The Housing Market Outlook for 2024

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 trend shaping the market today. Enjoy the show.

(00:20)
Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. For four years now, we've been sharing the latest market data every week in our weekly Altos research video series with the Top of Mind podcast, we like to add context to the discussion about what's happening in the market from leaders in the industry. Each week, of course, Altos research tracks every home for sale in the country. We track 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 2024 market is showing some really fascinating signals already. So if you need to communicate about this market to your clients, your buyers and sellers, go to altos research.com. Book a free consult with our team.

(01:08)
Let's review your market and how you can use market data in your business. And as we get to the show, I've got the perfect guest today. He needs no introduction to this audience, but I'll give a little. Logan Mohtashami is the lead analyst and my colleague at HousingWire, he's a prolific commentator on all the different aspects of the real estate market. He's great on stage and has a really strong view of what comes next in housing. So we're going to talk about all those things today. This is Logan's, I think, third visit to the top of Mind podcast, right? Yeah,

Third

Time. So Logan, welcome and as always, thanks for joining me.

It is a pleasure to be here. What another year we had to go through in 2023.

Yes. I want to talk about what we just went through and especially things like what surprised us, and then also setting up our conversation about what's coming in 2024. Before we dive into market stuff, talk to me first about your role as lead analyst at HousingWire. What's exciting? What are we working on? What should people know about? Well,

I think my role got a lot more fun for me when you came aboard because it was actually a year ago where I'm like, I want to get this tracker started right away. Just let me get access to the data. And for me it's so much fun because I've had this always this forward looking housing data model, but the only thing I didn't have is weekly inventory. So as soon as I was able to get access to this, part of this tracker that we always write every weekend is to kind of put all these different variables in together, but more of on the economic side where bond yields a 10 year yield, mortgage rates, economic data that really matters to my work. And then we could incorporate it to weekly inventory data, new listings, data price, cut percentages and put it together. And it worked flawlessly this year as everybody was into the prices fall volume.

(03:14)
We had the biggest home sale crash ever last year and then the market dynamics changed and then it was six months later when people figured out the market change. And this way we could create a weekly tracker and just keep up and date because it's not so much just the housing market for me, it's the economic cycle that's primary what I work off of. So keep everyone informed all the time, not just housing but the labor market, the fed, the tenure yield, these things to give people an idea to look ahead, not backwards or here look ahead to give people an idea so nobody could say they missed it. That's kind of our thing.

And that housing market tracker that you do each week you and Sarah Wheeler work on and getting that out each week is really tremendous. And so let's talk about that for a second. You follow labor market, you follow the 10 year in 20 23, 1 of the messages was like the fed's not going to stop until the labor market breaks.

Yes, and I don't believe this is the fed pivot that we're seeing right now. I think to me, I have channels on the 10 year yields every year, and the 10 yields got to a level where I didn't think it should break under. And for this year I thought how do I connect with the consumer and people reading, you have to bring off Gandalf the gray because all he said is you shall not pass. So hopefully I was saying we're not going to break under this 3.37 until the labor market breaks and that's jobless claims breaking above a certain level. So it got pretty hectic there Early on we tested that level eight times. The banking crisis of course changed some things for housing. When that occurred, the spreads actually got worse. So we added another quarter to half a percent higher rates just because of that.

(05:04)
But then the 10 year yield kind of did what I thought it should do, just kind of being a range. It's just the last move from four point a quarter to 5% that was so unnecessary and there was a lot of market dynamics that were happening there and the Fed got very hawkish when they didn't need to be. But when I talk about the fed pivoting, that is not being stopping the rate height cycle. It's changing everything to be more proactive for the economy. And that's always based on jobless claims breaking. So right now the fed over hiked, the real yields are very restrictive. Before the 10 year yield actually broke off, Williams, the Fed president of New York was saying, Hey listen, we're going to have to maybe cut rates next year if the growth rate of inflation. So what they're doing right now is basically what they should be doing.

(05:56)
They're not pivoting. We are very restrictive and as Powell said in the last presser, we got really restrictive, especially with a 10 year yield up to 5% and fed funds rate. So they're just kind of moderating that. That's what I don't call a pivot. I mean the history of economic cycles going back to many decades, every single time the market believes the Fed has done the 10 year yield rallies and mortgage rates rally. So it's pretty much doing what it normally should do. Maybe outside of 1978. 78 was the last time that didn't happen. But here looks perfectly normal. The growth rate of inflation has falling. The Fed has done hiking, bond yields rally well before the first fed rate cut happens.

So when you say the Fed hasn't pivoted, you don't mean that the market is pricing in four to six rate cuts next year. You're not discounting that, you're saying the Fed is not yet moving into a mode of active support of the economy, is that what you mean?

Yeah, they're still very restrictive. They could cut rates three times in the next meeting and they'll still be very restrictive because the growth rate of inflation is falling and the disinflation factors are still kicking out there for the next six to 12 months. So they are still very restrictive. They're trying to talk this market into a soft landing, but the bond market did what it normally should do. It just ran right in front of the Fed and it looks pretty normal to me. As long as we're in this range between 3.21% and four point a quarter and a 10 year yield mortgage rates between 5.75 and seven a quarter, that looks fine. But to me, the pivot was based on, okay, that's it. We are full dual mandate. We have to cut rates because the economy gets weaker. That's what a lot of people were expecting because they thought the recession was coming.

(07:43)
They thought the recession coming 2022, the recession in 2023, the labor market was never breaking. The labor market got softer, but it wasn't breaking until jobless claims break over 323,000 on the four week move average. We don't use the R word, right? We're not there yet. And we could sit here and hopefully now everyone could understand why I wasn't a fed pivot person. I didn't see the labor market data breaking. Other people were anticipating. So the Fed is still restrictive right now, and even if they cut 75 basis points in the next meeting, they're still restrictive. So they're just trying to move from one stage to another. And the bond market got ahead of that and looks pretty normal. I personally think the Fed got spooked by the 10 year yield getting up to 5% because they were kind of already restrictive already. And this is why the Fed presidents were talking, wait a second, what's going on? Why are the 10 year yields going on? What's going on? This is not, they didn't want that to happen. So now they just said, forget it. Let's not rush anything. Let's just move on to the next stage. So far so good, right? But I don't consider this a pivot in the traditional sense.

Alright, that's very useful framing for me thinking about the Fed as the real pivot is when do they move into active support of the economy and move out of restrictive mode. So that's great. I appreciate that. You mentioned the R word recession and there's been recession talk inverted, yield curve, et cetera for at least 18 months. And in your work over that period, you had your recession model and you said, I have six flags for the recession. Five of them are up,

Every single flag is up except you don't go to the recession talk until the labor market breaks. I mean, here's a good example. The last time my six recession red flags were up where late 2006, the recession didn't happen until the later part of 2008. So you could have be beyond recessionary watch, but to me a recession is the labor market breaking. I know a lot of people have their own labor market data, the somm rule and everything, but to me, I set it in stone, jobless claims have to break over 323,000 because job openings are abnormally high. The demographics are different, but the key to everything is that household balance sheets in the United States of America look good. They're nothing like what we've seen in the past four decades. And a lot of this is based on the 30 year fixed mortgage. A lot of debt costs for households are very low just because a lot of people bought a homes, they lived in their homes for longer.

(10:17)
Their wages keep on increasing higher and higher. So to have you needed a credit event or something to break the economy, we haven't had that. A lot of people thought the banking crisis was going to be that, but lending hasn't gotten restrictive enough to bring the economy down. So we're not there yet. Once jobless claims can break over 323,000, I'll get to that area, but we can stay here for a very long time until that happens. So we're not there yet. So the 10 year yield rising, even getting above four and a quarter, if the economy wasn't growing at 5% in Q3 or jobless claims data followed, we're not talking about 8% mortgage rates, but the economy is growing, people are working, people are spending until that breaks. We're still in the expansion mode. That's why I think it's key for everyone to have their labor cutoff data. Does unemployment rate get 5%, half a percent higher or jobless claims or does job openings have to get to a certain level? And then when that happens, then you could break into the recession. Talk is, there's no problem about looking about clues about the inverted yield curve. The leading economic index is down like 16 months in a row and if the labor market doesn't break, it's not happening. And we just had the longest economic and job expansion in history and people were talking about recessions every seven minutes back then too.

Yes. Okay, so jobless claims are still unemployment, still very low, is showing some softening.

Some softening. I mean, job openings went from 12 million down to 8.7 million. But I mean historically mean we were just a tadd a little bit over 2 million during the great recession. So if you look at a chart of job openings, take a line from 2014, just draw that line up there at 8.7 million. I would argue we're basically where we should be with a country that population growth is slowing, right? Productivity isn't exactly booming. We're getting some really good productivity numbers recently. So it looks pretty normal, right in that sense because again, we have a massive generation that's leaving the workforce every day. They need to be replaced. It's a wash, right? So as the boomers leave millennials, gen Z, they come in, it's a wash, demand keeps on growing. The need for labor is much more. And that's been so much of my labor economic work post covid, right? We're going to get all the jobs back lost to covid by September of 2022. Job openings already get to 10 million. A lot of this is demographically based because robots aren't doing all the jobs. We still need manual labor for so much. And as demand grows, that manual labor still needs to be there.

Okay, I've got a bunch of questions. I'm going to come back to the demographics one because we talk about demographics a lot in housing of course, but we talked about the recession watch and five of the six flags were up. And so you didn't actually have a recession call going into 2023 because jobless claims. Were you still really well employed? What surprised you in 2023? Were there things that you got wrong a year ago?

The 10 year yield, getting above four and a quarter, that four and a quarter was my peak. Seven and a quarter was my peak for mortgage rates. The economy outperforming 5% GDP growth with falling jobless claims. There it is right there. And even for somebody like myself, like Kevin was saying, there's no recession to be able to grow like that and then also get good productivity numbers now and keep jobless claims under 300,000, very good. But to get over four and a quarter, I thought the economy had to noticeably outperform. It did. And I think everyone should take a look in the mirror and say the US economy outperformed all of our expectations, especially after the massive increase in rates dealing with inflation. But again, I always harping people, balance sheets look good. So that to me, getting four point a quarter to 5% was not part of the forecast.

(14:22)
And then also the second thing was when I looked at mortgage rates getting above seven and a quarter percent, I was looking for weekly active inventory that we have every single week. I was looking for that to grow between 11 to 17,000. The slope of the curve was going to be slow, but higher mortgage rates, inventory could grow in that environment. Never had that once. And I kept on harping on that week after week after week, I'm looking for, I'm waiting for this, I'm waiting for this never happened. There was another thing I got wrong. I think 95, 9600 was the highest week to week. We never got between 11 and 17,000. And also I always think that one of the data lines that gets no attention is that the price cut percentages, while mortgage rates were going up to 8% was traditionally 4% below 2022 levels the entire time.

(15:13)
And that ought to me all falls back to what happened after November 9th in 2022, the housing market dynamic shifted. We no longer had a waterfall crash in sales. Basically we've stabilized, we haven't gone anywhere. We're higher, lower around that 4 million number. And you could see how the housing data looks like with data stabilizing. And I think that to me that should have shocked everyone that even with mortgage rates going to 8%, the inventory growth levels did not hit what I thought they should hit. And the price cut percentages were 4% below 2022 levels during that period.

That is terrific. So let's review the things Logan got wrong in 2023. The tenure went higher than expected and that was really because the economy outperformed what anybody expected and therefore the mortgage rate, the 30 year mortgage rate went higher than expected. But meanwhile, inventory didn't climb nearly as much as expected, and we didn't have price cuts as much as we expected. They're like the market, the housing market side stayed stronger the whole year.

Not one week, not one week, one week. I was just looking for a few weeks. I was just looking for a few weeks and I kept on riding it on the tracker. I'm just waiting for this to happen. And then by the time we were getting toward the fall and I was like, it's not going to happen, boy, it's really not.

It's not going to happen. Now inventory rose late in the year in October, November, but it still never had a big gain week of inventory.

The slope of the curve was so slow and I'm such a pro supply person that I was just like, come on, come on. Just give me one or two weeks something. And it never happened. That was a big zero the entire year. And even while we got to 8%, we did get higher growth, but nothing to the levels that I thought we should have. And I'm, I set kind of a low bar too, 11 to 17,000 on a weekly active listings with rates above seven a quarter is not asking for much. But again, the slope of the inventory curve in 2023 looks so much different than the abnormal year of 2022. And that's one of the things I try to get people to focus on. 2022 will go down in history as the craziest year in housing ever. It's not like 2008 or covid. Those were very, you could see what was going on.

(17:46)
There was so much drama happening in 2020 because it was like a Shakespeare play. Four different stages were happening that it's just too fast. And oddly enough, toward the end of 2022, the home sales crashed so much that we were actually starting the stabilization period and we can actually see it where the new home sales sector, new home sales grew double digits year over year. Housing starts beat estimates this morning. So it's just too wild. I mean, unless you track housing religiously, it's just crazy. You're going to get completely lost with everything. Every headline is not going to be coherently right with the data. But yeah, when I think of 2023, the 10 year yield breaking above four and a quarter, the growth rate of inventory not happening and the price cut percentage is basically standing still during that entire time. No basic trying to catch up to 2022 levels. Not at all.

All right, so then the defining characteristic of the 2023 housing market was this lack of sellers. Fewer sellers come into market, fewer listings, fewer new listings. What happens to sellers in 2024?

We should get more. I am looking at that event after July of 2022 when rates got passed 6%. We were already trending at the lowest level anyway, and then we took a noticeably, another leg lower. But what I was looking at the new listings data, especially through spring, because I always think people have to realize there's convergence in the data early and late. It's really the spring that you see this massive gap between 2021 and 2022 levels. That's because most sellers are buyers. Guess what? They're not buying with rates this high. We should be able to grow new listings, data in gross sales together. As rates fall, there should be more buyers into mix. We got to a level that was historically low, but the entire time in 2022, no matter how crazy rates got, we never took another leg lower. That to me. I remember going out CMC kind of the middle of the year and saying, listen, I think this is the bottom of new listings because even with higher mortgage rates, we're not seeing another leg lower. It's been pretty stable. I mean, the only hectic times comes after labor day or school starting up. You get these wild weekly moves, but outside of that, it was remarkably stable and it looks like it's forming a bottom. So we should get more sellers that are buyers. Again, any kind of inventory stress inventory will go straight vertical.

(20:29)
We've never seen stress in the data line for three years. That's why I've always like these people. Airbnb crash or this crash or nothing was in the data for three years and it got even worse in terms of the lack of listings. So I am hoping for more new listings, more sales, get a more functioning marketplace and try to work our way back to 2021 and 2022 levels, which were the lowest levels ever. But again, it's all to me, housing moves around the 10 year yield and mortgage rates. So we'll see how the spring goes, but we're already seeing almost like a carbon copy of what happened last year at this time when rates fell to the forward looking data. But we really want to see new listings grow. I was waiting to see some year over year growth numbers, but I don't care so much about the last eight to 12 weeks. I want to see spring. I want to see that gap between spring and 2021 and 2022 grow and then get more sellers that are buyers and get a more functioning housing market.

Okay. And I think why I agree with you there, and I think the data is already showing year over year, new listings, gains and year over year new contracts. So we could see the sales kicking up and it is, it's December, so we want to see that in spring too. There could be some noise in the data, but it sure looks like to me it's like it started.

Yeah. Yeah. I mean it's just like I cannot stress how remarkable stable the new listings data was for a while there. Did it matter what rates we're doing? It just did its thing. And I was like, that looks like a bottom think because the last thing we wanted to see is another leg, lower new listings data. That just means you have a lack of sellers, a lack of buyers. Now you're getting some confidence. So that's what I'm hoping for, but I really want to see that grow in the spring. I want to see that gap between 2021 and 2022 data come together.

And I think you said this real quick and I want to just flag it, which is if there's some big economic event, some big crisis, then you think we're going to see, we would see a spike in new listings and sellers.

You need something to force sellers to, I mean, and again, a jobless claim breaking over 323,000, then at least you could start the conversation that people will lose their job. There's a whole different talk we'd have to have when that happens. That didn't occur, the Airbnb crash didn't happen. Of course there's nothing in the data that would warrant that. So you need some kind of event. The economy is still intact and expanding. Again, people don't rush to sell their homes to be homeless. This is not a normal thing to happen. So people are doing well. They just do their normal things and it's not a liquid market anyway. So in this case, the trend has been here for a very long time. For many, many years. You just go with it, right? And when we've seen inventory growth, higher rates, weakness in demand days on markets grow, inventory can grow in that light. But outside of that, we haven't seen anything of stress for a very long time.

Let's talk about prices, home prices. The home prices gained in this year, 2, 3, 4, 5% depending on your measure, year over year home price gains. Did that surprise you?

That didn't surprise me. After rates went lower, what did surprise me after November 9th, if mortgage rates went lower and forward looking, demand got better, then we were basically doing what we did in 20 13, 14 and 2018 and 19. Rates go lower, demand picks up inventory stabilized, price growth rises. That's what happened back then. This is what happened now, I think because home sales crashed so much that people just assume prices have to crash, but then you have to look at the inventory data and then the new listings and price cuts and the market stabilized and it just took people like four or five, six months to catch onto that. So that didn't surprise me. But again, how the market reacted when rates got to 8% to me still surprised me because it was remarkably stable with mortgage rates getting up to 8%. So that to me just shows that on the sales side, we've bottomed out.

(24:47)
We don't really have any kind of stress sellers and people are just taking their time. So that to me surprised me more than home prices get in, inventory's low demand's rising. Don't make it any more complicated than that. That's how supply demand economic works. Where we saw price declines in 2022, hold Nelly, we saw existing home sales fall collapse. We saw the slope of the inventory increase go up, we saw price cut percentages go up. That all changed after November 9th. So that didn't surprise me, but again, I thought the market was very stable considering that rates went up to 8% and home prices had already got back to all time highs

For sure. Okay, so then what are you looking at for home prices in 2024 based on what we can see now?

Same. Same playbook. We're almost running the same playbook as we were doing last year. Mortgage rates fall forward looking, purchase application data gets better, inventory is very stable. It's not rising. Price cut percentages aren't going anywhere. So in the next four to five months, January to June, if that continues, it's literally almost going to look like the same thing in 2023 because we're going to get better demand going into the spring season, right? Inventory is doing its seasonal bottom. The one thing that I don't want see happen is I don't want inventory to bottom out in March and April. That's the abnormality. That's the thing that's driving me crazy. Usually it's what January and maybe February. But we're getting the seasonal bottom way out there. And again, my argument has always been that every year after Covid, we have this late run in demand, right?

(26:33)
2020 was the COVID-19 makeup demand that could be explained. 2021 was abnormal. We had volume mortgage growth. That never happens at the end of the year. Last rates fell, demand picked up here, rates fell, demand's picking up. It's happening later in the year. So it is more imperative to track the forward-looking data now more than anything, this can continue for some time and then we'll see this play out in the existing home sales reports five, six months from now. So to me, it's just right now we're a carbon copy of what happened at the end of last year and we just go with it. If that's still the case, that's what prices are going to do. It's going to look pretty much the same,

But it looks similar. So another two to 5% gain.

Yeah, the only way I think you go to the opposite sides on each is that a job loss recession happens and we have a surge of inventories somewhere and rates are still too high to offset that. That's why I always have that 323,000 jobless claims that when that breaks, we can have another discussion, but as of now, that's not the case. Or mortgage rates go lower, faster and inventory, we don't get enough new listings, inventory is low and then we get the too many people chasing too few homes and price growth grows faster. Don't want that to happen at all. That's why I want inventory growth to be normal and get it up in January and February and get a buffer. If we get more inventory, we have some kind of buffer to work off of and just we're at such low levels that we don't really have much of a buffer. And think about it, 157 million people we're working 335 million population. It's not a lot of homes out there for that group.

Not a lot of homes. Alright, let's shift gears. So that's really great. We have a nice view of what happened in 2023. We have your view at 2024. I think we're pretty well aligned on a lot of those things. We look at a lot of the same data. So that's good news that we draw those similar conclusions. But let's talk about demographics and in particular over the last decade or so, you've been very vocal about the millennial boom in housing as a 2024 phenomenon through 2024. We've got millennials who are in their prime earning and home buying years going to drive demand and it sure feels like that played out through the last few years. It's now 2024. It doesn't feel to me like that demographic boom has receded. But tell me a, what are you thinking about that frame that 2024 framework now that it's 2024 and then B, what comes next

2008 to 2019 would've the weakest housing recovery ever household formation has to work itself up. So very simple. We rent, we date, we meet, we get married three and a half years after marriage. We have kids, we're going to have a lot of people in their thirties in years 2020 to 2024. So existing home sales can get to 6.2 million and above during this five-year period, not before. So that occurred except home prices escalated out of control. And guess who finances 90% of their home purchases? Millennials. So years 2020 to 2024 got tainted by the collapse in demand because home prices escalated out of control. That in a sense, you could actually extend that period a year or two just because if rates fall, again, those people that we're looking to buy could actually come into the marketplace and create a little bit more demand that I would've anticipated if we didn't have home prices escalate on control or rates get too low or anything.

(30:32)
If it just kept normal, we'd have a much different conversation. But that wasn't the case. Home prices escalated out of control. Inventory broke to me. We're missing 4.2 to 4.7 million home buyers. That's when you have the biggest home sale crash ever recorded in history and you don't really grow sales much in 2024. They're missing lower rates. Those that are first time home buyers finance 90% plus they could come back into the marketplace that will give you a little bit more stable demand that maybe at the end of 2024 would not occur. So I'm really looking to see how much we grow sales if rates keep on going lower and then maybe I could kick it the year out another year just because we should have a lot more sales. We did it because prices went out of the control and mortgage rates getting to seven to 8% also destroyed a lot of this for the younger home buyers.

(31:22)
Of course, those that are 58 and over, they finance less than 50% of their home buying. So baby boomers went again, they don't have the kids to compete against as much so they can do what they want. But for the younger generation, this is why I always say the housing economic policy we have here is almost like a COVID-19 policy. We wanted people to stay in our homes. We didn't want young people to buy homes or move or do anything. So we kept everyone in inventory, didn't go out of control, but everyone's good with their mortgage. The best hedge against inflation is a 30 year mortgage, but the best hedge against the Federal Reserve was your 30 year mortgage. They could raise short term rates all they want or raise, you're protected. So that to me throws a huge wrench into everything about years 2020 to 2024. So I got to see how much sales can grow in 2024 and then 2025, we still are going to probably have some missing demand that should have been in this five year period.

So the craziness, the pandemic craziness, delayed some of the demographic, the generational demand. So we actually still have tailwinds, demand tailwinds coming in the next few years.

I mean home sales going from six and a half million in January of 2022 down to 4 million is the biggest home sale crash ever recorded history, a lot of buyers were young and when rates go up, they get impacted. So they're not there. And then of course the sellers that are buyers are, they're not there. So things got pretty wild. You have to adjust to that wild period. And I just think all economic data has these wild high velocity swings and then they eventually balance out, right? Over time they balance out so crazy to the upside, crazy to the downside. And then eventually over time they smooth out and we're trying to start that process of smoothing out data for housing, which means that we should be able to grow sales, but I need to see how much we grow sales in 2024. We could have another year added onto that because there's so many people that just didn't bought homes when they should have in 2022. In 2023.

Right, right. Okay. And hadn't heard your comment about 4.2 to 4.7 million buyers that basically didn't get a chance to buy their home yet. Is that what you're thinking in that period?

Yeah, I mean you're missing to go from over 6.2 million existing home sales down to 4 million for a kind of two year process. You take existing home sales, new home sales, you put it together. We had such a crash in demand that you got to smooth that out. And we have some, it's not just first time home buyers move up, buyers move down buyers. There are buyers that are missing that would not have had this big collapse. Let's just assume home prices grew one to 3% from years 20 to 20, 24 rates stayed between three and a five to four and a half percent. We would've had more stable demand, more roughly. But we've had this big swings up and down and we have these big swings and home prices and big swings of mortgage rates that really impacted demand in the biggest fashion ever. So that has to eventually it smooth itself out. I don't think these are lifelong renters, right? Dual household incomes, when rates get a certain level, they buy. And we've always seen that in the data after qualified mortgage after 2010, whenever rates fall, demand picks up, we're seeing it again. Right now we've seen five weeks of a positive growth. So that'll eventually hit the sales data line. So until that breaks for me that lower rates don't create a higher demand, I'm still thinking we're missing a couple million home buyers right now.

I appreciate that. I think that's really, there's something there and we can see it very quickly. As soon as rates drops, we can see that the transactions pick up.

I mean even from eight to seven and a quarter, I mean it didn't take much. I think that's the confusing thing. People see that nominal seven point a half percent and they think, well nobody's going to buy. And then boy, four looking data calls it every single time, every time rates fall into noticeable fashion, demand picks up. So they're there, they're just waiting.

And my view on that is that consumers are more sensitive to changes in rates. The absolute level.

The absolute level,

If you're at eight, seven and a quarter looks great. So it brings up another thing, and I think we disagree on this, so lemme lay this out here and let's get this. So this is part of my view of the dramatically few home sales in 2023 was that we are in a supply constrained market. We have more buyers than sellers. And so one of the reasons we had few home sales, obviously demand is low, but if there was more homes to buy at the current prices, at the current rates, we would have more transactions. And so I call that a supply constrained market. And so when I watch inventory starting to rise, new sellers started to rise. I started to see, aha, we can have more transactions. But I think you maybe it was on Twitter or something where you said, Nope, I disagree with that, Mike, so lay it on me.

Yes. So I have a completely different mindset on this. Back in the previous expansion, people always said we can't grow sales because there's no homes to buy. So all of a sudden inventory collapses and we have more sales than any period of time in the last decade and that was 2020. Then inventory goes even lower in 2021 and sales grow even more. So I think this to me, and this is actually one of the questions I get when I tour the country, people ask me, how did home sales grow so much in 2020 and 2021 when there was no homes to buy? And when I look at it in this way, I think of it as a buyer and a seller. A seller lists their house, their get an offer right away. The days on market back in 2011 were 105 days. It used to take a lot longer to do mortgages.

(37:31)
I mean sometimes they would take 30 to 45 to even 60 days to do mortgages. We have become more prolific in closing transactions in America. So the days on market have naturally gone down by itself. So when you get more demand, faster demand days on market could go lower. But even with the biggest crash in home sales ever, the NAR data that I'm using, I'm quoting here, we got a little bit above 30 days even with that. So we can close mortgage transactions within seven to eight business days. Now it doesn't take a month or two. So sellers or buyers that's inventory there, it just doesn't catch up to the total active listings data. So we can grow sales when demand picks up. And I think that's where people were trained to think that while demand was low in the previous expansion because there was no homes to buy, I never agreed with that.

(38:25)
That was one of my fighting points for a long time. But here, inventory broke to all time lows and sales took off. And I look at it as that buyer seller transaction, the days on market, things close faster. You don't get to be part of that active inventory. That's the lower mortgage rates do not create higher inventory. People are waiting for that active inventory data to really take off. And with lower rates, it just never occurs. We close things faster, we can grow sales, but we can't grow inventory in that fashion unless we have a bigger surge of new listings coming on to outstrip the demand.

Right, right. Okay. So yeah, there is a distinction that often gets lost between inventory and transaction volume. Inventory are the homes that are unsold and so we can buy everything on the market and have very few low selection of available inventory because we've bought everything.

Yes. And I mean this is the argument I have with Sarah all the time on our mortgage rate lockdown, we were breaking to all time lows toward the end of 2021 and early 2022 and active listings and home sales were so much to over two and a half million higher back then. So how is that possible? Sellers are buyers transactions closed? They don't get part of the active inventory. You can grow sales, but it's harder to grow inventory in that environment where people say there's no homes to buy. Well they were saying that in the previous decade, then all of a sudden sales take off and inventory goes lower. That confuses people. That's like the number one confused. It doesn't matter if it's real estate air, just stock traders, mortgage people. They always go, how did we get all these sales when inventory was so low? Buyers and sellers transaction done doesn't get a part of that inventory. If it's done faster, days on market has been falling for a very long time. We close, we're more efficient in closing a transaction now than any other time in history that plays a role into this.

Yeah. Do you think, is there a scenario where we ever go back to the old normal of available inventory? So we're at whatever, 540,000 single family homes on the market right now at the end of December, eight years ago it was like a million at this time. So is there a scenario where we go back there?

The one way I thought you could get back to 2019 is if demand kept on crashing, right? If demand kept on crashing and days on markets grow, the only thing is that to me, November 9th changed that equation. The 10 year yield peaked mortgage rates were lower so the forward Lincoln got better. So unless demand crashes and days on market grow, you're going to need inventory from another source. We're talking about unoccupied supply. The builders aren't going to help you out here, right? They're going to manage their supply. So

(41:21)
The baby boomers, right, eventually death. None of us are Dorian Gray. I say no country has a Dorian Gray labor market. None of us, none of us take our homes through the grave with us and toward the end of this decade they will die what their children do with their homes. We'll see. But that is one way to break this log jam because if we want to go back to 1982 using the NAR data, two to two and a half million was the active inventory in their side. But right now we're so low, we got to as low as 240,000 in March of 2022 alto status. And to get back there, you have to get something. Maybe if you force investors to sell all their properties or something, then you're pitting renters versus buyers. A lot of this discussion with the hedge funds, we're going to force them to sell. Well guess what? You're kicking a renter out because you don't believe an American family should rent a single family home. So you kick them out, put that in the market. I don't think that's, they're not the big pool of inventory unless you get some tax policy changes that may be favorable, something like that. But as we are right now in the current state, you need demand to be weaker and days on market to grow to get back up there and demand being stable or growing, it just makes it harder.

(42:50)
If my whole theory that home sales basically it's really rare to get under 4 million after 1996 if that failed and home sales got down to 2 million, that could get you back up there just because weakness in the demand, nobody's buying these home have to come on. But it just wasn't the case. And new listings data just got worse at the second half of 2022 and 2023. So it is just hard to get back up there, especially with stable demand.

And one thing that could make demand go lower would be higher rates for longer.

And I don't believe we're that country. I don't believe we're that century. I think we had a global, if we look at the 21st century before covid, it was really hard to even keep core inflation above 2% for a very long period of time. So to have higher rates for longer, you're going to need inflation to keep up. You can't have the growth rate. I mean the history of global pandemics are, they're very inflationary. And then the disinflation happened. So here we are being told by Larry Summers and a bunch of other people that we have to create a job loss recession. You Americans, 10% unemployment rates for one year, seven and half percent unemployment rates for two years, 6% for five, no, it looks like a global pandemic. And the growth rate of inflation fell and it fell with unemployment rates at 3.7%. The economy grew above trend.

(44:17)
Goodbye Larry Summers fed model on that goodbye. It didn't work. So see ya. But I don't think we could replicate the 1970s. I mean we would need an oil. I thought about this, what could possibly happen? Oil shock, unbelievable oil prices have to get to $450 to get the same kind of 1970s inflation. And then diesel prices, diesel prices take off and that impacts food prices a lot, right? How they transfer their food. And because that headline inflation grows core maybe could grow with it because basically wages have to catch up to inflation. So we need wages and inflation to grow together to stay higher for longer in a meaningful way that we saw in the 1970s. I just don't think the world is there. I think once the global pandemic is fully over, the growth rate of inflation should fall as it did. And it's really hard to get double digit mortgage rates if the growth rate of inflation is running at two to 3%.

Alright, well I can't say that. It makes me sad to see Larry Summers absolutely backtracking on his statements about the labor market. So I will take that as a, I appreciate your take there. So if there is a difficult to imagine a world where we destroy demand, housing demand like hire for longer is hard to imagine. Are we facing a crisis over the next decade of home prices that don't crash? Like is that the crisis that we're facing? Chronic unaffordability?

We have been in that crisis for a while. And when I think of the US I always like to show people the charts of Canada, Switzerland, New Zealand, all these other countries had home prices accelerate so out of control versus their per capita income. And my biggest fear was always this happening here. And the best way to deal with inflation is not by demand. Destruction is by supply. So demand destruction is a very short-term solution to try to cool something down. That's what the Fed wanted, the housing reset. But as you could see, look what happened. Supply just didn't really grow in a meaningful way. We have to find ways to grow supply. Now, thankfully, one of the blessings in disguise has been that the profit margins of the home builders has been able for them to keep single family permits rising and construction going and keeping their backlog done.

(47:03)
That'll help to some degree. Getting some people into homes, it's difficult. It was always a difficult problem because the only time we saw accelerated inventory was based on credit markets being completely destroyed. People filing for foreclosures bankruptcy before the job loss. We don't have that. So we just kind of have to grind our way higher. This is why I'm always a pro supply person. I believe we can function as a normal market. If we could get back to pre covid Ovid 19, it's just getting there. It's going to be difficult just because homeowners are doing so well and people don't understand that. They go, oh, debt's a prison, right? No, they're not. Their cash flows are excellent. God, 13 years of showing this data for 13, what are you people? That's why I always say reading is a good thing, right? If anybody could read this, I could get a second grade class and they go, oh, that looks good, that looks good, that looks good.

(47:54)
And then everyone else, no, they're terrible. No. So it's a first world problem to have that homeowners are doing really good and they're staying in their house. They're going to be for a long time. But it's also very difficult for the affordability and a very hard problem. The whole savagely unhealthy housing market theme was based on this that boy if inventory breaks lower here, this is not the time in history to have active listings near all-time lows, but it did. And too many people chasing too few homes, prices accelerate very hard to get prices to come back down. Reversion to the mean, that's what stock traders say. It doesn't work like that. This is not a liquid stock market. These homeowners aren't on margin calls having to sell their stock. They live somewhere. They have to go live somewhere else if they sell the house. So completely different dynamics here than other sectors of the economy.

Alright Logan, that's a fast, fast hour here. We covered a ton of ground, but you do this every day and you've been doing some really great work. So the housing market, the housing wire, housing market tracker you've been doing, you do a lot of the housing wire daily videos and podcasts with Sarah Wheeler. Where are we pointing people right now? What's the best work you're doing right now?

So the housing wire tracker comes out every Saturday. It is designed to look forward. So we go 10 year yield purchase application data, active listings, new listings, price cut percentages, and then we want to talk about the economic cycle itself. We format the economic cycle, then go into the housing data. And this tends to look out 30 to 90 days. Sarah Wheeler and myself, housing Wire Daily podcast. I think with the highest reiki we've ever had, we ranked two in the country for business dues. We come twice a week and I realize reading's not for everyone in charts aren't for everyone. I try to vocally describe what's going on because what happens in the economy matters to housing because for me it's always the 10 year yield runs the housing market. So that matters more than anything else. If it rises, it rises, demand gets weaker.

(49:58)
If it goes lower, demand gets better. So we work off of that. So the podcast and the tracker are designed to keep everyone informed what's happening this week, but to also look out 30 and 90 days. So we don't do the mistake that a lot of people had when last November 9th, 2022 years. Like the market's changing, they just got to wait a few months but don't miss it and people missed it. And then here we are again and I know it's working because the housing crashing crazy. People are not talking to me as much anymore. And anytime one of them opens their mouth out, I say, don't make the same mistake like you did last year. I could only teach you guys so much. So I think it's actually working. I think I'm getting people reading. That's my whole thing. If I could get people to read, that'd be great. And then everyone's on the same page, then everyone follows the right data and then we just go with it. If it's negative, it's negative. It's positive. It's positive.

It does feel like the social media doomers are slightly less vocal right now than they have been.

Oh, I could tell right away when rates went down. It's like 99% gone and or two, one or two people might open their mouths and I go, don't make the same mistake. Don't do it again. I could only teach you guys so much. We created that video for you guys to learn, right? We want you to read and learn, right? You only live once in this life. Don't go to death with this. And like I've always said, most all doomers are all anti Central Bank people. And anti Central Bank people are mostly Doomers 24 7. That's just who they are. So I enjoy their company. It's been a wonderful 12 years. We've documented the 12 years of the housing Bubble Boys, they did it. I knew you guys can do it, but Broken Clock Theory, you guys pulled it off and we documented this whole thing and we're almost going to this 20 point and it's over. That was it. It was just a 12 year thing. And I'm going to miss you guys.

I should make sure we note that indeed the HousingWire Daily podcast, the number two business podcast in the country as of last week, we saw that ranking came out. Apple Podcast. That's really great work. Congratulations to you and Sarah Wheeler. You guys do excellent, excellent work. Day in, day out.

Yeah. And poor Sarah has to deal with me twice a week, so give her kudos.

That's right. She's amazing. So Logan, thank you so much for joining me today. Really appreciate it. Your commentary is exceptional and valuable for me to help form the way I am interpreting the data.

My pleasure. It's been a lot of fun this year. Oh, you have no idea how much fun I have. Looking at that database you had, it's just like kid in a candy store all the time. Yeah,

We're on for more for 2024.

Yeah.

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