In this episode of the Top of Mind podcast, Mike Simonsen sits down with Logan Mohtashami from HousingWire to talk about the changing real estate market and the big economic issues of the day. Logan explains how macroeconomic forces actually impact the housing market, shares his surprising take on future home price declines, gives his predictions for where the market is headed, and much more.
Logan Mohtashami is a housing data analyst, financial writer, and blogger covering the US economy specializing in the housing market. Logan’s work is frequently quoted in BankRate.com and Bloomberg Financial. Logan is also a Lead Analyst for HousingWire.
Logan’s astute analysis of economic data and years of direct lending experience allows him to present a unique, informed, and unbiased perspective on the financial markets. He’s perhaps best known for his highly prescient yearly predictions articles, and his predictions on the state of the housing market and mortgage rate trends published weekly on Bankrate.com.
The Top of Mind Podcast is produced by Altos Research.
Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.
Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.
Intro 0:02
Welcome to Top of Mind, the show where we talk to real estate industry insiders and experts about the biggest trends impacting the market today. Enjoy the show.
Mike Simonsen 0:14
Mike Simonsen here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to the smartest leaders, thinkers and doers in the real estate industry. For a couple of years now we've been we've been sharing the latest market data every week in our altos research weekly video series. With a new Top of Mind podcast, we're looking to add some context to the discussion about what's happening in the market from leaders in the industry. Each week, Altos Research tracks every home for sale in the country, all the pricing all the supply and demand we do all the analytics and all those changes. And 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. It's been so hot, so competitive, and suddenly the landscape is changing. So when people ask me, Mike, can I get the data from my local market? You know, we talked nationally, but can I do it locally? Yes, the answer is yes. Go to altosresearch.com for a free consultation on how you can use the local market data in your business and check out your local markets. Without further ado, I am happy to introduce my guest today. Logan Mohtashami. Did I pronounce that right?
Logan Mohtashami 1:29
Yes, you did.
Mike Simonsen 1:30
All right. Mohtashami. That's terrific. Logan is the housing data analyst a financial writer blogger covering the US economy specializing in the housing market. Logan's work has been frequently quoted quoted bank re Bloomberg financial Logan is now the lead analyst for HousingWire astute analysis, the astute analysis of economic data and years with years of direct lending experience allows him to present a unique informed and unbiased perspective on the financial markets, he may be best known for highly pressured predictions of the state of the housing market and mortgage rate trends, we're gonna we're gonna be getting into some predictions today, I really appreciate Logan's view and and his his the volume of the work that you do the really the like, the being on top of all of the invert the, the data and the trends. And looking at the future, I liked it, you're unafraid to make a prediction about the future. So Logan, welcome to Top of Mind, it is great to be here. nerds who another that's exactly, we're doing some day to day work today. So we're gonna talk a lot of data today, we're gonna we're gonna, you know, play around by predicting the future and there's some man, there's some uncertainty in the market right now. So it's gonna be fascinating to see what we, you know, make some put some like flags in the ground and see where they end up later on. So but let's start with your background. You were originally a lender. And so how did you develop your your expertise? And and tell me about that part, how we got here?
Logan Mohtashami 3:07
Yes, my family has actually been in banking since the late 1950s. So I got into the financial industry in 1996, started trading stocks, you know, helping the family business and mortgages. And then kind of one thing led to another in 2010. And, you know, somebody asked me to write about, you know, the financial markets. And I decided to create my own blog after that. And every year just talking about the housing market just directly regards to that. But by 2015, I decided to take it to the next level and just do data analytical work with the economic expansion first, then talk about the housing market. So we could be a little bit more complete, because there are a lot of crazy people out there. And the internet doesn't tell the truth all the time. So I thought, let's do it in a kind of progression model way, give people kind of things to look at, to kind of crowd out a lot of the noise out there, because there's a lot of noise. And this way, at least there's people can reference it because it's really just data driven. It's just trying to explain it, rather than trying to do ideological economics, which hasn't worked well for the past, you know, 15 years.
Mike Simonsen 4:19
Yeah, you know, the, the, it's so hard to pull our ideology out of our perspective. You know, we have you know, we have so many people who have an a view that the government is overspending, or the Fed keeps money too cheap, and therefore, they have a view that the market must crash. It's so hard to pull all that out and just be be objective with the data. What do you you know,
Logan Mohtashami 4:50
I mean, for me, it's, I don't follow a lot of people I don't live read people's work, I don't even watch TV. You know, I just simply just look at a consistent group of data and by I've tested and then adjusted to rates for demographics, it's something like that. And throughout time, that's become more efficient. For me, the less human element, I think is better, because out there, it's all a human element. And I understand why they do it. But it's, it's something that I can't do. So I'm just trying to talk data first and try to explain it, which actually kind of makes it very boring. You know, I always say if economics is done, right, it shouldn't be terribly boring. It really shouldn't be like this exciting. But we live in a society that you know, it is what it is, I try to make it as entertaining as possible. So it'll be bearable. But yeah, math, facts, data works, the rest of storytelling, we just want to talk about trends and take it from there.
Mike Simonsen 5:45
So so let's let's start here, then let's start with the data. It is now we're recording this middle of June, the the podcast will go out early July. But But middle of June, we're recording this the markets, changing the housing markets, changing the economy, there's crazy things going on in the economy. What What's your take on where we are right now let's start there. what's
Logan Mohtashami 6:08
what? So for that, for the housing market, you know, in the previous expansion, I used to always talk about from 2008 to 2019, we'd have the weakest housing recovery ever. And that's not on prices, that's mortgage expansion, new home sales, housing starts, those things will have to work their way with household formation in 20 years, 2020 to 2024, then we have really good what I call replacement buyers, because I don't believe the US could have a credit boom. So during this period of very, very hot home price growth, I've kind of set two key things after 2020. If home prices just grew at 23% for five years, we'd be okay. But unlike the previous expansion, you could see inventory slowly falling every single year. So here comes the biggest demographic patch ever you put move up, buyers move down buyers, cash buyers, investors, inventory can crack historically. And then you can be some problems with price inflation. That obviously happened. But in early part of actually toward the end of 2020, I talked about the housing market can change, but it needs the tenure yield to get above 1.94%, which has always been a key level for me. And once that happens, the market dynamics could change. But also home price growth was unbelievably hot. And to me, it was more about forced bidding, than actually like a credit demand or credit explosion. So because of that you have this unbelievable home price growth, you know, if we just grew at 4%, every year for 10 years, we'd have so much price sway with the wage growth wasn't the case. So now that a 10 year yield broke above 1.94%. To me, that is a material change. Because what that does is it takes the entire total cost of housing up in a very big way that we never had to deal with in the previous expansion. So that should slow down housing should slow down the new home sales market just sold on housing construction versus application data should get hit, I actually had anticipated more weakness on the year of your purchase application is looking about 18 to 22%. Year over year declines on a four week moving average. We're about 16.75. So we're getting there. But one thing I noticed that's four to five, four to 5%, mortgage rates weren't doing that much damage, but now above 6%. That's if that continues, you're just gonna see home sales fall inventory should grow housing, constructions should slow. And that's typically the impact of higher rates toward the housing market.
Mike Simonsen 8:39
So I'm not a bond guy by 1.94%. On the 10 year, what does that mean? And what like, and how does that what does it mean, in general? And then what does it mean for housing.
Logan Mohtashami 8:52
So in the previous expansion, all my forecasts when I started incorporating bond market trends and mortgage rates, you know, from 2015, and I said the 10 year yields are just being arranged between 1.63%. So easy way three and a half percent to 4.75 mortgage rates toward the end of 2018. And it actually at the end of 2017, I thought we would invert the yield curve in 2018. Just because rate rates, the 10 year and a two year have the potential of crossing. But in 2019, I thought, hey, listen, if the 10 but 1.94%, then you know, growth should be fine, but it's going to be a struggle, and we never got above that level in 2019. And then 2020 came in obviously, the economic data was getting better. Then COVID came so COVID Was this exogenous stick shock. But people forgot housing broke out in February of 2020. And the purchase application data was actually positive noticeably up to about March 18 of 2020. So right when COVID hit us housing authentically broke out retail sales are still growing job growth was fine. Then we have to shock everyone was, you know, Oh, guess what, here it is, and the bond market was going to collapse, right. And that's one of the things I wrote about for housing, why when this happens, bond yields are gonna go down rates are gonna go down. So that in itself gives housing a cushion. The Americas back recovery model that I wrote for housing on April 7 was give this some time, and housing should recover, right? Because those people, you know, people thought about, well, there's 20 to 30 million people unemployed, well, there was also always 133 million people working. So if people just lose that fear of what COVID Was that for six weeks, then housing should come back, housing came back right away. So when I talked about the bond market in terms of 1.94%, it's hard for me to think that was going to happen in 2020. Part of the 2022 forecasts, you know, I was talking about really need rates to rise to cool this down, I didn't believe we can get the tenure yield above that level in 2021. So rates were going to stay low button 2022, the forecast was that global yields can rise, we can get 4% plus mortgage rates, when you get the 10 year yields about 2.42%. Then a lot of other things happened this year. So the bond market and mortgage rates really started to take off after the Russian invasion, the Federal Reserve really pivoted in terms of wanting to fight inflation, and then rates in the bond market got well ahead of what the Fed was going to do, and inflation became the main topic. So we have to deal with that in relationship to where mortgage rates are. Because if you actually look at where mortgage rates are, where inflation is, we should be a little bit higher, technically. But we're trying to fight this equilibrium and this tug of war between are we going into a recession? And when do bond yields and mortgage rates come back down?
Mike Simonsen 11:48
Yeah. Wow.
Logan Mohtashami 11:49
So there's a lot lot there. Okay. Let me start with the things most fresh first. So you said that based on the bond market, you'd expect mortgage rates to be higher than they are currently? Well, based on where inflation is based on inflation, which is coming hot? Yeah, it's hard. And historically, if you look at inflation rate of growth has high mortgage rates and bond yields are still, if you want to make a historical reference to that if you go back to the 70s, and 90s, you know, the 19, or mid part of the 1990s, when when when the Fed was really inflation, mortgage rates almost got to near 10%. Back then. So mortgage rates are still kind of low in that historical context. But it's a tug of war, everyone's waiting to see the economic data start to look recessionary. Because they assume the bond market and the mortgage rates have come back down at that point. And the Fed is really talking very aggressively, they hiked 75 basis points. So there's this very unique tug of war that's going on. And I think, since it's everyone's first time, the bond market, the mortgage rate, inflation, a lot of these things don't make sense on a historical basis. Unless you believe in the downtrend and bond yields from 1981. Or if you go back 800 years, bond yields have been falling that trend. So that's kind of how I looked at it, because I don't believe the US is a fast growing economy. I don't believe they can. Wages and growth inflation can continue as we add this exogenous shock, and we're dealing with some of the aftermath of that. And then eventually, over time, things should calm down and get back to normal and we're a slow growing economy.
Mike Simonsen 13:26
Wow. Okay. So so too, because of because inflation has come in hot. We have We the mortgage rates actually jumped they spiked big, like two big days in a row last week after that, though, that hot inflation report. And now, the question is, like, do you need so assuming inflation stays hot, you would assume rates go higher from mortgage rates go higher from
Logan Mohtashami 13:55
here? Well, here's the interesting aspect. Mortgage rates and the bond market is well ahead of where the Federal Reserve is. So we're, we've priced in a lot of things. It's just that that CPI level, pushed it a little bit higher. And a lot of people were waiting for things to cool out. Now, the fascinating aspect is, core inflation is starting to slow down, you know, the headline, inflation energy, and the food prices are picking up. Now, there's one aspect the Russian war created this, but also we created sanctions against Russia to actually make it worse. So part of those sanctions are part of the reasons why we're, you know, oil prices are higher and food prices are higher. And we have to put in the variable of war into economics now, because it's keeping the headline inflation growing up much hotter than the growth rate of core inflation. And today, we got retail sales were a little bit softer. So the PCE data that the Federal Reserve tracks that core inflation is starting to cool down I think with the energy and food prices, the Federal Reserve bill, I don't know if they believe this, but they feel like they have to show that they're being very aggressive, even though traditionally what the Fed can do is the dollar gets stronger and oil crashes because of that, that's not happening. So they have to really put up a good face that they're here to stop inflation, but I just don't know how much they can do with energy and gas prices. The other things you cool down demand enough, you destroy enough wealth, the stock market, the excesses in the economy are coming down. And, you know, at some point over the next six months, we're either really going to show recessionary data and the Fed flips, or the economy surprises us all and it stays firm. And the Russian situation gets worse. The China Chinese Taiwan situation impacts and that headline, inflation stays elevated.
Mike Simonsen 15:53
Got it. So in that case that that headline inflation stays elevated, then, then we continue to assume that rates mortgage rates climb from here.
Logan Mohtashami 16:07
I actually don't, I'll take the other side of that just further. For one. One factor I've got I've got a recession red flag model, there's six things that need to go up before I start to get into recession watch. Four of them are up already. The last time I had four up was in 2006. The other two happened that year, I'm about to raise the fifth flag with the next housing starts data. So the economy is already showing slowdown effects. And I, I believe, once the Fed starts to comment about hey, listen, all right, the economy is slowing down, we're not going to be this aggressive, we're going to make sure that we try to minimise the collateral damage of fighting this inflation in that regards. So I think, to me, we're kind of peeking out. But where I can be wrong is that the economy stays firm. And inflation doesn't let up regarding that. So if the core inflation data doesn't start to come down, but the economy is not in recession, growth stays up. And then we're dealing with all these other variables that none of us could really control. And then rates could probably go up a little bit higher and other mortgage backed security market is very stressed right now. So that's that's kind of where I am is because I just I just don't believe our economy can handle this kind of inflation and this kind of rates. And we already see it in the data, we already see housing falling, we already see the builders competence falling. So those things actually matter when he talks about economic cycles. And eventually the Fed actually can't really defend their take about well, we need to be even more aggressive. When kind of the job loss recession starts to happen. And then bond yields do their traditional coming back down with mortgage rates coming back down. Wow.
Mike Simonsen 17:55
Okay. So based on the fact that you see likelihood of recession, or you're not ready to make a call yet, but but a lot of the a lot of the flags are up, but I think a lot of people see a lot of the flags up, then that would implicate imply that that rates, general bond rates and mortgage rates will come down in the future and not not keep going up from here. That's Yes, sir. Somebody that okay.
Logan Mohtashami 18:18
Federal Reserve is already, you know, commenting or for guiding that they think they could cut rates next year or in 2024. Yeah, we're everyone. No, this is just a very unique tug of war. Because, you know, in this century, we never had to deal with very hot inflation, of course, this century didn't have to deal with a pandemic, we didn't have to deal with so much fiscal stimulus on top of monetary stimulus all at once. And we just had so much spending in a few areas of the US that is abnormal, and we're dealing with the aftermath of that and supply chains and everything. So it's, it's very unique, but the housing inflation story would have been here, even without just because the inventory levels both for rental and homeownership have been falling so that inflation would have picked up regardless,
Mike Simonsen 19:03
I agree with that view. And you can see it, you could see the the people buying homes in the pandemic, like early pandemic, before any stimulus hit, people were by. Yeah, I agree with that as well. And then so then the question is, so we have your your view of the economy, which is this crazy, we haven't seen stuff like this a long time. So we have inflation, inflation, looks at some of the the inflation signals are coming, maybe turning the corner coming down, but the headline ones are still as high as they've been. We have read everybody sees recession potential, so that those might come down. So given those factors, given the fact that like today, I don't know the 30 year rates, it's like 6.2% or 3% or something like that. What do you see for home prices? You've been very vocal about saying that that there's no housing bubble, implying to me that you don't think that home prices can crash in a big way. Where do you see them actually going based on the on your view of the economy.
Logan Mohtashami 20:11
So when I look at total inventory, the United States of America, from 1980, to Now, traditionally, where this is taking the NAR data, traditionally, two to two and a half million is normal. Right, what happened during the housing bubble years is that we had a credit boom, and then we had a credit bust. So when rates were falling down, it didn't matter, because credit got tighter in relationship to the demand curve. So I can't say it's a housing bubble, because I was talking about this as the weakest housing recovery ever, the demand is, you know, real home prices were slightly going negative in 2019. So we just never had that kind of market. But what you could have, which is I think, is almost worse than another way. If you have shortages of homes, you if you're over, if you're forced to bed, you suck up a lot of affordability. Now those homeowners are doing great, you know, that's part of the thing, if you look at homeowners financial profiles, they've never looked better. And they even got much better after COVID. So the ability to get supply back to let's say three and a half to four and a half million units, like we saw after the housing crunch, not going to happen, it's called forced credit selling with demand weakness, what we can have, what I think should happen is, I've kind of set this target since 2020, we need total inventory to get back. And again, this is the NAR data 1.5 2,000,001.9 3 million. As soon as that happens, I could take the savagely unhealthy housing market because what the problem is the days on market right now are just too low. Right? Even when we look at the weekly data's for Redfin's and real for that, and they're just too low. And people don't understand why aren't home prices crashing now? Well, they did targets too low, you could have falling sales, we've got falling sales before, and home prices still don't go negative. But inventory should get back up to 1.52 to 1.9 3 million. A lot of people fight me on this because they say people don't sell well. There's a natural sell listings that happen every single year, it's just that if demand could keep that listing at a very low level, because it'll suck up the supply with what's happened with home price growth from this period to where mortgage rates are, we should be able to get inventory up. And once inventory is kind of above kind of 2 million, and we get above four month of supply, then we can talk about, okay, the possibility of home prices declining. And that's why those targets are always a big part of my work, because I thought it's gonna be a struggle getting up there when rates are low. That's no longer the case, right? I thought four to 5% rates would change the market 6% rates is really going to do it. So the inventory challenge, what you want to do is you want to see them grow at the end of the year, because the seasonality factors, and going into the next year, they should grow even more. And housing is kind of like this two to three year process of supply. And they'll just gradually get up and then you'll see price declines when that happens, because there's more choices than and even if rates fell back down. I still think the amount of price gains that we had in such a short amount of time is has done some historical damage. We never had that in the past, you know, the past when rates went up, sales fell, then they went lower demand picked up. They kind of kept things at bay. We took a lot of housing inflation in in two and a half years and hence why I call it the savagely unhealthy housing market.
Mike Simonsen 23:46
Yeah, for sure. It's so it's been savagely unhealthy. It's been like, not good for any participant except for one person who bought their house, you know, 30 years ago and is just sitting on it and watching, you know, equity grow the but so. So what you're seeing is multiple years of higher interest rates, that each year causes to have a little more inventory added to the market. And then once we get inventory back up, then we can look at the home prices decline year over year.
Logan Mohtashami 24:19
Yeah, once we get about four months supply and inventory, you know, kind of once we hit that 1.93 level, then I think there is where I know a lot of people say well, you can't have home prices decline until you get six months supply I think let's just progress our way there because when you deal with the housing market rates can go back down and he can take some of the supply down with it. So this is why this is why I was talking about you want to target inventory levels and then target supply levels where you'd have more choices. Once you have more choices. Then the pricing changes because you know what we had is we just had a raw shortage of homes. Anybody could do whatever they want. You just had too many people chasing too few homes and wasn't credit. And because it wasn't credit, there's limits to what you can do in housing. That's why it was so frustrating for me to watch the last two and a half years, I'm thinking, Oh my God, the one thing, the one thing I always talk about that could ruin years 2020 to 2024 is accelerated home price growth above 23%. And I lost it in two years, and then it's still a got worse than 2022. So I just said, less than the early early in January, early February, I said, we need higher rates no matter what. This is the worst housing market what I saw in February, January, February, where we saw 20 3040 people bidding for it was just so it was cringe pain, staking, that that was happening Iran because people don't realize the damage they're doing. And that's why I always say that we needed higher rates. You know, when I talked about this in February 2021, people always fought back and said, Well, we have to just build more homes, we don't need higher rates. No, you don't get it, you're not building homes in this environment, they're never even going to be fixed. You know, we have the completion data so bad. Even if they did build those homes, that's not going to help this situation, we are under 1.5 2 million. That's never happened. And here's this massive demographic patch. So, you know, I was very blunt about it. The pricing power that sellers had, and home builders had was way too much. And the only way you put these people on their ass is higher rates, because it'll change the narrative we just needed to get above 1.94%. And you know, we're heading that way. And then after the invasion yields fell, people thought a recession, but then we just shot right back up. So to me, this is balance. And I get a lot of pushback on it. But I'm just looking at it at a historical we need a balanced housing market, because guess what, people will always need to buy homes and the amount of home price inflation, it was way too hot in this two and a half year period.
Mike Simonsen 26:53
Yeah. So So you think of the the inflection point as an absolute number X amount of homes on the market. 1,000,001 point whatever you call it is your number. I think of it in an in a relative numbers. So one of the things we have we've had for the last decade is we have declining each year, year over year inventory. As we take in single family homes or titillating homes out of the resale market and turn them into investment properties. We've taken like 8 million homes out of the resale space and and turn them into investment property. And therefore those are not for sale. And that's a big chunk of the of the whole country. And in 2018 rates rose, and we had by the end of 2018, we had year over year inventory gains. And by 2019, we had as you pointed out flat or maybe negative real home price gains. And so the year following you have you ever your inventory gains the year following is correlated to that to to that change. So what we've had is basically for for more than a decade, we've had every year old price or every year inventory falls and home prices climb. That's what's been happening with that slight exception that that little 2018 2019 window. And so now we have inventory climbing again. We have year over year inventory gains. And so my I would call it a forecast because we don't really do forecasts that way. But my my gut my model says that that implies flat, at least flat price changes home price appreciation between 2022 and 2023. Because we have relative levels of inventory gains. What do you think of that?
Logan Mohtashami 28:44
Days on Market to me, are like really important. And what we had in 2018 and 19 days on market was above 30 days, once we get there, housing gets really interesting from the levels we've had here, my structural bias is that I need prices to fall like 12 to 18% to get my 2020 to 20. Back. So I'm in a very bad situation because I need that to go back down noticeably to make this work for me. But I don't want to just say I don't want to be this guy. Oh, home prices accelerated the on trend, it has to come back here. I just think that's such a lazy work. I think you have to guide people to where we see the inflection point. That's why I've always talked about 1.94% on the 10 year yield. Once that happened, things changed. That's what I talked about 23% home price growth in five years if we break that these are really big things. And so we should be able to correct some of that. But we need a little bit more inventory. We need days on market to grow back up over 30 days.
Mike Simonsen 29:51
Okay, so let's talk about where that inventory is going to come from. We are you know, in the Altos data and just talking to single family homes so when which is the one I like to use as the headline we have normally this time of year we'd have a million homes on the map just under a million homes are normally being in the last decade. You know, right now we have 400,000. And that's climbing rapidly. And it's higher than last year at this time. How do we get back to a million? There's no, you know, you and I talked about and we talked about this publicly, there's no, there are no distressed sellers anywhere in the world. In the country. There's nobody underwater, there's no short sales. There's, there's we have an employment. Hi. So there's nobody, like we have fewest delinquencies anywhere. So there's no distressed sellers. Least in the next, you know, probably 18 months before we'd see any distressed sellers. Yeah. So where does that inventory come from? That gets us from in our numbers 400,000 to a million or in our numbers, like, whatever 600,000 to a million and a half or whatever that number, where does that come from?
Logan Mohtashami 30:53
I don't believe we're at a natural normal state of inventory. So it is weakness in demand, and traditional listings, should get us back up there. It's not, it's not the job loss. Recession is another variable, that it's not part of that. But I just believe we all naturally go back to a certain level, because there's always a functioning amount of people that have to sell their homes. And we have gotten to such a low level that we have broken that so when you have higher rates, and you get back to some kind of normal, it should get us back there on its own, because under kind of 2020 levels is not what we traditionally see. And because we have so many people, ages 30 to 39, let's just take COVID out of the equation and work from home, I naturally thought more people would be moving during this period in time. So a seller is a natural buyer. So just because we could have a little bit more listings at that point, with higher rates, demand cools down enough listing should get us back above to that level, just because we are in a very abnormal state and sub 4% rates, we're not, you know, helping that happen. But now above four, five, you know, I thought they could happen six, definitely. So that's kind of how I'm looking at it. Getting back to those levels. Traditionally, with traditional listings back to norm and weakness in demand, you put those two together, there you go, it'll happen now the thing is that the selling of those homes might take longer than normal because sellers are stingy. And and you know, and that's that's the that's the thing that's different about housing than the stock market stock market, you sold stock, that's it, it's over, you don't sell a seller has to be a natural buyer most likely. So they have to be able to know that they can obtain it, the shelter after it. So wherever mortgage rates are, it's still fine for them. So just weakness in demand. That's always my thing is that the the history of inventory in America really come from weakness in demand or forced credit selling forced credit selling was a 2006 to 2011 period. Here, we just got to a very abnormal level. But we do have people that are listing the only counter to my own self is that, you know, from 1985 to 2007, people stayed in their homes, five to seven years from 2008 to 2022, it's 11 to 13 years, parts of the US are 1518 years, I myself have lived in my home for 18 years. So that can slow that process down. I just don't think right now we're in a very natural normal state of where inventory is considering our country. You know, it's so big, you know, there's all these other countries, Canada, Australia, New Zealand, their home prices are so much higher than their per capita income. We're not. So I just think that since our country is so big people can move around. There'll be a general flow of listings that should come, hopefully, and then that should cool things down. And then maybe I can get my price declines that I want. But we'll see. I just I just I just don't want to be that guy. Just say that prices. Yeah. Terribly disaster way of looking at economics for a very long time.
Mike Simonsen 34:05
Yeah, for sure. Okay, so So it took us a decade to get down to this level from from our normal levels. I'd each year we get fewer. And then and then of course, you know, the last two years hit it hard, but took us a decade to get down to this level. How many years? How quickly can we get back to this normal level? How long in your view does it take?
Logan Mohtashami 34:25
It could be next year?
Mike Simonsen 34:27
It could be next you think we could go from 400,000 to a million homes by next year
Logan Mohtashami 34:31
with rates at this level? You know, if higher rates came in December, I might have a different just because it's a 12 to 18 month duration timeframe. Yeah, but the thing is that higher rates have to stick this is this is why I always talk about you know higher rates have to stick. Don't do a bond market rally, let inventory take its course because I am literally fine. If we're back to kind of 2018 2019 I could take the savagely unhealthy Market off, because it's just a function of more choices. So whenever the market does, it's normal, this is abnormal. So I just believe that once we get back to a normal stage, we should get there. Yeah, that's that everyone fights me on that, because they see the historical trend. But I just, I just think that we got to an area we should not have been to. And because of the price growth, you know, home prices just grew at 3% a year, I would have a different take. But it didn't, it wasn't my model. So I, I'm bounded by my own model. So I have to just go with it. And I just have to hope that rates stay high enough to get us back to something normal,
Mike Simonsen 35:38
that'd be fascinating. That would be significantly faster than I have anticipated. I've sort of assumed that it took us a decade to erode our inventory levels this far, it would take us a couple of years of higher rates to get back to where at least a few years of higher rates to get us back to normal. Now, what will be fascinating is like, like, because I'm not a bond guy, I'm not an interest rate guy. I had no idea we'd be at 6% as fast. And so that like like that impact will be really fascinating seeing maybe we do get it the inflection point there. And inventory for me is will be October. So normally, we will hit the very peak of our inventory will be basically at peaks last week of June. But we still get a little more through July and August, and September. And then there's usually like the first or second week of September, and then we start inventory declining for the fall. That's why I
Logan Mohtashami 36:36
always talk about October being a very key timeframe because 2020 of October, I was like oh boy, we are in trouble. And then 2021 where people thought oh, de housing inventory is going to take off as the seasonality No, we're still down year over year. People 2022 Give me even worse.
Mike Simonsen 36:57
Yeah, like that. If if October goes up, yeah, October inventory keeps climbing. That's going to be that's what you're like if we're in the high sixes are so many mortgage rates and inventory keeps climbing in October, like that isn't when I see your your year. You know,
Logan Mohtashami 37:16
a lot of people don't know the seasonality factors. That's why when October things were declining, I said, No, no, no, we're not 20% over supplied, we are going to a bad area in 2022. It's not going to be good. Yeah, you have to worry about home prices accelerating. So again, I know my structural bias to get inventory up and prices to come down to make this work. But I'm just I'm just working with variables that we've always dealt with bond markets and economic cycles. And if rates come back down, I don't think it has the similar impact that it did in the previous expansion. It can be a stabiliser, but we have to pay the price for two and a half years of unbelievably abnormal home price gains. The advantage always is that equity seller that does not doesn't matter rates are six and a half percent are reported they have a lot of their equity will come in their debts, income ratios will be low, but they need to find a buyer for that property too. So we'll see how that supply and demand equilibrium work. But the demand side has been hit. It's always the tricky part of the supply. And this has been here for many, many years. And people never paid attention to it. That recent article I wrote for housing market, home prices fall I literally documented from 2012 2013. For every single thing that was supposed to create the crash inventory was falling every single year. And you're like, wow, people just don't read. Yeah. And that's part of the problem.
Mike Simonsen 38:41
Well, and you know, people really haven't like most of the most of the people who have opinions on whether it's gonna have they have some they don't have the real data. So So here's the question, though. So you say we have to have home prices declined by 12%. To get back into your model? Do you expect home prices to decline by 12 to 15%,
Logan Mohtashami 39:04
for a twofer, a 12 to 15% National decline that would really need a job loss recession with great staying high because we're talking about we're talking about the national data. We're not talking about Boise or we're not talking about Austin, we're just talking about the national data and housing prices declining is very sticky, right? So you need kind of more of the forced selling. And we're talking about what inventory was three, three and a half over 4 million and AR data back then during the housing crash periods. So you need you know, for a one year decline of that mount, you need a job loss recession, you need higher rates, you need demand weakness, because one thing that people forget about the housing bubble credit and crash, credit was getting tighter in relationship to the demand curve. So even though rates were falling, it didn't matter, because their product that facilitated that higher sales level. This is why when I use a purchase application I always draw that chart from 2002 to 2005. To show people, this is never going to happen again. So you're not working from a very elevated level of sales, just like the new home sales market, we're just like, two to 250,000 away from where traditional recession low levels are. So it's much more manageable for them. So we need a job loss recession we need for selling for something to that nature. But again, I always say, first things, first, let's get monthly supply over four months, let's get back to 2080 90 levels. And then we can have a discussion because then it's a progression model, it shows people because then you have to deal with variables with bond markets fall down, and mortgage rates fall down, how much demand kits that it's a moving thing. We will track it every week, we track it every month, it doesn't necessarily care what you want. It's just how economics is.
Mike Simonsen 40:51
Okay, so So then to summarise so that you'd say a 10 to 12%, or 10 plus percent home price decline requires a job loss, significant job loss recession. First, is that right? Higher rates and a job loss, higher rates and job loss recession, and then in that sense, you'd have job losses, and then you have people without work for 90 days, then they can't pay their mortgage, they stop paying their mortgage, and then those folks either have to sell, or they go into a foreclosure process. And so that's another 90 days. So then you'd start to see distressed sellers, six months after the recession.
Logan Mohtashami 41:30
Also, you know, one thing about a job last recession, the people that are going to be the most unemployed are those with a renter financial profile, which we saw in COVID. Yeah, the investment profile of the build up of investors, you know, in that sense, you, you don't necessarily get a traditional supply increase from distressed sellers, you can get investors that have lost a significant portion of a local economy, and just to make their cash flow better, or their balance sheets better, they can, you know, they have no emotional or shelter tie, the velocity of that inventory is faster than a foreclosure process. And who knows what the government is going to do, then at that point, but traditionally, home owners, because people don't understand this, they are in a very good spot. And when a job loss recession happens, that financial profile typically doesn't have very high unemployment. So it's a smaller pool of distressed property that could come up. But you also I also try to counter it with the investment profiles of renters losing their jobs. And in any kind of local economy. In that sense, you can have multiple people, so you can get a little bit more velocity of inventory from that stress the market
Mike Simonsen 42:46
in that sense. Yeah, and we can already see that in in the investor markets right now the the Florida markets and the Arizona and, you know, those, we can see price reductions climbing faster than the rest of the country, we can see inventory, climbing faster than the rest of the country. And, and like, especially faster than places like the Northeast, where it's a much more stable market. And so you can already see that, like, those are the people that are most sensitive. Yeah,
Logan Mohtashami 43:13
the faster velocity comes from there than let's say, a traditional residential, and that process takes forever. So if I did not have that variable in here, it couldn't work. Because it takes forever, you know, for things to work itself out. So
Mike Simonsen 43:29
okay, so So then to summarize that, that means that, since that job, last recession, with higher rates, higher rates, meeting in the sixes or something like that, that is what the scenario that leads to, you know, 10% or more home price depreciation. And so that probably 2024 At the earliest that we could see that.
Logan Mohtashami 43:52
Yeah, I mean, that's, that's for that to take its course. Yeah, I mean, housing is so sticky, and it takes so long, it's going to frustrate people. And that's, that's one of the things is the frustration that, you know, last year, when people said, if rates get to 4%, the dynamics of housing will change. And inventory will skyrocket. Yeah, yeah, go that has never occurred, because of the need of shelter, right, your seller has to find a shelter, you would need investors to really get hit because the homeowner has to obtain a shelter. And that will take that'll take forever, but it took me so it's like 18 to 24 months to when you get it so we're starting that process, kind of now. And we're still we're still very low. So that that'll take its its course. And then during this 18 to 24 months you have okay rates come back down, and the economy gets out of this recession quicker and then you have to work with those things. That's why it's a weekly things, and you have to focus with those things, but you need Need to create a pathway to how you get there. And then when things change, that pathway gets hit, you know, and that's why the home price growth was like, oh, no, we're about to do this again, you know, the frustration of 2020, inventory falling, and then 2021 Oh, my God, inventory fell again, that's bad. But guess what, oh rates finally came up. Okay, that changes the variable. Housing is such a sector that has these really big things that can change the variable to it. And that's how that's how I look at it. And that okay,
Mike Simonsen 45:29
so I got a couple more questions that are bubbling around in my head. First of all, first question is, okay, if you're looking at this structure, and you say, prices can't really do a painful task until 2020. Is that Is that true? If you look at how hard the other financial markets have cratered how far stocks have come and don't look like they've seen the bottom yet, how hard crypto crash and doesn't look like it's seeing the bottom yet. And, you know, we have like, like, all of the other financial markets in the world are, you know, just grinding to a halt at the same time? How can they How can housing not react that way? How can it not be the next domino to fall?
Logan Mohtashami 46:15
So one thing about the previous expansion is that we had almost two bear markets, where we had a near 20% declines in the stock market, it didn't really impact the housing market rates rising was actually more detrimental. Here you have a few areas of the War of the world where, whether it's crypto, whether it's, you know, these stay at home stocks, they facilitated a lot of the demand for that specific group. But also, they're kind of one and done. You know, so unless you have another kind of IPO wave or something of that nature, they're not part of the demand curve anymore. So I would kind of X them out already. Even if even even if even if you didn't have the kind of the stock markets fall down. Even if the stock market rebounded. i A lot of that was purchasing. And, you know, you could make a case maybe for people that bought five or six, seven or eight homes, you know, the rich like their toys, and the second home market vacation market, you know, that that, you know, that natural, you could see a slowdown on itself. But there's only so many homes you can buy with that kind of money. So I even if stocks rebounded, I don't see that helping as much as people might think, does that helping or hurting? I mean, I mean, we got to sales levels that, you know, I am not a sales are credible. I just said if total sales could just get the 6.2 million new and existing homes and a little bit. That's it. You know, I'm not one of the seven or 8 million total home salespeople, we just don't have that kind of turnover even so demand kind of looked fine, a little bit better than I thought. So it's I if stocks rebound, yeah, some people have more of a down payment, I suppose. But kind of the concentrated heat, you know, in some of these areas of crypto maybe are the stay at home stocks. They Oh, they already bought their house. I know that the peloton CEO bought a $55 million house and he had to give it away, you know, because they leveraged their buying power off their
Mike Simonsen 48:21
stocks. Yeah. And that's really for sure that there's there's that happened in San Francisco right now for sure, you know, companies, people that that borrowed against their, their, their stocks, and then the stocks tanked by 80%. Like there's a lot of that happening in San Francisco. But that's a that's a unique market, I think. But, you know, one point is that maybe that work, the you know, the diaspora of work from home means that that kind of correction is not is no longer, you know, just isolated in San Francisco or New York, maybe that's spreads out more across the country. So,
Logan Mohtashami 48:55
it also selling equity really helped a lot of people. I mean, when you when you get a 20 to 30% increase on your home price, and then you're looking at places, you know, out of state, you know, I you know, I've got two homes here in Orange County. When I went to Oregon, you know, I was like, man, it's cheap here. Literally, you know, so work from home to me is such a magnanimous event that you can actually buy a bigger home for yourself. And it's cheaper is much, much cheaper than then than anything, and this equity increase curb facilitated out even more. I mean, when I went to Texas for a conference, I was like, oh my god, I can buy like a 4000 square foot home with cash. And it's like, How is this even important? So the need
Mike Simonsen 49:46
for those Texas Property Taxes though they go up every year, not like California?
Logan Mohtashami 49:51
They do. But I mean, it's boy, to have that much of a divergence between California and Texas in terms of certain things. It's
Mike Simonsen 49:58
yeah, so You know, do those kinds of dynamics. So this is the next question that I have is, what are risks? That we aren't talking about that or that we that aren't top of mind? For folks that are what are some risks? Is that the that the housing market tanks faster? It actually, like does a big correction like, like, like the other financial markets? Did they do you know, when strong until they, you know, turn the corner and then did not? What are risks there that we haven't talked about yet?
Logan Mohtashami 50:28
Okay, so my primary risk is rates go back down, and the inventory gets picked up. And that would be I would just be throwing shoes at my TV at that point. So I'm much different than everyone else I really need, I really need to get off of these. Because to me, when the crisis happened in front of our eyes, we had so much home price growth that is so abnormal, and everyone was happy about it. high fiving, sharing Instagram stories, the detrimental damage that something like like that that can do can facilitate maybe the next crisis to where mortgage rates. Here's one way, this is how I talked about it at events, we've always had 2% Plus mortgage rates in every new cycle. Right. So that's always helped demand stable with home prices rising for that to happen. Again, considering we have two and a half percent at the lows, you're looking at, like a quarter to half a percent mortgage rates, or even
Mike Simonsen 51:23
like we dropped by, relative to 2%.
Logan Mohtashami 51:28
Yeah, so unless we get a quarter to half a percent mortgage rates, de facto housing inflation is already here. Because I mean, we get a 2% downturn right now we're, we're back to 4%. But we're not back to a quarter or half a percent. Yeah. So from now on, the housing inflation story is real, because we're not going to get that 2% plus lower mortgage rate. So going out in the future, if now I think some of the demographic story kind of ends after 2024. But in the future, if rates stay high, and you get a job last recession, and you know, for some reason companies in certain areas leave, then those areas are at bigger risk than what you are traditionally has. Because when you have a you know, McDonnell Douglas, you know, any kind of local area where you they kind of leave that spot, the hot crypto money leaves that spot, it impacts demand much more harder, and at with higher mortgage rates, because we're not going to get back to two and a half or one quarter that there's a risk of prolonged downtrend in demand and inventory stays sticky, high, that's a risk because we we've lost that for decades advantage of lower mortgage rates going to percent plus lower, but the home price acceleration is what's the problem. And 2020 2021 and 2020. That was the crisis to me, that was the most negative thing I've ever seen posted 20 times.
Mike Simonsen 52:56
And then I'd say, you know, that fits into a certain you know, elegant view of history like we we as they say we always always fighting the previous war and in housing the previous war is, you know, the credit boom, you know, that that bubble that bust? And and so while we're looking at how are how can home prices, how are they going to fall from here? And, you know, while we're looking this way they really crisis as if they went up to you're talking
Logan Mohtashami 53:23
to somebody who wants to see prices declined. I, I saw the great, you know, somebody asked me that on Twitter spaces. What keeps you up at night? The last two years kept me up at night. Yeah, that was not a good thing. So deflation to me is good, because it creates balance. It's getting to that points. What variables do you put in?
Mike Simonsen 53:42
Yeah, and to be clear, like, we don't you don't actually see it happening until at least 2024. And, and it's going to require a big recession and high rates to get there. Yeah. Okay. Housing sticky. Yeah. So then, so then let's wrap it up here. Let's, let's talk beyond 2020 for the second half of the decade. What what in what do we need to know? Because actually, you know, that's rapidly approaching right? Second half of the decade. What do we need to look at there? What do we expect for housing if I'm if I'm a first time homebuyer? Now? You know, I'm looking at 2030 before you know I'm moving up. What What am I need to know?
Logan Mohtashami 54:27
You know, I always talked about in economics, sex and death are variables that need to be spoken about throughout history. Death is coming. Right. The bait, no country has a Dorian Grey labor market. And the baby boomers will all die and the silver tsunami that I used to make fun of all the time that was supposed to happen in 2015, right, the decade long of every baby boomers selling their house to millennials who can't buy, you cannot escape debt. Right? And in that period, you know, we're Are we ever we're a country, even though our population we have millennials and Gen Z are massive, right? So they give us that demographic edge that gives us stable demand, we should be seeing more supply on its own just by death. Now the question is, Do the kids get it and rent it out? Or do they sell their properties for more supply compared to what we're dealing with, because that is a big portion of the population that is going to die off. I'm in the process of, you know, selling my grandparents passed away. So we're selling their ocean towers, Santa Santa Monica home, more people are going to be in that position toward the end of the decade, and I never a housing construction boom guy. I just fundamentally don't believe that way we run that in our system, it's not done correctly. So you can have more single family home supply, naturally a core occur from deaths rather than the business cycle, and then the push maybe for more multifamily construction for people's incomes, that we're never going to be homebuyers. Anyway, the supply things should change to that. And that's why I always thought I always stopped my economic work at 2024. Because if you're concerned about home prices escalating, you have to see how much damage it does. And not happen. So a different conversation for a different time. But you can't escape debt. Yeah, that is for sure. Right. So that'll be a very interesting progression going down. That line is still way too early currently.
Mike Simonsen 56:34
Okay, got it. And we have so but that supply gap comes along. And what it's hard to see is what that means, because we've got we still have millennials and Gen Z growing in the your population assumptions. So you do a lot of demographic you do a lot of your assumptions based on the fact that we've got people that need to live in homes. And there's been a lot there's more millennials than there were of anybody else. One of the things I think about that I don't know, that is factored into many of our these forecasts. Is that is that we have cut off immigration. And we haven't let it back yet. And like Trump cut off immigration, and Biden hasn't let it back up. And so does that, you know, we have all of the the previous population charts for the US are this way, when Europe and Japan and all the other places are flat, because, you know, like, as everybody's having fewer babies, but in the US at least we had immigration now we don't have immigration.
Logan Mohtashami 57:33
Do you think about what that means to your I never put positive immigration data in my take, just because what happened from the 1840s, you know, to the kind of the 1920s was unique, what happened in the 1970s, to the kind of late 80s. With, you know, our labor force growth is all really immigration going out for this century. So I don't believe that's going to get fixed. Because I just don't think there's a lot of people that move like they used to in relationship to the population. So I'm not an immigration boom, kind of person. You we can get workers to come in, of course, but we're all dying this century, it's kind of over that population boom that we saw from, like, 1890 to the 21st century, that's really done so we can get more immigration, it's just not going to be the same. So population growth is falling. This is one of the reasons why I'm not a Construction Group person. Because if I'm a builder, I'm going there's no way I'm overdosing whatsoever, because we just don't have that kind of now, even if immigration picked up noticeably, I just don't think that's unless I'm wrong about the immigration growth that comes out of nowhere.
Mike Simonsen 58:49
I just assumed that we're just going to be in declines for the rest of the century. So that's, yeah, that was, yeah, we're like, we're going to have aging housing stock, we're not going to be building that much. And we're gonna maybe have growing supply relative to population. So longer term trends implies that we may, you know, home prices might decline.
Logan Mohtashami 59:10
Yeah, down the line. And that goes to my work. I net, I believe we overbuilt homes in the previous expansion in relationship to demand because the builders do not care about anything but protecting their margins and construction. So if you look at him and his business, they had an 82% crash and new home sales. And then they had the weakest housing recovery ever. They had missed sales in 20 1314 and 15. And then they had a supply shock in 2018. And they freaked out. They're like, Oh, it's the worst fourth quarter since the great financial crisis. It's like 680,000 homes it wasn't it. We weren't anywhere close to that but but they will protect their margins because their biggest competitor is this humongous Godzilla existing home sales market. And people are gonna die at some point. So because of that, because construction productivity He's terrible, because population growth is slowing, they will not over build, and it will be very slow and steady, and everybody will fight it. And everybody wants to hold on to their homes until their death. And then down the line, you'll get some supply. And then we'll see how it works depending on where people want to live, of course, everyone has to remodel these old homes, you know, we have so many old homes, the housing stock, it's so old, especially to certain areas, eight upgrades itself, that to me, you know, post 2024, the 2030s, kind of 2028 to 2033. Totally different conversation at that point. So and the thing about America, everyone loves single family homes that make money. And and there's just there's no way to change that. And that's why part of the single family rental is that well, not every person who makes decent amount of money can buy a house, but they liked that single family home, they don't want to have kids in her apartment or a condo. And
Mike Simonsen 1:00:52
that goes that. So that's a sort of bearish view of the US housing market in the the next 20 years.
Logan Mohtashami 1:01:02
That's down the line. Yeah. Which is price declines. Yes. That was saying affordability. Yes. You know, so that's, that's kind of how I look at it. But that is So death is that's down the line. But again, I literally, I don't
Mike Simonsen 1:01:20
buy that. And I appreciate that view, because it's so hard to break out of, you know, we've been in this world where, you know, so much of the Labour hypothesis that Americans have such a housing fetish, because we have no other safety net. It's like, well, at least I own my house. Right. I, I, you know, I can't get health insurance, but but at least out of my house where I don't have any, you know, tiny little social security, but at least I own my house. And but in a world where we have housing stock rising relative to falling population, we could shift into a mode where that house is now losing value every year, because there's more and more homes available. Like
Logan Mohtashami 1:01:59
that brings a smile to my face. But it's also there's also going to be a lot of wealth transfer, you know, very early toward the end of this decade. And that's down the line. And you know, generally speaking people don't think that far out, you know, I like last year, there was a discussion that I was listening to, and somebody told somebody, Hey, listen, don't buy a house this year, wait till next year. And then at that point, you know, there'll be more supply. Well, home prices went up 20% and mortgage rates are out that person is not buying a house, you know, so people always are thinking about shelter payments, shelter costs, shelter costs, you know, oh, okay, rent or buy a house. There we go. And hence millions and millions of people will buy homes. Of course, we don't have the same demographic match like Europe does. Or Japan just because the millennials and Gen Z are so big there that just those two are bigger than the total population in Japan. So I always look at it. Ex immigration I just look at it as these people are here and they're stable replacement demand. That's why I don't talk about housing as a boom or credit boom. I just say it's stable replacement demand. And at the end of 2024 We'll have a whole new discussion but man that price game was just
Mike Simonsen 1:03:09
brutal brutal well that's what we're gonna leave it today Logan Where should people connect with you? Twitter,
Logan Mohtashami 1:03:15
Logan Mohtashami for Twitter and Instagram. I don't I don't have a Facebook page. I all my work is on HousingWire. So housingwire.com, logon to VIP 50 If you want to join HW plus, if you really want to nerd out, you know my Instagram stories are not very fun but we do go over all the economic travel charts and try to explain them everyday so at least you know people could have somewhere to nerd out so that's kind of my thing. I'm not like I'm not you know, gonna be crazy, you know, crash here or boom here but try to explain all the economic data, everything not just housing all economics all the time because be the detective, not the troll.
Mike Simonsen 1:03:54
I love it. I love it. And you do it's great. Both of those your Instagram and your ad that Twitter interaction of the terrific stuff. So you're voluminous in your in your output. Really lots of work there. So I appreciate it. I appreciate your time with us today. Your thank you for taking the time and giving us your your views and your expertise. It's been a lot of fun. So housing wire.com And it's Logan VIP 50 If you want to do you want to pay some of that stuff that I like to share with HousingWire? It is it's paywall so it's for professionals, but if you're interested get it
Logan Mohtashami 1:04:26
and also there is my blog, Loganmohtashami.com I don't write on there anymore. But the podcasts that we have at HousingWire, they're all there every Monday. So the weekly podcast that goes on there so people can see that that's free and open to the public.
Mike Simonsen 1:04:40
Terrific. Thank you, Logan. Alright, everybody, this is the Top of Mind podcast. Thanks for joining us this week. We're gonna be back next week with another one. And I really appreciate everybody's attention and subscribe, do all the things. We'll talk to you all again. Thanks.
Outro 1:04:58
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