On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the positive signals he’s seeing for this spring housing market.
Related to this episode:
Lower mortgage rates driving early spring home sales | HousingWire
https://www.housingwire.com/articles/lower-mortgage-rates-driving-early-spring-home-sales/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
Lower mortgage rates driving early spring home sales | HousingWire
https://www.housingwire.com/articles/lower-mortgage-rates-driving-early-spring-home-sales/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst, Logan Motoshami, to talk about the positive signals he's seen for the spring housing market. As always, I want to thank our sponsor, Optimal Blue, for making this episode possible. Logan, welcome back to the podcast.
00:20It is wonderful to be here. We just got back from Utah, another great nerd tour event, and I can't wait to hit about another 20, 25 cities coming up in the next few months.
00:33That's amazing. I think what's so great about Anytime We Travel is we get to meet so many people who are a fan of this podcast. It's very fun to meet people who are like, I listen to you every day, I'm working out to you, I'm doing all these different things.
00:45Absolutely. There was a gentleman in Utah who did a very, very clever thing. He knows I'm a 49er fan, so he kept on making videos of, these are the homes that Brock Purdy should move to. Just come say hi to me. It is really good to just talk to people that are out there and that are listening to the podcast.
01:07They always say, thank you. It's very useful information. That's the whole point of doing all this is to try to take away the noise and try to get people back into a world of reality and data. Like Mike always says, the best antidote for fear is data in that sense. Then we keep everyone in line and everyone's on the same page.
01:36I love it. Well, let's dive into some positive spring housing data as you see it. We're all here for the positive spring housing data. What are some of the signals you're seeing that you're like, yes, this is good?
01:47It has been so long since I've said this, but now that we're at the end of March, we've got roughly like one more week of purchase application data. Purchase apps came out this week, 1% week to week growth, 7% year over year growth, which makes this now officially the first time that you have four looking indicators that are positive on the weekly and year over year side.
02:17I probably had a lot more darker hair back then when I said that last time, but we always try to bring context into every housing economic discussion. The whole thing for me is that we are working from the mother of lowest bars ever.
02:34When you're working from the lowest bar ever, it doesn't take much to move the needle. That's been our constant theme. This is a really good example of this because we haven't had this in the past. Today, pending home sales came out 2% month to month growth, so a little bit better than expectations.
02:49The four looking indicators are getting better, but they're getting better with elevated rates. We've not broken under 6.64. That's where usually the demand curve gets better. We were talking about purchase application data growing with many weeks. You need at least 12 to 14 weeks to have something valid.
03:09But here, the weekly data that we had in our tracker was positive. The purchase application data showed positive year over year growth, and the pending home sales data beat on a month to month basis. That has not occurred. This has nothing to do with the last existing home sales report. The existing home sales report back then, I would say on the month to month basis, there are some things that could have boosted that sales report.
03:36But here, it's not bad. But what this means is that if rates can go down just towards 6%, the easy answer is always, well, if we had sub 6% mortgage rates, home sales would grow. Builders have shown you this could happen. There are 2019 levels of sales, existing home sales markets down here. But can you get sub 6% mortgage? No. That's the thing.
04:00You need the labor market to break. You need another 1% rate cut. You need spreads to get better. We're not there yet. But it does show that just getting towards 6, home sales can grow in America out there. That's why we like to track the weekly data so we get a little bit ahead of it. We put them all together, and you got something. You got a bunch of data lines for the first time, a little bit positive on the year over year side.
04:27Let's talk about the purchase application data a little bit because you always cover it in the tracker, and it's trickier than it looks at first. There's always the top line, and then there's you getting into it and saying, here's what it really means.
04:42Purchase application is a survey. It's just a trend survey data. When the trends actually pick up on the up or downside, usually you see 10% to 20% growth on a year over year basis. We don't have that here. We have growth, but I would say it's not like the COVID-19 recovery. We were just, that was a V-shaped recovery, 20%, 30% year over year growth. We were off, games off.
05:09Here, year over year growth is positive. Nothing spectacular, nothing booming, nothing like that, but I think because it's a survey, a lot of people, you have to read the data on the weekly side and year over year side, and we've had to make some major adjustments to COVID because the seasonality, it used to be very easy to track in the last decade.
05:31A lot of things were easier to track because it was very stable. Here, things have changed, but you don't hear this from anyone. Nobody's talking about this. Why? Because you have to really break down. You have to really track the purchase application data religiously every year.
05:49This is one of the data lines where I handwrite a lot of stuff. I've got a little book here for many, many years, and I handwrite it. I go back and I backtest everything, and it's been so wild post-COVID because the whole data line's been messed up in a very big fashion.
06:05Here, this is authentically one of the normal periods of times where we all say, by the end of March, you have a good idea. For right now, even with rates elevated, mortgage rates haven't gone above past 7%. Things don't work well for the housing market when it gets up there.
06:22For here, considering that we're not near 6%, it is as good as you could hope for with the purchase application data, which is a little bit different than our pending contracts data. You put those two together, it's the first time we have year-over-year growth on the pending contracts and purchase application data.
06:41We haven't had a lot of those in the past few years, but this is one of them. It goes back to our November 9, 2022 discussion. If existing home sales just get down to $4 million, that's kind of where it stops. The home sales don't crash anymore. We've had a few months where it's above $4 million. We had a few months under $4 million.
07:03The last two years have had total home sales just a tad above $4 million. The reason I say that is because we've used that level for a lot of stuff. It's just really rare in America post-1996 for existing home sales to break under $4 million in any kind of meaningful fashion whatsoever.
07:26We know there's always seasonal demand in this time period, that spring time period. What are the other things you're seeing that might be positive when you think about demand? Where are we at at home prices? You've already talked about mortgage rates. Let's talk about home prices a little bit.
07:42The fact that home prices are not accelerating out of control is a positive. My work is different in the sense that what happened toward the end of 2020 was not a good thing. What happened in 2021 was not a good thing. What was happening in early 2022, not a good thing. I know home sales were higher, but home prices were escalating out of control, and we all see what happens.
08:09Eventually, when rates rise, the forward-looking demand gets hit. Price growth is still positive, but it's cooling down. I have one of the lower home price forecasts for the year. This is back-to-back years of real home prices being negative.
08:27In this context, another positive for housing. Price growth is low, and in that sense, wages rise, households forms. You try to get affordability to get better, not just by rates, but by the slowing of price. Again, it's rare for nominal home prices nationally to fall post-World War II, but in this context, that's another positive data line.
08:52Another positive data line is because inventory is growing. Secretly, I've been quietly writing about this in the tracker. We've been talking about this, the notion of rising inventory and rising sales. If mortgage rates were at 6% and stayed there easily, I think a lot of people would agree with that. You would have more home sales for the year.
09:18That would go with how it used to be in previous decades. We talked about that in a few podcasts. Rising home sales, rising inventory, price growth cooling down. That is a better equilibrium. That's why I'm very happy for this year. So far, this year has worked. New listings data is probably going to hit my target. Price forecast might be a little bit too low. We'll see how that works out the rest of the year.
09:42Forward-looking purchase application data is positive. Year-to-date, positive on a year-of-year side. Weekly pending contracts finally went positive. There's something there, but what that shows is kind of the worst in housing is over. The Fed is no longer hiking rates. The spreads are better. Inventory is up. Price growth is cool. There's all these different variables, but this is one right here where it's happening with elevated rates.
10:07So just get down to 6%. You got something that's really workable in that sense.
10:37But you're not saying like, oh, we're just going to have this booming market.
11:08We're just seeing a little bit of growth. It's just been so long since we've had this. And it just reaffirms my conviction that this looks a lot like the early 1980s. In the early 1980s, affordability was worse. We had a recession. There was more inventory. The homeowners financial profiles did not look that great back then compared to now.
11:31In that context, people thought it was a renter nation. Mortgage rates went down 2.5%. Imagine if mortgage rates are 4.25% to 4.75%.
11:40Oh, my gosh.
11:42Home sales are up. Prices don't escalate because inventory is picking up, but home sales are up.
11:47And of course, that's not part of my forecast. I can't even go below 5.75%, but all I need is mortgage rates getting down to 6% because I've tested this a few times now, and it does promote growth.
12:01We've been raging between 6% to 8% affordability crisis, property taxes, insurance, everything, and we're still holding this line, this $4 million line out here.
12:13And it is interesting to see that level tested with the affordability being such an issue, also with the fact that we've had property taxes and insurance issues in certain states elevated, and still that line is held.
12:28Okay, next topic. New home sales. What did we learn there?
12:32It's interesting. The new home sales report is so fascinating to me because the new home sales sector is actually a very, very complicated sector to go over.
12:43That's why we wrote that article recently about why haven't construction workers been fired yet? You get all these things, and it's very challenging.
12:53But here, new home sales picked up from the previous month. It's literally been in a range. It has literally been in a range. It's higher than the lows of 2022, but it hasn't really gone anywhere.
13:06No clear direction. When the rates rise up, demand fades down. When rates fall down, demand picks up. It's just back and forth.
13:13But during this time, what's happened is that the completed units of sales have picked up. I think we're now at 119,000. It's funny. You and I have talked about this.
13:24There's a mental disease with American men in this country. It's called the 2008 disease. And men will literally spend their whole life, decades, talking about housing 2008, never getting therapy on this, but always saying housing 2008.
13:38And I'm serious. If you get a doctor, you could probably get a bunch of guys together and go, is housing 2008 in the same room with us? Is it? They keep on doing this every single day.
13:48And I had another one talk about, oh, there's a massive, massive glut of homes. Home prices are going to crash because the builder's inventory levels are back to 2008 levels.
14:00And I was like, what are the Fight Club rules, Sarah? We do not talk about the new home sales sector and the existing home sales sector together because it's just, that's not how it works. Right?
14:12So I thought I'd have to find charts that go back decades. And the charts that I've been showing this week, by the way, for those of you that are asking, where do you get that chart?
14:24I understand you're all stuck in the shorter duration chart. You can't get the ones that go back in the decades. So I get that. But completed units of sales doesn't really rise above 120,000 going back decades.
14:37The only time that happened was 2008, but that never got above 200,000. Right? So people believe that the massive glut of homes still, because mental disease, right?
14:49These are men who've been sucked and lied to by a bunch of terrible people on YouTube, and they think every day housing's 2008. That's why you see it. This looks like housing 2008. This looks like, I love you all.
15:01You have literally given me an avenue to pick on you guys for 14 years. But what has occurred is that the builder's construction units are elevated, and which means on the economic side, right?
15:15Permits are low. Permits aren't growing anymore. Permits have not been growing. So you have to be risking, okay, what goes on here?
15:22If rates go up again, and new home sales fall, you can literally have that as a recessionary indicator because the residential construction workers could lose their jobs.
15:32So it's complicated, but the new home sales sector, as we wrote it, is basically the completed units is a problem.
15:42For all the people that said, we're going to build millions and millions of homes and everything. It's nothing to do with financing. It's just zoning. Where are we at right now?
15:53So let's talk about that because we are hearing from a lot of people in the government and just industry people, whatever, talking about we need to rezone, we need to get some of that federal land doing this.
16:06But what you're saying is right now, there are completed units for sale is elevated for the new home sales.
16:14What do I always say? Sarah, these people are all adorable little kids. They're just so adorable little babies. I love them all.
16:23I've been saying this for decades and literally every single time when demand gets hit and when rates go up, there it is. It's unbelievable.
16:35It's like, oh my God, it's like the builders are not the March of Dimes, Sarah. I just don't understand this.
16:42It's like the oil executives, literally the oil executives went and told Trump, we're not drilling any new oil wells or whatever.
16:49You got to have oil around $80 for us. So what do you think we look like, the March of Dimes?
16:54I think people are starting to get that, that the finance aspect of it is really critical.
17:01So permits have been at early COVID-19 recession levels for some time. It's not like collapsing or anything like that, but it's not growing.
17:09So we wrote this in June of 2021 that when rates rise, do not be shocked that the builders go, hold on.
17:21One of the things I highlighted this week was that the builders actually have a very, very elevated record high levels of homes that they haven't even started yet.
17:31These are single family homes that haven't even dug up dirt and you all want them to rise with permits now?
17:37This is the difference. When you've never run a business in your life, you have no idea.
17:44You have to make payroll and regulatory costs and all that, and you just want people to put their heads down and you know, no.
17:51So that's why I think the economic discussion with the new home sales sector is a little bit more valid.
17:58Like the 2008 stuff and supply glide and all that, no. Talk about that.
18:02And then you connect the dots and the builders think they can manage this. If rates go back down, they're okay.
18:07But remember, if the builders did not pay down rates to a sub six where their sales levels would be lower.
18:14So the clearance rate that Neil Kashkari talked about is a clearance rate that is much lower than 6%.
18:21The existing home sales market has been in the mid, mid sixes, mid 7% for some time now.
18:27So they don't even have that luxury.
18:31But if the financing isn't there, go, I encourage everyone, go look at housing permits.
18:37Walking dead. Nothing's been happening for a period of time that everyone has talked about.
18:42We're going to build, build, build.
18:45And this goes back to what, why the Trump administration wants interest rates to go down.
18:51So, I mean, you have to have some sort of like, if you have these completed units for sale out there and the builders.
18:57And like you said, it's not like we're not talking millions of, I think it's like 119,000 right now.
19:02There's about 119,000 completed units for sale for them. That's elevated going back to the 1960s.
19:09But for the homes that haven't even started yet, I think it's a little bit above 100,000.
19:14That's actually near all time highs there.
19:16So it's not a lot of homes, but if they haven't even started on those things yet.
19:22They're issuing permits out here like crazy.
19:26I mean, maybe some areas of the country where multifamily construction is really low.
19:32Maybe you could get some traction there.
19:34But man, don't get shocked by the housing permits data the last few years.
19:40If you can't finance it, you can't buy it.
19:43If you can't make money on it, it ain't going to go up. Sorry.
19:46Well, and this is the discussion that you and I have had for five years.
19:50When I first started editing your work and we'd have the discussion as I'm going through your story.
19:56At that time, there was no tracker. So you would just do the analysis of these reports.
20:00And I was the one arguing. I was like, no, no, no.
20:03We just need more houses. We need to build more.
20:06And you're like, this is not the way this works.
20:09And I finally get it because it's like, if that was the way it worked,
20:13you have 120,000 homes for sale. Is that a lot? No.
20:17But the fact that they're sitting out there completed and not sold means that, you know,
20:22it's not a matter of like there's just not enough homes.
20:25It's it's all about interest rates. It's about affordability.
20:28It's the business model, right? They are here to make money.
20:32This is why we have the whole March of Dimes.
20:34I cannot like if I thought of the one organization that is here to help people that doesn't care about profits.
20:41And then I think about the builders who are here to make money.
20:44And rightfully so. They manage this. It's not the easiest industry, right? Land purchases, everything.
20:51There's a whole things that have to go into it out there. And it's been this way since the 1960s.
20:56Right. This isn't this isn't anything new. I encourage people.
21:00Go look at housing permits starts and everything. Go bring out the data lines.
21:04Decades and decades. It's remarkably consistent here.
21:07So regarding the White House and lower rates, of course, last night we had car tariffs.
21:15The car tariffs are a little bit complicated because there's all these other rules that kind of go into it.
21:21A percentage of this. And, you know, so it's not a clear cut story yet.
21:28But when I went on CNBC, like the cure for tariffs, what the White House look is lower rates.
21:34In this case, lower Fed funds rate. Car loans go to lower. You know what offsets tariffs.
21:41The reason the White House thinks this is because lower rates will offset some of the costs because demand will pick up.
21:47A good example is the builders. Right. The builders had much higher lumber prices, much higher.
21:52But mortgage rates were lower and they were able to sell homes. This is why the White House is pushing for lower rates.
21:57When they say when they use this term, lower rates will make our tariffs or trade war tapdance, whatever you want to call it, easier.
22:07They're absolutely right, because if demand somehow is better because the cost of debt goes lower,
22:14it can offset some of the one time price adjustments or things that are happening right now in the commodity market.
22:21So that's why that's that whole Steven Mnuchin cap at four and a half.
22:26We're going to go, oh, boy, they want lower rates. You know, it alleviates some of that.
22:31And let's remember in 2018, 2018, mortgage rates got to five percent, three and a quarter.
22:39I think it's November 8th, 2018. I was at a conference speaking at that.
22:42And housing demand was slowing down. The builders monthly supply spiked over six months.
22:48People were talking about recessions or something to that nature. And what happened is rates started to fall.
22:53Right. And then the trade war tap dance eventually ended.
22:56But as rates fell, demand picked up for existing homes and new homes. All of a sudden, all those concerns went away.
23:02This is why the White House is talking about lower rates.
23:05They understand that aspect to where if the 10 year yield went lower and the Fed funds rate, the cost of debt goes lower.
23:11It could maybe offset some of this trade war tap dance. We're just not there yet.
23:17It's just it's just a different part, different cycle, different time of the economy.
23:22It's not so. And back then we're talking about five percent rates were hitting demand.
23:28Right. It wasn't crashing demand, but it was it was slowing things down here.
23:32You're still at what, six point seven five, somewhere around there.
23:36And if you had if you just had five percent rates, the whole dynamics shifted.
23:40Oh, my God. Housing. But, you know, the cost of cars and what it is, you know, car loan payments are high.
23:46So lower rates get that. So it's it's it's a little bit more tricky this time around than it was in 2018 and 19.
23:55Logan, thank you so much for being on, giving us the positive indicators of our spring selling season,
24:02but also, you know, just the what's happening on some of the larger economic things that are going to affect this.
24:08Of course, lower rates is what we need. As we've talked about a lot.
24:14It's going to be a very, very interesting four years. So we have to just get ready to gear up for it every day.
24:20And by the way, if you some of you were thinking, how is Sarah as an editor back then?
24:25It's like you write too much. This is too long. Shorten this down. Too many charts.
24:32Well, you write like five thousand words. You would have a five thousand. I was like, no one is reading five thousand words.
24:38I know. I listen. Listen, I mean, of course, I love this stuff. And I'm a pilgrim in an unholy land.
24:45I am trying. I'm trying every trick in my chart daddy book to make this as fun as possible,
24:51especially at these live events and everything. And I realize that I'm the old,
24:55old guy in a dungeon with a candle reading scrolls.
24:59And now I'm here and they're they're wanting me to dance on video.
25:04And I just like it's just like sometimes I forget, you know, when I'm finishing the last five thousand words,
25:09it's like this isn't going to work here, man. This is the 21st century, man.
25:14You're so much better now. I mean, now I hardly cut at all. We're very aligned. We're aligned on the.
25:20You forced me to cut my hands off in this, you know, and write less. But I understand.
25:26Yeah. Yeah. People, it's just the world we live in. You know, you have a two second attention span out here.
25:32Right. You've got to engage the audience and tell them something useful and then also make it fun.
25:37And this is why do porn sells. Right. This is why do porns.
25:42I mean, honestly, I don't believe like 90, 90 percent of these people.
25:46Like, I don't think they even believe it. But their business model is to draw in attention.
25:51And you can't do that writing five thousand little mini dissertations about the new home.
25:57Right. Read that. Have you seen the stuff that's on Netflix? My God.
26:02You know, you know, the trash here, the Doomer, they all these things sell. Right.
26:07So there's not many of us left in the world. Sarah, we try to do our parts, but we're still around.
26:15We're like a bad petty. No, so glad you're still around and so glad you're writing for us.
26:23We will talk again soon. And I think our next our next topic is going to be specifically on tariffs,
26:29because it'll be right before that is supposed to go into effect.
26:32So the tariffs and tariffs and jobs week next podcast will be going to be crazy.
26:38Thank you so much, Logan. Appreciate you.