On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about spring housing demand. The two also discuss inflation, jobs, tariffs and pressure on Canada.
Related to this episode:
Mortgage applications climb as rates continue to decline | HousingWire
https://www.housingwire.com/articles/mortgage-applications-climb-as-rates-continue-to-decline/
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:
Mortgage applications climb as rates continue to decline | HousingWire
https://www.housingwire.com/articles/mortgage-applications-climb-as-rates-continue-to-decline/
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 what
00:10the forward-looking indicators tell us about spring housing demand. We're also going to
00:15talk about inflation, jobs, tariffs, and Canada becoming our 51st state. First, I want to
00:21thank our sponsor, Optimal Blue, for making this episode possible. Logan, welcome back
00:26to the podcast.
00:27It is wonderful to be here. Why? What a crazy, crazy, crazy day, week, everything. Every
00:32day there's always some headline drama and it just makes life more interesting.
00:38There's some headline drama and that makes the economics really, really crazy to try
00:42to track. So glad you're doing it. Let's talk about spring housing demand.
00:47Yes. So it's almost spring and we always say by the end of February, early March, we get
00:52somewhat of an idea of how the year will go. And crazy enough, the weekly purchase
01:00application data is positive year to date, even with rates above my growth target level.
01:09And I track purchase application data a little bit differently than other people. We've had
01:14to make some major adjustments to everything after COVID. So I look at the weekly data,
01:19but in context to how low demand is, we keep perspective. Four positive prints, three negative
01:26prints, two flat prints.
01:27Since the beginning of the year?
01:30This is from when mortgage rates peaked. I usually take the second week of January from
01:37seven and a quarter down to 6.64. Last year, mortgage rates, the bottom was just toward
01:46the end of December, early January, and then they shot up to seven and a half. So for a
01:51good period of time, about 18 weeks, purchase application data was negative 14 times. We
01:57only had two positive prints, two flat prints last year. So even though the volume curve
02:03wasn't crashing, the weeklies were not positive at all.
02:08Different case this year. We actually already have double the positive data going into spring
02:15that we did last year. So I wouldn't consider this like a big growth data line now, because
02:22to me, you need about 12 to 14 weeks of positive purchase application data to get something
02:27going. Last year, we had that when mortgage rates started to fall, demand picked up, everyone
02:32kind of ignored the housing data because they saw the low levels of purchase application,
02:37but it was good enough for a couple hundred thousand. We had 12 positive prints, five
02:42negative, and one flat print. So in that context, not bad considering everything that's going
02:49on. But just imagine if rates just go down to 6% and just stay there. That's it. We're
02:57growing sales, not a problem. And of course, we have more inventory this year than the
03:03bottom of 2022. So there's a lot of things that are in place now that are much different
03:08than the previous years. The feds aren't in a rate cut cycle. The spreads are getting
03:14better. There's more active inventory. Price growth is cooling down. These are all beneficial
03:19for demand going out in the future. And this is why when we do the newer tour, kind of
03:22the worst is over. We just need that one last push to get there and then you could grow
03:28sales. And then we'll take it from there at that point when we get a higher level of sales
03:31to work with and what needs to happen. But we got to get that first inflection point
03:36off. And I've always said you need rates down towards six with duration to get that
03:41to work.
03:42So let's talk about the larger noise that's going on that consumers, you know, they hear
03:47and they might be affected by either whether that's like, oh, their job. No, no, no, don't
03:53let let me ask that their job might be gone or they might be afraid their job's going
03:57to be gone or they're like, oh, my gosh, we're seeing higher prices on this and all the talk
04:02of tariffs or taking over Canada. What effect does that have on the consumer? And when will
04:07you see that if ever?
04:10If it had a big effect on consumers for buying homes, purchase application data would be
04:16negative. Okay. Like it was last year. So this is last year. We did not. Yeah. Last
04:21year we didn't have the trade war tap dance. But for now, it's kind of like in covid remember
04:26in covid, like when we did the covid-19 recovery model, you could understand why people are
04:32laughing at me because I was like, oh, housing demand will be back like in six to eight weeks.
04:35It was crazy, man. There's 20 to 30 million people unemployed. And where's a global pandemic
04:40and who's going to buy a house? I said, just give it six to eight weeks. Fastest, sharpest
04:46recovery in the history of America right there. Why? Because one hundred and thirty three
04:52million people were still working and mortgage rates were at three percent. So if you wanted
04:56to ever use a period in time where, oh, my, you could totally understand if people wanted
05:02to just, you know, that's true. No, they did it as soon as they thought, OK, we're living.
05:07Let's go. They bought home. So for the housing side, we haven't seen that just yet. There's
05:14always going to be consumers that are, oh, should I ever buy a house now with prices
05:19here and everything? But in general, macro terms, we haven't really seen that impact
05:24yet for housing. You could say the consumer spenders have changed. Of course, a lot of
05:28people were buying stuff before the tariffs and confidence is down. And I totally get
05:32that. But if I if I was to make a housing claim, then the data would be more negative
05:37than they was last year, because last year we didn't have the trade war tap dance or
05:42federal workers being fired here. Rates are better. So what the rate variable, I always
05:49say housing market revolves around the 10 year yield. All this other stuff noise to
05:54a degree, but the 10 year yield, whenever it falls, demand picks up and we just keep
05:59it as simple as that until something changes to where it can materially change the housing
06:06ecosystem. And again, when rates go up, demand gets hit. Last year, rates went up. There
06:11was no trade war tap dance. There was none of that housing demand. The positive curve
06:16went away. So millions and millions of people buy homes every year. We had near five million
06:22total home sales in twenty twenty three, near five million total home sales in twenty twenty
06:26four. Where we're going right now, even if rates don't go lower, we're going to have
06:30near five million total home sales. The peak in the last decade was near six million. So
06:36a little bit, you know, perspective on that side. But if I was to say that we would see
06:41a negative curve because of the headlines, purchase application data would be negative
06:47pretty much almost every week, like it was last year when rates were rising.
06:51So we'll be able to tell that is wild when I think about it. It has been, I think this
06:54week marks five years since the pandemic was officially like closed everything down. And
07:01then you wrote your recovery model on April 7th, April 7th, twenty twenty. The 10 year
07:07yield was above sixty two basis points. The St. Louis Credit Financial Stress Index had
07:11already been falling. Game was on Wayne's World. Game on. We were we were we were about
07:17to run. We were about to run right here. That was literally as as a data analyst, that was
07:22the best year ever, because while everybody was doing their depression mode and everything,
07:27we're gone, homie. See you. Bye, losers. Goodbye. See you. We're running for one in the 40.
07:34You're still running at eight. Five. Don't catch up. You're never going to catch up.
07:38So different marketplace now, the 10 year yield has gone and it's it's marginally helped
07:45demand, but it's it's a little bit better than last year's data. I would tell you this.
07:48Our pending contracts are still slightly negative year over year. So we don't see any I don't
07:53see the shift change again. If I had 12 to 14 weeks of positive data, then I could go
07:58with this. But I would just say that it's better than last year. And purchase application
08:03data takes 30 to 90 days to hit the sales data. But again, we're working from such low
08:07levels that it doesn't take much to move the needle. So that has to always be the big
08:13perspective of this, that if we were really rolling with housing data, it'd be like what
08:18it was in 2020. Right. We just get the sharp V-shaped recovery and purchase application
08:24data. It's up 33 percent, 35. You know, you have such a low bar to work with that the
08:29velocity should be that we just don't see that in the data. Rates are too high. Rates
08:33go lower. Advantage, disadvantage. The housing market has an advantage because the cost of
08:39debt and the sales levels are low. If the sale of existing home sales are at five million,
08:43that's a different story. But you can see the difference between the builders now and
08:47then the existing home sales. The builders are working from 2019 levels. That's like
08:51five million existing home sales, like a million higher. So they have a higher bar to work
08:56with. Well, let's talk about the builders, because we're starting to see obviously we've
09:01seen in your trade war tap dance parlance. I mean, we've seen some crazy things happen
09:07in the last couple of weeks. And so what we're you know, what you've mentioned is that they
09:11still have homes that are under contract, a backlog they're working through. We read
09:16a report this morning. I think it was Wall Street Journal that talked about, you know,
09:19builders after the election started, you know, laying in extra the ones that could laying
09:24in extra materials in, you know, thinking about this potential trade war. So 2025 supply
09:30is probably fine. But 2026 is is where you might start seeing it. What do you think?
09:36I would actually disagree with that in this sense. The 2020 supply for the builders is
09:42not good, right? The builders on the other, huh? You said 2020, 20, 2025 for the builders
09:50is not good because why the builders are here to make money and their total units of completions.
09:59We talked about this on Yahoo Finance has been rising, rising to levels that they don't
10:04issue permits because they just don't know. And this is all before the tariff situation
10:09happened. So now you add another variable into them and their stocks have been performing
10:15bad, but they tend to do better again when, oh my God, the 10 year yield goes down. Mortgage
10:21rates get down to 6% because not only do they have that 6% curve, they could push rates
10:25to 4.5% to 5.5% to sell product. The big builders have that advantage still to a degree.
10:32The smaller builders, not so much. So I would argue that the completed units for the builders
10:38makes it more problematic. They don't really have the pricing power, like especially in
10:42the South to do that. So don't look for permits to go anywhere. And my concern is that we
10:48start to see it impact the residential labor force, right? And again, that's my recession
10:54trigger that I'm looking at. And if that happens, then oddly enough, in some ways that
10:58can help rates go lower. But yeah, the builders were complicated going into 2025 and that
11:06hasn't changed. It's just gotten worse with the possible tariffs out there coming up.
11:10And that's why they wrote to the president that first night, that first Friday, they
11:14were like, I mean, they had that sheet ready to go.
11:17It did. The National Association of Home Builders is what you're talking about when the first
11:22tariffs were announced. Okay. So what does that mean for the housing market in spring?
11:26What does that mean for the existing home sales? Because will you have less options
11:31in new home builds? Well, here's the existing home sales market is just a much bigger marketplace
11:37inventory wise, buyer wise. So the purchase apps and the pending contracts, I mean, right.
11:42Our pending contracts are still slightly negative. So purchase apps take 30 to 90 days. We'll
11:46see if that just brings the curve up a little bit. But I've always stressed this. If you
11:51really want something, you got to take rates lower to about 6% and it's got to just stay
11:57there.
11:58The builders have shown you, you can grow sales back to 2019 levels. And that's a kind
12:05of a sub 6% mortgage market. The existing home sales market is different. And this is
12:10a, this is a good topic. Somebody had asked me like, why didn't the Fed raise rates in
12:152021? I said, well, they don't really revolve their mandate around the existing home sales
12:20market. And there was a lot of people who didn't believe in the recovery. It's a little
12:24bit different for us because we retired the COVID-19 recovery model on December 9th.
12:27So we were just like, OK, that's that's done. We're in another stage. But because the
12:32unemployment rate was still high and COVID, nobody knew exactly how many people could
12:36go back to work. They kept, and we wrote that in what, February of 2021.
12:42We need higher rates. This is not a good thing what's happening right now.
12:46But also on the other side, you know, people say, well, why, why isn't the Fed cutting
12:51rates to get mortgage rates lower? They don't revolve around their mandate around the existing
12:55home sales market. So in their eyes, if you're trying to balance the economy, right, do you
13:04really want people having sex and buying homes and buying stuff? Right. This is the only
13:08thing they can really control on that side.
13:12So we still stick with the Neil Kashkari.
13:16We can't balance the economy with six percent.
13:19I still can't believe you said that.
13:20But in any case, there is your mindset right there.
13:24Right. If they're saying that in 2023, do you think it's not coincidence that when the
13:2910-year yield gets around the Hodor level or the Gandalf level, Fed people come on and
13:34go, hey, guys, market, you're a bit ahead of yourself.
13:37Right. They have the ability to just even ignore that move lower.
13:42They don't. Right.
13:43So existing home sales just isn't in that dual mandate preview right now.
13:50The new home sales market, if you start laying off workers, yeah, that makes sense.
13:54But not for the existing home sales market.
13:57OK. At what point does the trade war tap dance just become a trade war?
14:02We'll know on April 2nd, 2025.
14:07You know, I'm glad that they removed it from April 1st.
14:10OK, that was like going to be a joke.
14:11Like, you know, I'm like, come on, you're trying to be funny now.
14:15We're going to do reciprocal tariffs.
14:18So, of course, for us.
14:20Wax on, tariff on, wax off, tariff off.
14:24So back and forth, I think this morning we we did 200 percent tariffs on Europe for
14:31champagne, champagne and wine and stuff.
14:35And again, we kind of brought this up a few weeks ago.
14:39He's going to have to pull the trigger on some things because if people start calling
14:43his bluff all the time, it's just that's not going to work.
14:46And of course, the stock market is down again this morning.
14:49It's Thursday morning bond yields.
14:51Bond yields were elevated to a degree.
14:53We could talk about inflation next, but then when the markets are selling off, money goes
14:57into the bond market. So we're kind of back to that old relationship where when stocks
15:01fall, the 10 year yield can can can go down.
15:04But we'll know a lot, I think, by tax day that we'll have some clarity.
15:09But this can't go on for four years.
15:14This back and forth stuff, this this you got to make a decision.
15:17All right. If you go full tariff, go full tariff.
15:21Or if you're going to make a deal, make a deal.
15:23But we can't we try this in 2018 and 19.
15:28It didn't work really because business investments stopped.
15:31So, you know, at some point you got to pull the trigger out there.
15:35And of course, there's the stock market put up a fit back then and the stock market is
15:40putting up a fit right now.
15:41So this is why we call it a trade war tap dance.
15:44Think of Daffy Duck dancing like that's what I think of back in the days.
15:48You know, that's a gif I used to use back then.
15:51And we'll see what the final result is.
15:54I absolutely I don't watch TV, but I saw a clip of like Peter Navarro from UCI or UC
16:00Irvine, by the way, it was in any case.
16:03He talked about your alma mater.
16:05Oh, no, that's the college near me.
16:08But in any case, he was like, Canada, calm down, like lower your tone.
16:14I was like, well, it's us.
16:17It's us.
16:17Like we have so much leverage over Canada and Mexico.
16:20I don't think people understand that so much of their economy is that this is why
16:24we're trying to do this.
16:25But I'm assuming that this is to get some kind of deal.
16:28But if it is, let's let's say I'm wrong and we go full blown guns of never our own
16:36tariff. Right.
16:38Just we're not going to we're going to do what I always say.
16:40If you really believe in tariffs, you put them in day one.
16:42No negotiation.
16:44Let the war start.
16:46That's a whole different ballgame because you're going to get a big trade war and
16:51you're the economy does get hit on that side.
16:54And it's going to take time to like work tariffs into the economy and try to get
16:59production. You have to get something out of it.
17:01Right. So we'll see.
17:04We'll see if this is just part of the trade war tap dance.
17:07But I still think he has to pull the trigger.
17:11You can't keep on taking it off, taking it off, taking off the stocks go down.
17:15I mean, this is a lot of people say that this is different than his first presidency,
17:19but he didn't do the trade war tap dance until 2018.
17:22So it's a much different marketplace.
17:23And we'll we'll see by by April.
17:26We'll we'll have a better idea.
17:29OK, we're going to talk about inflation.
17:30But first, since you are talking about our neighbors to the north, let's talk about
17:33Canada a little bit, because so much news right now and the you know, the party line
17:39is that Trump, I mean, from his office, from the you know, from his press office,
17:44which is, you know, changes a lot.
17:46But, you know, he's trying to crash their economy so they can become the 51st state.
17:51Of course, everyone thought this was a joke.
17:53Like literally everyone thought it was like, OK, well, it's just Trump being Trump.
17:56It looks less and less like that.
17:58What do you make when you when you hear that?
18:02If if I'm to believe that, OK, he would have put the tariffs in day one.
18:09Like this is this is what this is what if I was this is the same point I'm going to
18:13make to everyone. If I was a tariff person, I'm putting tariffs on a day when I'm not
18:17negotiating. So if I really wanted to crash the Canadian economy, I just simply put
18:22tariffs on and go, oh, by the way, there's no negotiation.
18:24Go ahead. Bring the tariff war on.
18:27That's if you really if Trump really wanted to destroy Canada and take force them to
18:32join, force them to join the become the 51st state, he would simply put the tariff on
18:38and that's it. Because over time, I mean, this might take years and years for Canada
18:43to do. I mean, I don't think that's going to happen.
18:45But if I was to believe that you would you have already done it, but we're doing this
18:50back and forth. I mean, how many times I like every time I see on X, oh, we're going to
18:54do this with Canada. We're not going to do this.
18:55We're going to meet here. I just don't believe it, because if I was a tariff person,
19:00I'm putting tariffs on day one and historic because it's going to take many years.
19:06We're talking many, many years for that to kind of work itself back into the economy.
19:10One thing, one terrible take, though, I do see is that we're firing government workers
19:16to go do manufacturing jobs or something.
19:19We're not. That's not a lot of people.
19:21We're like finding three hundred twenty five thousand one hundred sixty two million
19:24people. We're not going to change the whole economy for three hundred fifty thousand
19:27government workers. Right.
19:29You know, to do manufacturing work.
19:31So that's that's not a that's not a good explanation.
19:35What you want, what what Trump talks about is not relying on other countries for stuff
19:40and just building it here, which I don't think we can do it in an efficient way anytime
19:45soon. So this is why it's a trade war tap dance to gain something.
19:48But if he really if he really wanted to crush Canada or Mexico, he could by just putting
19:54the tariff in and go, we're not taking your calls because we're not negotiating.
19:59But I don't see that yet.
20:00I just see the same thing I saw in twenty eighteen and nineteen.
20:03I think, though, I believe that if he went early like he did, he's going to have to pull
20:08some triggers here because everyone's seen this act before.
20:13He can't be caught bluffing all the time.
20:15He needs some kind of resolution soon or he needs to go with the tariffs right away.
20:21OK, so he's got a he's got to pick one.
20:24I don't think his secretary, I don't want to work is just not doing good on TV.
20:29You know, he's saying if we get a recession, we get a recession.
20:32He's it's not everyone needs to be on the same page with that.
20:36You know, you can't one day say we're going to a recession.
20:39We need to go to a recession to do this.
20:41Or then the next day you say we're not going into a recession.
20:43So the Trump team has to come together and everyone stay on the same page because it
20:48doesn't it doesn't look good when one person says one thing and the other person says
20:51other out there.
20:53And that's much better on TV than what it is.
21:00OK, let's talk about inflation since you just brought up recession.
21:03Yes. And let's talk about it.
21:05And inflation.
21:08Interesting week on the side, because if you looked at the headlines of the report,
21:11they weren't bad, but the internals of the inflation report weren't great.
21:16And this is why you saw bond yields kind of react a little bit negatively.
21:19Well, last year, last month, the PPI inflation data was hot, but the internals
21:25wasn't. So, you know, on the CPI side, shelter is going to still do its disinflation
21:33thing. Oil prices have are at that kind of lower end of that range.
21:37Boy, if you guys look at an oil chart, you could see that there is the mother of
21:41Gandalf lines right there that's been holding up.
21:45I don't believe the oil producers want to see oil between 43 and 53 bucks a share.
21:51You know, they're going to be stopping production at that point.
21:54But in this context, going out of the future, we haven't seen any of the tariff effects
22:01yet on the inflation data.
22:03You'll start to see if if they sign something and it goes in after a few months, it'll
22:08be there. But the inflation is we made great progress on it, but it's still not good
22:15enough because the labor market is still intact.
22:18And I think this week, even though the inflation data took a lot of the headlines, the
22:23job openings data and the jobless claims, jobless claims fell again.
22:28So we're still kind of even though we're off the lows, we haven't broken anything
22:32negatively on that. So those those things to me matter more than the inflation data.
22:38And we can see that the 10 year yield, like the last thing I saw was like 426 because
22:42stocks were selling off. So we'll see and keep an eye on that 415, 418 level on the
22:4710 year yield. If you really want that next leg lower, that 10 year yield has to close
22:52below that to get volatile bond buying.
22:53We get to go test the line after.
22:56But until then, labor data actually held up.
22:59Right. It isn't spectacular, but it held up.
23:01And that to me was the big story of the week.
23:04That is a huge story of the week, considering all the things that hang on that.
23:08Logan, thank you so much for talking.
23:10We will talk again soon.
23:11Appreciate you helping us through this craziness.
23:14My pleasure, Sarah, always here 24 seven.