The Housing Market Outlook for 2025 with HousingWire’s Logan Mohtashami

Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market data video series With the top of mind podcast, we seek to add context to the discussion about what's happening in the market from leaders in the industry. So each week, altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make the insights 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 as we roll into 2025 already. So if you need to understand the market or communicate about the housing market, this market to others, go to altos research.com, book a free consult with our team. Let's review your local market and teach you how to use market data in your business. Alright, let's get to the show today. My guest today needs no introduction to this audience, but I'll give him a little anyway. Logan Motus Shami is the lead analyst and my colleague at HousingWire. He is a prolific commentator on all the different aspects of the real estate market. He's great on stage, he's very strong view of what comes next. So today we're going to talk about all these things and a lot about what comes next in the housing market. Logan, welcome. Thanks as always for joining.

Well to be here,

Okay, so you're lead analyst at HousingWire. Tell us, so we're approaching the end at 25, 20, 24 already. Tell us what you're working on right now and what's exciting for 2025.

What we always try to do is try to teach the supply and demand equilibrium to give people the data ahead of everyone else. And for me personally, the whole structural housing dynamic shifted after November 9th, 2022 most because primarily home sales stopped crashing. And because of that we have this back and forth marketplace since 20 22, 20 23 and 2024. And what's exciting for me this year is that we're not a mortgage rates lockdown people. So higher rates, softness and mortgage demand has allowed inventory to increase. We saw this in 2022, we saw this in the second half of 2023 and we saw this in 2024 to a point where I am finally comfortable. It took a while, but we're finally in a place where it's a little bit more balanced than what we saw in 2021 and the early parts of 2022. So now it becomes more interesting because it's almost not fair.

(02:43)
We have the data ahead of everyone else and everyone else is months behind. But it is a very noticeable place to be in for 2025 depending on where our rates are, where inventory is, where the economy is, and how that's going to frame housing in 2025. Because for the first time in a while we have, to me at least a balanced enough marketplace where people have choices and how the economic data is going to really impact the housing cycle because it's the third calendar year of the lowest home sales ever. And that typically doesn't last forever. And what we have seen in late 2022 and mid part of 2024, if mortgage rates just get towards 6%, you can create enough forward looking demand data to get better. And you don't need three, four, or even low 5% to just boost sales a little bit more from these record low levels.

So the big thing is that the supply has finally built up enough that we have some opportunities for buyers. And so that you think we can establish or reestablish some normalcy in the market next year? Is that really what you're saying?

Yeah, it's as close to as normal and we've gotten in this five year period, and that was kind of my whole thing, the whole team hire rates in 2021 and 2022 was that we have to create a buffer. And now that we did, I'm not worried about mortgage rates going lower and creating too many people chasing too few homes. I haven't been able to say that for some time. I was a little bit disappointed in 2023 because we didn't get the inventory growth until the second half. But now this year I feel much better about the housing market.

That's an interesting take though. So you're finally not worried about too many people chasing too few homes. And that's a real shift because even in 23 we saw at the beginning of the year, we saw a lot of demand and that put a floor on prices and held prices up

The late 2022 when mortgage rates fell, we created for me, you need purchase application data to have at least 12 weeks plus of positive forward looking demand. And that occurred and what it did is new listings, data trended at the lowest levels ever. So it gave a little boost to demand. We had, I think 500,000 home sales in one month. That was one of the biggest home sales prints ever. But it didn't allow inventory to grow nowhere until the second half of 2023. And that was the disappointing thing about housing last year. But this year not the case, even though mortgage rates fell from 8% to about 6.75%, we only got about eight weeks of positive data and it allowed inventory to grow. Since most sellers are buyers, the market's a little bit more normal now and wasn't the case. That wasn't the in at the end of 2020 or 2021 or 2022 early on, but now it's a more normal marketplace and it's been a while since I could say that

That's a real shift in some of the basic assumptions about what happens next. And I think it sounds like you're saying that because A, there's 30% more homes on the market now than a year ago. We're getting closer to the 2019 sort of levels of inventory. And then it also sounds like you're not really, you don't have any fear that rates are going to fall like to 5% or something like that next year.

It's really hard for me to forecast below 5.75% mortgage rates unless the labor market is really deteriorating. That's why for me, everything revolves around the 10 year yield. In 2023, we had that Gandalf line in the sand. We didn't think that's going to break unless the labor market broke rates to shut up this year it was hor door at three 80, we got there and then the labor market wasn't breaking so it shot up. So the labor market deteriorates more. It's actually a benefit to the housing market more than any other sector because sales are so low. But until I see that kind of late cycle deterioration, it's hard for me to get really bullish on mortgage rates getting below 5.75%. The spreads can get better next year and that could help a little bit. But it's just that where we are right now with Fed policy, the economy, what mortgage rates are doing, that's back and forth action.

(07:23)
Sticking to the 2023 and 2024 forecast of 5.75 and seven a quarter, we're just moving off of economic data and I can't get to the low fives until we see jobless claims rise or residential construction workers lose their jobs or manufacturing. That's kind of a later stage economic, so I'm not quite there yet, but even if that did occur, I'm not worried about where 240,000 single family homes in March of 2022 and we have 80% multiple bids and their homes were 30 or 40 people. That was savagely unhealthy. So I'm just glad finally that we could actually talk about a housing market that is somewhat normal.

Yeah, that's a real shift in how to think about it because previously any dip in rates, we had people rushing in and we had overbid and we had bidding wars and we had tight inventory and we pushed prices up. And so then next year we maybe have a few more sales rates come down, we have a few more sales, but you don't see the conditions where we have dramatically dropping inventory. For example,

If I thought rates could get down to 5% and just stay there, then we can push inventory lower. But I'm just not quite there yet. And again, the history of home prices rising post 1942, right? If take 2007, 11 out of the equation, we only had one down year, those 1990 1% down, a lot of that had to do with Southern California. So the supply and demand equilibrium is just in a better spot that even if inventory starts to go lower early on, we still have a buffer and that buffer prevents home prices going up 10% or 15% or 17%, just kind of normal action, which it's been a while for me to feel comfortable enough to do that. That's why I say out of all the years from 2020 to 20 24, 20 24 is my favorite because it created balance. And there was a few weeks where it was just like the chef's kiss where we had inventory rising, we had demand rising something that was pretty normal in many decades in the past. Not a lot of people know that. And I was like, that is as beautiful as you're going to get. We don't really see that as much, but we saw a few weeks like that and just made me happy that that is something normal again.

Okay, alright, that's terrific. That is a really clear outlook on 2025 and I think it's nice because we're in a transition point started, the assumptions can change. Let me ask you this though. We know inventory is up but it's not up everywhere. So it is really the Sunbelt states have the inventory build the Midwest and Northeast does not have that. So what does that mean As we look forward, that imbalance where Chicago has barely more than the pandemic lows,

There are parts of the country that just don't have a lot of, and if you don't get that inventory growth with a third calendar year of the lowest home, it's just tough. But if we do get more sellers that are buyers and hopefully that equilibrium allows it to breathe a little bit more freely where we don't have double digit home price gains, I just feel comfortable that I don't have to worry about that. Of course, Texas and Florida have their own issues. I dunno, Texas has more inventory than Florida. Florida has some more stressed housing market than I would say Texas. But if you take that away, I think just generally the entire country is in a better spot than where we were in March of 2022 and there was only 240,000. And I say this because mortgage rates were 3%, then 4%. We don't have that kind of mortgage rate environment where I have to worry about multiple bids in bigger scale. It is difficult in some parts, especially Northeast where there's just not a lot of homes. Any kind of increase in demand creates that too many people buying too many homes. But as a country, we're just in a better spot.

We're in a better spot. And I would agree, it's funny because it is like demand is obviously way down, transaction volume is way down, but in many ways this feels a lot healthier. The supply demand balance feels a lot healthier.

It does. And I always like to refer this period of time to the early 1980s, the early 1980s, we had a huge crash in home sales. Affordability was worse Back then we had more inventory in the early 1980s, we had a recession, home prices didn't fall, they only grew a little bit. And then as mortgage rates fell, two and a half percent plus demand picked up and you get a little bit more of a normal marketplace. So you could kind of model something out. And again, a lot of it just revolves around if the 10 year yield could go lower, if we could just get rates down towards 6% and stay, we can grow sales. We don't have to worry about home prices escalating out of control. It's not a 3% or 4% mortgage market. And then we could have possibly one year of something kind of normal to what we saw from 2013 to 2019.

Excellent. Okay. That's a great, great, great very detailed way to start. As we're talking about 24, we're looking back at the year, we had a normalization, we had the rising inventory, we had this transition out of the too crazy to finally from savagely unhealthy to maybe something more normal. When you look back at the year though, what did you get wrong?

There are two glaring things that I'm going to get wrong. Number one, my price forecast was too low and I was really comfortable with it throughout the year, especially in the second half of the year. And then mortgage rates went down toward 6% and everything kind of stabilized and the pricing data got firmer in the seasonal soft period, which tells me that, okay, well worst case scenario, we grow sales. I don't get my price forecast, but I don't have to worry about anything too hot. So I was a little bit too low on the price forecast for 2024. But the thing that gets me is the new listings data, I was 100% sure that we'd get at least minimum 80,000 during the seasonal peak period and that we just get more sellers that are buyers and we could get there and we didn't get that. So the inventory growth wallets, I am 100% happy. I thought we'd get a little bit more sellers, more new listings data. But that did incur and those two things kind of work together why I think my price forecast is going to be too low for 2024.

So let's talk about the new listings volume. So for the listeners, if you're not deep in the data, we are, there are typically between, in normal times maybe 70, 80, 90,000 single family homes would get listed per week. Those would get sales. If you think about at the peak of the market, there might be a hundred thousand in a week of listings and you think 5 million sales, that's a hundred thousand a week across the year. And so that single family and condos and a few other things. So think about normal might be 80 or 90,000 new listings a week and especially at the peak of the market and a little lower at the beginning of the end of the year. This year and last year for sure, last year really it was about 60,000 per week. So maybe

2023 was terrible, 2023 was awful. It's absolutely terrible.

And then this year it felt like we had a few weeks, we were at 66,000, we hit 70,000 a few times and you thought we'd hit 80,000. Why did you think we'd hit 80,000?

Because we have more comfortable, see every year that goes on, wages grow, household formation grows, you get a little bit more maybe buying power just from that and then the new listings because it's working from the lowest levels ever, like 80,000 minimum. And there's a seasonal peak, but that wasn't even a lot to ask for. I think we got like 75,000 something and we just didn't get there.

(16:20)
And I was just hoping that we had one little week where it bounced up toward the, and I was like, come on, just one more week one. But no, and then it's just, I always tell people from 2013 to 2019, the seasonal peaks between 80 to 110,000. That's normal. So we haven't been able to get to normal in a while. And I just thought in 2022 we had about 91,000 I think the seasonal peak. We had some IBU and investors selling then. But here I thought maybe we could just get a normal marketplace where we get more the sellers going in. It just wasn't the case. Not as much, I mean an improvement. I would say it is a positive in 2024 that new listings data grow, but just not as much as I thought. And that'll impact the price forecast was again too low at 2.33% nationally

And that new listings being fewer, fewer sellers each week than you might expect, I've called it the great stay. So we see it in not just sellers list new listings, but you see it in people not quitting their jobs. We see it in employers not hiring as much, so unemployment is low, but normally when unemployment's low, people quit their jobs because they can go get another one. But they're not doing that. And so hiring is low, unemployment is low, migration has stopped. So this is why Chicago has low inventory and Dallas has high because people stopped selling in Chicago and buying in Dallas. That move stopped in the last couple of years. So all those things are suppressed in 23. And so one of the places that we see it is in the new listings data, and I'm with you though, that it feels like we get a little bit of growth, we'll get a little bit more growth next year.

(18:10)
So it's another year where people are like, my family's growing and I've been putting off moving and now I have to move. Time to do it is a few more folks who are like, well, my income's picked up, I can afford to do it. Each year we get a few more folks who are more likely to move. And also now we have three years of people buying homes at five, six, 7% mortgage rates. And if you bought three years ago at 6%, you can move now and buy at 6% again. And so they're not locked in with super cheap rates. So more of those folks exist.

We are creating a very, very big pool of missing buyers into this. So I kind of calculated that when home sales are down, existing home sales are down to 4 million every year, about 1.3 to 1.7 million. Traditional buyers are not there. So this is the third year. So we're kind of like at 4.2 to 4.7. If another year happens like that, we're like 5.5 to 5.9. We're really building a block of people that would traditionally buy just waiting. The only concern I would have in 2025, let's just say there's a hypothetical shock in the economy somewhere and rates just have to go much lower than anybody thinks. Housing disproportionately benefits in that because it's disproportionately hit for the last three years, and I'm not that comfortable if rates go below 5% that we have enough inventory. If all those people say, Hey listen, I'm still employed, and okay, here it is, we've been waiting for so long, that would be one red flag.

(19:55)
Cross that bridge. If that ever happens, that would mean something bad to have to economy. But because it's been so many years of depressed sales and it's not like we have underwater mortgages, it's not like credit is tight. It's not like demographics are bad. We have all the positive backdrops of what it's just affordability. And that would be the one concern if something happened to rates just shot down faster than anybody thought and then all of a sudden the majority of people are always employed in any single recession or any single economy cycle and they go, Hey, listen, why we waited too long, here we go. And then in some parts of the US, you get too many people bidding again and that again would not be a healthy housing market to me.

So you see a shadow demand, a pent up demand for home buyers.

Yeah, I never liked the pent up demand theory. I always thought it was a marketing given, but because home sales have been depressed for so long and I don't have underwater mortgages I had in the last decade, I don't have the demographic issues like I had last decade. I don't have credit being tight. Everything is still in play and functionally, but we just have very, and whenever rates do fall, and we've seen it twice now, when rates get towards 6%, we have over 12 weeks of positive demand. We get about a half a million home sales. Imagine if rates just stay. I mean it's very unlikely, but 5.75 to six and a quarter for 12 months, you can get between 380,000 to 621,000 existing home sales to grow, plus you get new home sales growth, theirs as close to that million additional home buyers. And when people say to me, well, why does the Fed do anything about housing?

(21:36)
You have to think about it in their light. In the previous decade, total home sales getting near 6 million was the peak. We're about near 5 million, so we're missing a million mortgage buyers, marginal home buyers. So to them the housing market is still intact, like new home sales has outperformed. You get something like that, you can get a good chunk of that back and it looks something like what we saw in the previous decade and that's why they're not so concerned about the existing home sales or it's not part of their dual mandates in that regard. The new home sales market because of residential construction workers and how that ties to the economic cycle, that's something they keep an eye on. But to them existing home sales, there's a lot of people with very low mortgage rates, low total housing payments, they are protected, they're in a good financial shape and they're not going to use that. An example to push rates lower or talk about things to boost housing demand.

Right, okay. If there's a big crisis, which is not forecastable, then we go back to the drawing boards on 2025. So lemme ask you some specific forecasting questions. Do you think in 2025 we see our new pendings number hit 80 k, new listings number and hit 80 K? Yes. Okay, you're putting that again. Okay. 80 k again for the new listings, I'm going to say yes with you on that one. It's going to be tight, but I'm going to say yes, we might go into the more reliably into the seventies, get a, but get a bump into 80 k new listings at a given week. There is some evidence right now that we are maybe in the level the late year levels of the 2019 levels rather than the 23 levels. So maybe we move into normalcy there.

Okay. Last few weeks have been encouraging for me on the new listings data, it doesn't look like what we saw in 2023 where it's just deep dive and just staying lower. So I am encouraged

About that. Okay, great. So 80 k new listings. You mentioned your view on mortgage rates like 5.7, five to six and a half I think is general year range.

Well, I generally forecast ranges with a 10 year yield. So a lot of my forecasts are going to be the same. So 5.7, five to seven and a quarter mortgage rates will profit for 2025. Same thing as 2023, same thing as 2020 because my 10 year yield channel is going to be roughly same. This is the same thing I did in last decade. I don't really deviate until I think there's going to be a recession or an economy. Then that bond yields could go lower. So same thing for 2025, we're going to be in that range again and again, if the economy outperforms, then mortgage rates could stay higher for longer. If the economy underperforms, then the 10 year yields can go lower in the spreads. Now the spreads become very interesting next year because as we get closer to the first fed rate cut, the spreads should get better, spreads got better before that occurred. So it's a big difference this year versus last year if you get more continuing improvement. And I encourage everybody, go look at the history of the spreads back to the early 1970s. This is a very elevated level, so you don't need too much to get better if you just get the 10 year yield down toward even just three 80 with better shreds, their 6% mortgage rates. We've seen demand pick up as long as that stays there with duration, that will be a positive for the existing home sales market for 2025.

And we published that spread. You publish, you talk about it in the housing tracker each week a lot. I'll publish it on Twitter that spread and watching it ratchet down a little bit, that will be maybe a favorable tailwind for us in mortgage rates next year. Okay, so you were under home prices this year, so this is really interesting. You forecast I think something like two and a half or 2.75 or something home price gains for 2024 and you were under there, but next year you're forecasting what

Actually very low numbers again. And the reason I'm doing this is whenever you get a big price push, whether it's the early 1940s, the late seventies or even what we saw recently, the price growth tends to slow down until the supply and demand equilibriums get a little bit more balance. And I just don't see really big home price gains in this environment because I don't see rates at three or 4% and I see inventory growing. So another very slow single digit home price growth year, even if rates came down to a little bit under 6%, there's enough demand and supply there to keep a lid on home prices rising in a very hot fashion. Of course there's going to be regionals, right? Florida stress, Texas has a different issue. New Orleans, and then there's a northeast and other places, but a very, very low single digit home price growth forecast for 2025. And I was wrong in 2023. I don't think that little burst in demand when rates got to 6% really changed the pricing data, especially in the seasonal soft period. And that's probably not going to allow me, even though rates are higher now, I don't think I have enough time to get down to 2.33% nominal. Yeah,

I think so too. Okay, so this is really interesting. So by the way, for our listeners at HousingWire, we've either just published or about to, by the time this comes out, a big forecasting paper that covers the numbers we're talking about here. We're talking taking Logan's, take the housing wire. Take some of my view in there. My view is a little higher on home prices for next year. So I'm forecasting about a three point a half percent gain and you were pointing I think to about 1.75,

Somewhere with a one to two handles, very similar to 2024. Again, where I can be wrong is rates go lower, the 10 year yield goes lower than I think. And then again, how I try to tell people housing disproportionately got hit with a good economy and it will disproportionately get hit to the better side because majority of people are always working on the tour. I tell people this because people say, well, in a recession, who's going to buy homes? Well, in Covid, that was the big thing. People said, there's 20 to 30 million people unemployed, Logan, who's going to buy homes. I say, yeah, and there's 5 million in forbearance, but you forgot about the 133 million people still working with 3% rates. As soon as they think, Hey, listen, I'm alive. That was the sharpest recovery in demand ever. Here we're going to have over 162 million people working.

(28:49)
You cannot possibly lose enough people to outstrip the majority of the people that are working that are sitting here from very, very low levels of demand with mortgage rates falling. And that's just, if you go look at the history of economics, that's how kind of housing cycles have worked. So we're going to have the biggest and largest workforce working from the lowest home sales ever. And when I say third calendar year of the lowest home sales, that is not hyperbole. If you adjust it to the workforce, you can see it. It's not there. So there is a lot of demand that can be happened, but we see we need rates to go lower. In the early 1980s, mortgage rates went 2.5% lower and it was a very, very sharp rebound in demand back then. And affordability was worse, inventory was higher. We had a recession. So we're trying to model out what does this look like for right now? It looks a lot like the early to mid 1980s.

Yeah. All right. Well that will be a fascinating to see if that comes through. One of the things I think about when forecasting home prices is that most years the average long-term average home price gains in a year, it's like 5%. The average, that's the baseline assumption is 5%. So three and a half or one and a half percent is actually, that's a weak year. That is a weak year for pricing. And it's actually pretty uncommon to get that low. And it'll be fascinating to see how it plays out, whether those conditions allow for that or if they push it back up this year looked like prices were going to come in lower and then they're, they're finishing the year, we're going to finish the year about 5% home price gains somewhere in that range. So

Yep, got it wrong. So

Yep, got it

Wrong. Okay, we see our weekly data. I think you and I were like, what is going, man? It is really kicking up. And again Mike, it is literally not fair that we have this data of light. I mean, I think the doomers have finally figured out just to, because one of the things I've seen is they're not versed in reading weekly data. So a lot of them took Redfin's data and they completely whiffed, they're using it wrong. So when I saw that a bounce up on the weekly, I was like, whoa, whoa, whoa, whoa, whoa. Seasonal soft period. No, I was counting on this. And then it kept on happening and happening and then the pending contracts data was firming up. So I'm like, okay, is that base getting firmer here? And we could see it in the down payment data. If you look at the down payments, they're all picking up now.

(31:31)
So there's so much people just waiting there to just get on it. And that's that whole November 9th, 2022 economic theory that when we get down to 4 million, we don't have any recent history to crash sales lower. If that occurred, the whole housing market dynamics wouldn't would be much different, but that wasn't the case. And we're just sitting there, sitting there, sitting there, and as soon as mortgage rates get towards 6%, we see that demand pick up. So again, I can be wrong next year. I could be too low if mortgage rates get lower and stay there longer in that forecast range or if they break through that and then all of a sudden you get more and more people thinking, oh wow, five and a quarter all of a sudden, five and a quarter sounds great and wonderful. And then so it is one of these things where you really have to track the economic data weekly to kind of figure out what's going on with the economic cycle has confused everyone, even some people that really religiously track it. So it's just one of these weird cycles that housing is just the ground, central root of it all.

Yeah. You mentioned something in there that I want to ask you about. You mentioned down payment data is changing. Tell me about that.

We're having bigger and bigger down payments now, especially the last two years, and there is 38 trillion of equity out there for homeowners and there's a lot of financial assets to help younger people. So a lot of people tell, we show the underwater homes in America in 2010, it was over 23% of homes that were underwater. Well, if you look at the down payment data toward 2005, it was very low. Now first time home buyers, total buyers we're talking double digit, mid double digits, especially when you start to get to the move up or move down buyers, there's a lot of nested equity already into these purchases and it's hard to explain. People go, how are we having 5 million total home sales with affordability this bad? Well, the people that are buying homes now, the affordability crisis isn't as bad for them as that marginal home buyer.

(33:41)
And if you're moving up or moving down, you have a lot of equity. So the total payment's not going to be as bad. But we're seeing increases in and down payment data percentage wise on all levels, which means that you have another extra layer of buffer out there if something terrible happens out there, which means that it's really hard to get deep underwater mortgages ever in this kind of scenario. And it's really hard, even if you had a down year to really increase the percentage, unless you're a very late cycle home buyer with a very low down payment. But the down payment data is picking up, it just shows to me that there's a lot of money out there and housing is that one big investment that you live in your house every single day until you move and people are putting that money into their homes.

Okay, so if you bought in Austin in June of 22 and you put down 3%, you're underwater.

You're underwater. Just that Austin home buyers are doing really well. Okay, so it's just like home prices fell from the peak and look, Austin's still a functioning economy and city, it's just,

But there are a handful of

There are, yeah. So late cycle lending is always a risk. That's always typically I would say FHA home buyers because it's a low down payment and then you have the mortgage insurance added to the loan balance. But in scale terms, the media people are shocked to figure out, I was showing the data for last year, it was like the median down payment was 15%. So there's a lot of already built-in equity just from that where it wasn't the case where you had a lot of a hundred percent financing and a lot of low down payment that is now shifting out here. So again, a lot of people need to do that, so they borrow less to get to that payment level as well. So it is a unique cycle in that front. And that data just came out. The NER just showed that recently, and you see it on buyer fronts out there, and this is why it was so important to get mortgage rates higher because imagine if mortgage rates didn't go up in 2022, we were heading to another 17 to 19% home price growth year.

(35:53)
And then that's, again, that's not healthy in the long run because with qualified mortgage, there's no more fake credit demand or anything like that. Everyone's legit. So it pulls the affordability, makes it worse and worse. And now that we're slowing down, and maybe it's my bias that I have lower price forecast just because I want this to slow down and work, and then it looks like we've had decades and decades of housing economic cycles, and that's what typically happens. And then we get something back to normal again. And that's why I love 2024 inventory grew. There's no major national home price crash or anything like that. Credit data looks good for homeowners and we just get to that next stage of getting something normal again.

Okay, that's really, I am with you on that story. There's a stat, so we were talking about rising down payments and there's a lot of cash. One of the bearish macro stats out there is that consumer like credit card debt is rising and delinquencies on credit cards and cars are rising. What do you make of some of the bigger macro trends right now as we're rolling into 2025?

So consumer debt, credit card debt rises with every expansion 14 years. I think this is one of the most misunderstood economic data lines of this century. The 2005 bankruptcy reform laws and the 2010 qualified mortgage laws have made it pretty much impossible for homeowners to leverage up in a really big fashion. Now renters, especially younger single renters, that's where we see a lot of the stress out there. So I think for two years people said, well, consumer credit card debt, I see it every single time we're supposed to be recession two years ago, one year ago. The majority of consumption is the middle class, the middle and upper middle class homeowners when you break down the data and just look at them, and this is a huge part of the NERD tour. I go look at that. There is no other middle class in the last 100 years.

(38:03)
I look better than American homeowners, right? Because FIO scores have been great since 2010. And on a lot of people think, oh, it's F ICO score inflation. No, the F ICO score data has basically been the same for 14 years. We just originated more loans in 2020 and 2021. So on the renter side, that's where I see the credit stress. Are there FHA loans delinquent is the VAs, yes. But in scale terms, on the 51 million loans out there, 40% of homes don't have a mortgage. Even homeowners are doing fine renters on the other hand, you could see it in the data, especially single household renters. That's where the stress is. A federal reserve is like, Hey, we're looking at, no, they're not. They're more in tune with what homeowners are doing because the consumption of this economy is still running with how that middle class is doing in the middle class or homeowners. If you get a lower income pool, that's a dual household income. So that's where I think the credit card stress conversation needs to go into the renter side, not so much on the homeowner side.

Okay. Are there other macro trends that we should be paying attention to for

25 20 25? So right now, we're at the point now, I was wrong on the labor data for some time. Once we got over above 157 million total employment, all I was writing is about we're eventually going to get down to 140 to 165 or 140. We're just going to get that trend line back and it wasn't happening for a while. Now that we have the revisions, we're basically right there. So when we look at the labor data, it's been softening for 13 months, it just hasn't broken yet. Breaking is jobless claims. So what two sectors get hit first before every single recession? Residential construction workers, which is flag number one right now because the builders have shown us 6.75 to 7.5% rates doesn't really work for them. From March to July, we had no growth in residential construction workers. The last month was a negative. Builder's confidence was falling.

(39:58)
So rates getting back up here, that's something to think about for all of 2025. And also manufacturing jobs take the Boeing strike out of the equation and then the rebalance after that manufacturing data looks softer. Those are two things right now for 2025 that get my full attention because that's the economic cycle work, which I primarily do. But for housing, again, disproportionately a weaker economy, a softer labor market helps the housing market. So that's why the economy's on one side and the housing market is on the other. But that thing could be the big change for 2025 if things do get worse on that front.

And so when we're talking labor, it's specifically residential construction and manufacturing jobs. They're the ones that you care about that look like they're kind of there at softening and if they turn, that's a flag to look out. Macro economy.

Yes. So when we think about residential construction workers, that's apartment workers, single family, but a huge chunk of it is remodeling. So the reason I brought this up, I remember going on CMC in July and talking about this that, well, guess what happened? Permits are at low early level recessionary levels of Covid housing starts are at recessionary, early levels of covid. But then Home Depot and Lowe's warned as well, well that's the trifecta. This is the first time the trifecta happened. Then mortgage rates went from seven point half to 6% and all of a sudden the builder's like, Hey. And that builder confidence to everyone to remember it's tilted to smaller builders, big builders that are publicly company, they've got margins to still keep things going. But when rates fell, all of a sudden their confidence but then rates shot right back up again. So it's a tug of war and we try to find clues.

(41:46)
I always say mother economics, she's a serial killer. She wants to get caught. She'll leave you clues, they'll leave you crumbs, right? So we try to find that early SE and the builder's confidence data is probably the only good survey data we have left in America because it's all about how to make money. And if that confidence goes lower and rates stay elevated and permits go even lower once the units completed, which is happening now, we're completing a lot of projects, then those people don't have jobs with permits so low. That's where you see the contraction in residential construction, especially if the remodeling business doesn't get. So it's kind of like a thread the needle the Fed's trying to do here. But if you track economic cycles, those are the two things to keep focus on right now.

And do you think the Fed cuts again this year before the end of the year?

I think they'll cut 25. They want to get down to neutral, wherever neutral is for them. People have to remember the Fed funds rate, the Fed looks at the economy different than stock traders and people on social media. So they kept things restrictive until they felt more confident that the labor data is getting softer. So then they could cut rates all the way down to neutral. Remember, neutral is not accommodative. There is no fed real pivot like people are thinking about. The Fed only pivots when the labor market is breaking. That means jobless claims start to rise. If that occurs, then the 10 year yield for housing purposes only the 10 year yield gets ahead of the Federal Reserve Fed rate cut. They'll cut more aggressively in that situation, but they will slowly move down to neutral and just stay there as long as the economy is expanding. So again,

Yeah, so let me recap this. I think this is a really useful frame for people. The Fed is likely to keep cutting because the current rate is actually restrictive. It's saying it's actually in a position still that says we're afraid of inflation, that even if they're no longer afraid of inflation, the rates are still such that they are restrictive. So they will keep cutting to neutral. They are not yet accommodative meaning holy shit, we need the economy to grow. And so that would be cutting on the other side of that. And we don't have any evidence that that's the case yet, but we still have plenty more rate cuts to get there. When the Fed cuts the short-term rates say in whatever December, next time they're going to cut and 25 and they do another 25 in the first quarter, what's your expectation happens to the 10 year?

Well, I think the 10 year priced in a lot of Fed Week, I'm cutting around that three 80 level to get below three 80. You just need economic data to get much weaker. So there's a lot of easing already priced in already what fed rate cuts can do, help land purchases, help apartment construction and also get the spreads better. But to me, once we hit that, I call it the corridor line for Game of Thrones fans hold the door at three 80. If we break below that, then the economy was getting weaker and the data has to verify. And what occurred was the timing of it was very, very miraculous. The day the Fed cut rates half a percent, we had a series of economic data beat expectations. So if anybody sees the city surprise index and the 10 year yield, they kind of move hand in hand.

(45:16)
All of a sudden all this data was beating expectations and the 10 year yield rose. So the timing of it couldn't be any worse. It looks kind of bad for the Fed, but a lot of easing is already priced in on the 10 year yield. But if the labor data and the economy gets weaker, the 10 year yield will get well ahead of the Fed and the Fed is playing catch up. So the Fed is just playing catch up to a 10 year yield that's already priced in a lot of easing and kind of keep that three 80 line. That's kind of the line in the sand. If jobless claims start to rise up and the last jobless claims print was we talk about today was like 216,000, then it's a whole different story. But for now, the Fed will take it nice and slow and then if something happens, then the bond market gets ahead disproportionately helps housing, and then the Fed follows through with that. There's a lot of things the Fed can do if they wanted to help the economy, but right now it's slow moving and it's just that tug of war with the 10 year yield and economic growth data.

Okay, I'm going to summarize our 2025 then we're going to do one more question about the longer term future. So summary, what you're telling us about 2025 is you don't see dramatically lower bond yields or mortgage rates roughly in the same range that they spent this year. But you do see new listings volume picking up. You do see total home sales picking up some in the year. And because supply is higher, you see that, and we still don't really have a lot of affordable affordability. You see that home prices don't really gain that much underperform in the year. Do I have your 2025?

Yes. Yes. Okay. If I thought rates can get below 5.75 and stay there, then I have a whole different view of housing. You get more home sales and price growth can, but no, I'm just not there yet with the economy and it's not the 240,000 single family homes March 3% mortgage rate inventory has grown, rates are still elevated. Every economic cycle has needed 2% plus mortgage rates to go lower since the early 1980s for it to really take off. So we're not quite there yet for 2025. The X variable for everything is something happens to the economy where housing disproportionately give benefits, but the economy gets weaker on that side.

That is a terrific, terrific summary. Now let's talk about the longer term future. When you first came on this podcast a few years ago, one of the things you had was a 2024 view of demographics. This is the millennials in their late thirties. The millennials are now 40, and we can say with shock as two Gen Xers here. So it's now 2024 is the end of your previous demographic wave.

I was not supposed to do anything after 2024. That was supposed to be the end of everything. So things change, plans change.

So let's talk about the second half of the decade.

What do we see? Okay, so my whole work going back from 2010 was that the last decade was going to have the weakest housing recovery ever. There was a lot of things that needed to get better. Household formation works itself up to years 2020 to 2024. And then we have this once in a lifetime, unique patch ages 28 to 35 are the biggest ever. What's occurred was the worst thing possible happened, which is the big concern is that inventory slowly moving, all of a sudden prices escalate out of control and demand gets crashed because demand has crashed for three years. Now. We are missing home buyers that should have been here the last four years or the last three years actually. And because of that, it can extend the demographic patch a few more years because sales are low. That's why I always say that 1.3 to 1.7, missing home buyer each year, if we have another 4 million home sales year in 2025, that gets up to 5.5 to 5.9.

(49:35)
And I hate the pent up demand these, but because sales are so low, those human beings are still there. They didn't go anywhere. So because of that, you could extend out the period in time in terms of bodies, just raw physical demographic. Economics is demographics and productivity, the rest of the stamp collecting. But those people are still there. It's just the affordability. Knock them in 20 22, 20 23 and 2024. So the next few years you still have that underlying pent up demand with that 4 million base there. Some of that has gone into the new home sales sector, but the new home sales sector is at 2019 levels. That's not like it's booming to 1.4 million we saw in the peak of 2005. So you equate that to the existing home sales market. It's 5 million in there. So there's still, because of that, you could extend out the 2024 just a little bit more, but that again, would rates to fall. And if it doesn't fall, we are back here just holding that 4 million demand at bay and then we take it from there. So that was the unfortunate reality. That was the unhealthy housing market at the end of 2021, getting super unhealthy in 2022 to become this savagely unhealthy housing market. And there's consequences for that now because of qualified mortgage. But it does extend out to 2024 just a little bit because of the missing home

Sales. Okay, so the demand extends out a few more years, but we also have affordability hurdles and what do we think about that in the second half of the decade?

So let's think about where we are on the demographic pool. We are near 50 million millennials working. There's about 17 million baby boomers left. The millennials were the biggest home buyers in America for the last 10 years. Only one year where the rates went up to 6%, the boomers took them. But then Gen Z is just about to surpass the baby boomers in terms of the workforce. So you get the second half because of Gen Z, because of millennials and Gen X, we're still here. This is the time where some of us actually start moving up or in some cases moving down.

(51:46)
The demographic pitch for the rest of the decade is going to be okay if we didn't have Gen Z or millennials, we're basically Japan. We're 40% of our population will be dead by the end of the century, but we're not. We still have them. So you think of the five pillars of housing demand, move up, buyers move down, buyers first time home buyers, cash buyers, investors, you put 'em all together, you sell that 4 million base and you just rise that up depending on where rates is for the rest of the year because Gen Z is starting to come into the play. Again. You put Gen Z and millennials, that's a really big demographic patch right there. And then the baby boomers are still buying homes the second. And then you have Gen X right there. You're okay, you're in a good spot for the next five years, especially.

(52:28)
Now, the fact that we've had the third calendar year of the lowest home sales ever, and I keep on using that because that's such a baseline portion of my work right now because that 4 million level held, we've had six to 8% mortgage rates, rising home prices, and that 4 million level is basically still held. It's not crashing below it, it's not going up above it really. But that base is still there. So you get a little bit more demand. And again, wages rise, dual household incomes you put in together, dual household incomes is the best way of fighting housing inflation. You could get a little bit more demand in the next few years, but again, it's rates in the economy.

Logan Moham, thank you so much today. What a terrific time. It's always fun to dive into all the data. Everybody, if you don't already follow Logan, I'm sure you do. But he publishes every week on the weekend, the housing market tracker and dives into the latest of those, the mortgage data as well as the Altos data. It compliments very nicely the stuff that I publish on Monday. So track both of those to really keep your eyes on and see if our forecast for next year,

It's not fair. I'm telling you, this is the dynamic duo because we got the economic side on one and then we got the inventory side and it's ahead of everyone. It's literally not fair. I almost feel feel bad for the Doomers.

I

Mean, it's just like, I think there's a realization now that they're like, okay, this stuff has worked in the most chaotic time the last decade. It was the boringest housing cycle ever. But in this chaotic period where you could assume a lot of things, but the data has to verify. And again, I always tell people, if you're thinking of housing 2008, the new listings data just took off so many delinquencies and credit stress, it's like three times more than new listings data this week compared to the weeks in 2000 9, 10, 11. So let the data guide you. Don't let your ideological text guide you. Let the data guide you. If it gets there, if it goes negative, we go negative. We don't double, triple, quadruple down on a bad theory because we want attention. We take pride in our work, pride in ourselves, but let the data guide you. And that's what we do every single weekend and it's literally not fair. We have the freshest stuff out there.

Exactly. Terrific. Alright, Logan Shami, thank you so much everybody. This is the top of mind podcast. If you enjoyed this conversation, I really appreciate some stars, like some five star reviews wherever you get your podcast. It helps other people find it and helps other people hear the inimitable. Logan mot Shami, we ought to get him in front of more people. Alright everyone, thank you so much. We'll be back very soon. We didn't even talk about the election, it's election today and we're recording this. We didn't even talk about that, but we'll hit that next time. Alright everybody. Logan, thank you so much