But we know this for a fact that everyone dies, right? And, you know, especially in the us our life expectancy is not great, right? And we have to be maybe a little bit more mindful that might come a little bit sooner than, than originally estimated, but it's coming, right? So there is a supply premise that is valid, where the different part the part that wasn't correct was the silver tsunami, which was supposed to happen in 2015 to 20 25, 26 to 30 million active listings, because the baby boomers turned 62 in 2008.

(57:23)
And by 2015, that's when the massive inventory will come and they'll all downsize. And millennials can't buy, and everyone believes Harry Dent not the case, right? so toward the end, this will happen. And what their children do at the house is gonna be fascinating, you know and so that we know for sure is coming, but that's down the line. So we are leery of the future always, but I just think that home buyers at this very second, the last thing are seen, grandpa's not gonna make it by this time and end of the century. So let's hold off on buying a house until, you know, people have to live their lives every single year. This is why I always say millions and millions of people buy homes every single year, right? It's the level of affordability, demographics, credit, all these things put into place so you can be leery of the future, but not at the cost of the present moment. But that is coming, that is coming for sure,

Not at the cost of the present. And I, I think that's a real thing. I think buyers right now are, you know, the ones the people who are most surprised at the current active market are like, you know, are these buyers nuts? They're buying at the high price and they're buying, you know, economy's gonna tank and they must be crazy, but they're buying on their current situation, which is like, I've got a job. I've got money down, I, you know, and I, I need to time to buy a home. So they're like acting on their now. And, and that could be surprising to some people, I guess.

I think if you're a Wall Street analyst and you came on television and you told the American public that people might not buy homes because they don't want to buy in the top, and home sales actually stayed firm when mortgage rates fell, then that isn't a valid premise. So I think people have to look at the data and say that when mortgage rates fall and things become affordable, millions and millions of people have bought homes this century, right? When that's the case, people who are investors might think that the public doesn't buy homes because they're afraid of the top. But, and, and this is why I I, I fall back to what I've said for the last eight to nine years. People rent, they date, they mate, they get married three and a half years after marriage. They have kids, people have to live their lives in a house.

(59:48)
This is not a stock. You can sell your stock and nobody cares because it's not, it's not shelter. People need to find a shelter that fits their livelihood. And what we know is people working need to buy or even rent a home, they need a form of shelter because buying or fearing at the top is irrelevant when somebody has to live in a house or, or rent a house. So we work off of the things that actually matter, affordability, demographics, worse credit going, job loss, recession expansion. And what last year showed us is that when mortgage rates started to fall, demand stabilized and millions of people are gonna buy homes this year just like they have done post 1996. It's just, it's really worth, I even have total home sales under 4 million for a year. And that's how we should always look at housing in terms of housing economics, and not the Wall Street stock trader kind of analogy that nobody wants to buy at a top rates spiked up in the biggest fashion ever recorded history coming off the biggest home price growth in a very short time. It killed affordability. But even with all that rates fell, demand stabilized. That's it. It's not, it's, it's really not that exciting of a story, but that's what happened. And I think that's why you have to be careful of Wall Street when they start talking this way because this was not supposed to happen, right? It, the demand stabilized as rates fell. If rates kept on going to seven and a half, eight and a half, 9% different story. And it would make sense because affordability got worse. But that's not the case.

That's great. Logan, was there anything else that we were supposed to get to today that we haven't gotten

To? No, just just just a primary focus that when we're this late in an economic expansion we have to track labor data, credit data. What, what does that do with mortgage rates? And just remember foreclosure timelines nested equity sellers to me is a faster case for inventory coming on the market. Mike and I have the new listings data. We're, we're gonna emphasize this. There is no spike in inventory until that data goes up, right? So even last year, last year when it was apparent that there was no spike in inventory, because new listings data was only trending a little bit higher, you know, than 2021, when that data starts to look like it did in 2015 or 16, then we could start making a case for that. But don't try to get ahead of the data by saying, well, foreclosures are coming.

(01:02:23)
Okay? That's, that's a year away to get that supply equity sellers is more of a, is is a more of a valid premise. Let the data come to you. Let the new listing data come. Mike and I will do this. This is what we do now, now we're a team. Okay? So you're, there's no excuse anymore. If you can read and visually see, there's no excuse not to be able to read the data correctly now. And you need that new listings data to really take off in a big fashion to get this massive supply spike when demand is falling. Okay? They equilibrium, they work off each other, right? So go with the data, let the data come to you and tell you what's going on.

Yeah, I love the, i the, the argument is always home prices must fall. therefore, I looking for the data that they are falling or like, it's a, it's like a, I think that this must happen,

Mike. It's one group of people, Mike. It's just one group of people. It's all the people that hate the Federal Reserve and they troll with Twitter accounts with dumb names. And why do you think I wanna take these people on live debates? How do you defeat a troll army is you get 'em on camera and then you ask them for their forecast, and then they go, what? You don't forecast, right? No, you as a middle-aged guy, as you have grown elder for the last 10 years, you have spent your life on social media with a stupid name telling everybody since 2012 home prices are gonna crash. You will not change, but I can get you on camera and then we can get everybody to forecast. And none of these people want that action, right? And this is my way to go after them because, oh, after 11 years of hearing the same thing over and over and over again, it's just one group of people. Nobody else that does this. Just them all.

Right, Logan, well, what a joy to have be on the same team with you. It's a, it's a lot of fun. We got a lot of more work to do in the future, everybody. This is the Top of Mind podcast from Altos Research, which is now part of the housing wire. HW Media family is, if you need to find out more about the market you wanna follow Logan Logan's the best. Follow Logan Mo Shami on Twitter and mostly on Twitter. Li do you do post on LinkedIn stuff too?

Instagram, Instagram videos 24 7 all the time. Talk about all the economic data on that format. So yeah, Instagram and Twitter. Find

Logan on Instagram and Twitter. Yeah, you're doing a ton of your stuff on instant reactions on, on Instagram. All right? All right, everybody, thank you so much as the top of Mind podcast. Go find us@elaltosresearch.com. Logan mor Shami, thanks so much. We'll talk to you again soon. Thanks for listening to Top of Mind. If you enjoy the show, I'd really appreciate leaving a nice review on your favorite podcast app that helps other people find us as well. Be sure to subscribe so you don't miss future episodes