00:10welcome everyone i'm joined today by lead analyst logan modashami and if you are watching this on
00:15youtube you might be like what is going on of course this is our annual halloween dress-up
00:20edition and today's theme is elizabeth holmes who wore it better so you know you might think
00:27i'm a woman i have an advantage here but if you're looking right now logan he's got the blue eyes
00:31he figured that out the facial hair is kind of makes it rough but otherwise i think you might
00:35win so uh logan welcome to this very unusual podcast it is wonderful to be here sarah i don't
00:43know why you're saying my facial hair would make me look weird okay first of all what does this have
00:50to do with the housing finance nothing we just like nothing we both saw that movie with elizabeth
00:56homes and we thought we had to we had to yes no i love this i i love it the
01:02big blue eyes really do
01:03a a big number for you i think this is not easy to make by the way so the chart
01:07daddy does not have
01:08the greatest skills but i tried oh my gosh okay well thank you for for being in the spirit of
01:14halloween
01:15i mean you've been saying all month you're like oh this could be a scary month for housing so let's
01:19dive into it are you going to keep that on for a while you're going to take that off
01:23uh just for a little bit we're going to talk about uh today's uh economic data which was
01:29really really interesting today jobless claims is under 200 000 uh oil prices are above 100 both wti
01:39and crude uh gdp was at 3.4 so which means nominal growth is near uh six percent and the
01:46ai uh capex
01:48boom it just really showed itself in this quarter uh close to 13 percent uh of the gdp was just
01:56from
01:56that uh and um inflation core and headline cpi are above three percent no uh ending to the conflict
02:06nothing and the 10-year yield was down a few basis points today so i just look at it as
02:11we won
02:12uh because it could have been a lot worse this month and six to eight i think it was eight
02:18weeks
02:18ago we talked about you know things are escalating and that 10-year yield has to hold that line at
02:245.35
02:24percent eventually got there and it held a few times and now uh the 10-year yield is under uh
02:30uh five
02:30percent so there's a lot of things that uh this morning uh could have gone very bad for rates but
02:37they haven't and i think the mindset is starting to look into 2027 uh uh and unless something crazy
02:45happens or some escalation or something something really bad happens with the trade war and the
02:50conflict uh maybe we've seen the worst uh uh with the 10-year yield and rates for now that would
02:57be
02:58incredible news and actually yesterday you wrote um an article after uh the fed speeches um after the
03:04comments and the q a that you know is actually we finally got a positive day uh a positive fed
03:10day
03:10for housing okay you are creeping me out with those with those i know those those eyes that you know
03:19um i actually think i look like tippy hedron more than i look like uh you know maybe i'm an
03:24older
03:24version anyway okay we're not going to get distracted by this sort of okay uh but no it was a
03:30positive fed
03:30day for housing okay i'll do you a favor i'll just take it off okay it's the first time i
03:37tried
03:37lipstick on i think i overdid it but um so we're the worst case scenario we were able to take
03:45off and
03:45now we have to start looking out in the future so i think there if i was to make a
03:50case you know
03:51because older older countries and economies don't have a lot of domestic investment because so much has
03:56already been built out that when you have a new industry like ai like if you took the ai capex
04:01hardware data centers all together it's actually more than the housing bubble boom in terms of its
04:08components to gdp so that that's much is here but you can also make a case is that this can't
04:14last
04:14forever right and eventually growth is going to slow down to a consumption-based economy when you
04:19become a wealthier country and you all you age you you basically become a service sector uh uh um
04:26consumption economy in that sense uh so i i think when we look back at this week and this month
04:32of
04:32october kind of the worst case scenario so the balls in our court to kind of move it to the
04:37next step and
04:38maybe you know alleviate some of the inflationary pressures that the country is dealing with uh and so
04:43far you know we it's thursday nothing crazy has happened we only got one more day left in october and
04:48then we deal with the midterms and everything after that but for now as as as good as you could
04:53hope for with all the variables in play talk about the inflation a little bit more because um you know
04:59that's one of the things that uh that kevin warsh said yesterday and he was like very clear he's like
05:04two percent is not uh there's no compromise on two percent like he's going forward with that we came
05:10out today tell us what that looks like so let's assume kevin warsh is 15 years ago and it wasn't
05:18president trump that was the president kevin warsh would have said hey listen tariffs are bad look at
05:24the core goods in inflation data we were heading toward negative on this and all of a sudden we put
05:30tariffs on and all of a sudden the core goods inflation starts taking off um so you could see that
05:39outside of that there isn't anything too drastic it's not like wages are creating uh inflation in a big
05:45way my concern going out in the future and not so much on pce is uh we're going to go
05:50into rental
05:51vacancies and homeowner vacancies a little bit later but uh we got a big lift from uh rent disinflation
05:59happening but it looks like rent inflation is stabilizing that's more of a cpi thing so we really
06:05have to get the tariff situation in check and then get the conflict in check because you know you don't
06:12want another variable added on to 2027 and have these two things laying around for the whole year
06:19so uh there's a pathway and of course think about everything that's happened a major domestic spending
06:25on ai uh deficit spending conflict war everything and still we're basically one one percent away from
06:33being close to two percent on the pce data so we throw in everything we can and this is much
06:39different than the 1970s right the 1970s had major labor force growth right and then we had an oil
06:45shock on top of that and oil would have to be 426 today to adjust to those prices so so
06:52we don't have
06:52that kind of breakaway inflation and we're throwing everything you possibly can at this and we're not
06:58that far from getting back to two percent so if growth slows down because the ai story slows down
07:03uh you get the conflict over with right and you don't make trade you got things you got things
07:09that can make this work so uh i think kevin war should just buy in some time to at least
07:13maybe get
07:14two of those variables uh fixed up a little bit i think this is going to be one weekend where
07:19we can
07:20be like we should not expect anything crazy at least from our side like maybe iran's going to do
07:24something but it feels like right before the midterms like days before the midterms maybe just things
07:29are going to be quiet for a minute what do you think i mean i know jd vance sent a
07:33letter to
07:33to iran you know and stuff and just remember iran can't take this forever right you know their
07:40economy is getting hit harder than it has in the past and again when you start to have military people
07:45complain you know uh wages and and and inflation over there their their inflation and weight their
07:51stories a thousand times worse than what we're dealing with here so uh eventually if something has to
07:58settle itself out you know this can't be a story going into 2027 okay let's talk about some data
08:04we got on um home ownership rates vacancy rates you have very strong feelings about this um would love
08:11to know what you make of that all right so home ownership uh for those of you who didn't follow
08:16my
08:16work in the last decade boy i i had some really like almost dark takes uh uh after when i
08:23started writing
08:23about housing uh economics and one of them were um if you take the adjusted to demographics of post
08:312007 where prime age population growth peaked and was declining which is a really really big thing for
08:36my work and then you take all the credit uh deterioration all the people that were going to
08:40foreclose on their house sellers that weren't going to be buyers um my work and this goes back to what
08:45i
08:45wrote in 2012 or 2013 that home ownership rates should bottom out by 62.2 to 62.7 that's where
08:53i
08:53think the home ownership and the home ownership rates was not at that level uh so people were
08:57thinking that's a very dark take but if you adjusted to the credit loss and everything i think after all
09:02the adjustments they've made on census data we ended up at uh 63.1 that was the low point after
09:08the
09:08housing bubble crash but as your households are formed and demographics are better and everything
09:14you know by years 2020 to 2024 a few things should change number one the mba's purchase
09:19obligation data should hit 300 first two weeks of 2020 we got there we should eventually have 1.5
09:25million housing stores during that period we got that check uh but the home ownership rates in the
09:31article i wrote uh 2016 or 17 uh we should get to 66.21 if you adjust it to demographics
09:39and the credit
09:40data uh getting uh so much better now from uh post qualified mortgage dot frank and the 2005 bankruptcy
09:47reform was and the high i think and this was this was a call for years 2022 to 2026 the
09:54high was 62.10
09:57so we close to getting to that level and then of course housing inflation took off prices took off taxes
10:04insurers and everything so the home ownership rate is 65.4 it looks relatively normal to me considering
10:10the whole scope of housing right now uh um and that's perfectly fine right you know that's that's
10:18i i always look at the 2002 to 2005 data as just that's not real everyone could just exclude that
10:24uh
10:25we're never going to have a credit boom like that we're never going to have home ownership rates like
10:28that we had the covet burst in home ownership rates that you discount oh so that was the tracking error
10:34and the home ownership looks perfectly normal to me when you when you make all the adjustments so i
10:38thought that was fine but the vacancy data that's where things get very interesting okay well let's
10:46talk about that also i do think it's interesting when you think about 65 home ownership rate is about
10:51normal right i think and because we talk about home ownership so much because we're like this is the
10:56wealth building i think most people think it's much higher than that but anytime we've gone higher than
11:00that is not is not gone well we've we've extended the credit to your point like it's just that's about
11:07where we are as a country you know some people make some a case that if you adjust it to
11:12households
11:12the home ownership rate is really like 53 to 55 because you have more people living in a in a
11:17house
11:18you know but just just how the census counts it you know that it looks about normal to me getting
11:23above
11:2366.21 percent in years 2022 to 2026 would would seem off to me uh and i think we got
11:31to 66.10 uh so we got
11:34close to that to that forecast but uh then we then it goes into the vacancy data uh homeowners homeowner
11:41vacancies and and homeowner and rental vacancies and one of the things that you hardly ever see in america
11:47is the homeowner vacancy data because you can't really do important you can't really do important
11:53that thing and the homeowner vacancy rate is 1.2 percent it rarely what that is does that mean that
12:00like you own a home and then you don't live in that home so what is that the vacancy rates
12:05are basically
12:06how your homeowner and this is basically the available homes for sale at the current moment
12:12right so basically the the the inventory that's available for sale your homeowner's vacancy rate
12:18is there so there's only one it's 1.2 percent now if you look at total active inventory nar
12:24it's 1.6 million there's pending contracts in that but you're also talking about 340 million plus
12:30americans out there the homeowner vacancy rate rarely goes above two percent in fact the only time in
12:37recent modern day history that that occurred was guess what the housing bubble crash years when
12:43inventory got up to four million and we had tons of distress foreclosures and bankruptcies in 2005
12:49six seven eight and all of our new listings data those were not homeowners that would be sellers so
12:54even with all that you got to like 2.8 2.9 percent we never even hit three percent just
13:00remember
13:00people live in your homes if you don't live in your house and you're not renting you're homeless so it
13:06would be really weird for all these people who have jobs and families and make money to be homeless
13:11this is why we always say we don't listen to middle-aged men podcast stop traders because housing is not
13:16a
13:16financial asset it's a shelter you if you sell it you have to replace it with a form of shelter
13:21or else
13:22you're going homeless and when you go homeless and your kids are eating from the streets the cops are
13:26going to come and take your kids away and then they're going to go homie you have a job what
13:30are you
13:30doing i i had to sell my house and get all my equity out and but you're homeless you know
13:35so we
13:36don't think like middle-aged men podcast stock traders on that um so the homeowner vacancy rates
13:40it still shocks people when i when i showed so let's talk about that um homeownership vacancy rate
13:47first of all what what is that what are we measuring there and what does it look like right now
13:51okay so
13:52the homeowner vacancy rate are the homes available for sale right and that's compared to the you know
13:59census population out there so naturally it always stays very low it rarely goes above two percent
14:05why because most home sellers are buyers but if you sell your house and you're not buying another
14:10house you have to go rent because most people don't sell their homes to be homeless so the vacancy rate
14:16if you look at the nar data there's 1.6 million active listings in america there's 340 million plus
14:21americans out there so uh normal active inventory is two to two and a half million uh and their nar
14:28has
14:28pending contracts into that equation so naturally this data line is very low it even during the housing
14:34bubble crash years where you had inventory went from two and a half million to four million we had
14:4015 million loans in distress where those people were going to sell to be renters you know or sell to
14:45be
14:45homeless right they weren't going to sell to buy a house it never even got to three percent so the
14:50homeowner vacancy rate is very low that's why i always like to teach people that in the active
14:54inventory the only things that matter in america active inventory and homeowner vacancy rates you put
14:59two together it squashes so much of the doom porn that's why you don't see the doom porn people use
15:05this site or this data line they like to do the vacant inventory or vacant units for sale we've had
15:11like 15 to 19 million homes that are vacant around america they always go oh and any second now 13
15:18million
15:18homes can hit the marketplace and it never occurs so new listings data active inventory vacancy rates are
15:24low that explains what's happened in the last few years affordability is very stretched so the supply
15:30demand equilibrium got hit on that homes are taking longer to sell as rates are staying elevated but
15:36we're still kind of in this construct where we're not back to like normal levels of of nar inventory
15:43we're getting close we're close we're at levels where i don't talk about a housing shortage anymore
15:48because i'm over 1.52 million and i have four months of supply but the vacancy rate is basically
15:53the units available for sale you know and most people remember we have so many people in america
15:58but only a small portion of people sell and buy their homes every single year and that's why that
16:03data line is very low historically going back decades and decades and decades it's actually a shockingly low
16:10amount of transactions when you look at the total and you know i so you know i love a road
16:15trip and i'm
16:15always driving right i live in texas i cannot tell you how many times i'm driving through a small town
16:21or
16:21like a really small town and there's all these vacant homes and i'm like no one's buying that home
16:26that home's not even you know you and i've heard these people before talk about like oh there's all
16:31these you know millions of vacant homes most of the homes that are vacant vacant like that and haven't
16:36been lived in for years no one's ever going to live there they're in the middle of nowhere
16:39they're falling down like that's not what we're talking about here you know you know unless it's
16:43available for sale it does not matter you know so i've dealt with that vacant unit thing for god
16:49knows forever i mean that was at 19 million it's like a little bit above 15 millions and every time
16:53people go over any second now and i go guys if this was going to occur you'll see it in
16:58the new
16:58listings data and then you'll see the active listings so that's why you have that uh vacancy
17:03rate very low uh you'll never see that chart i do it on the nurture sometimes i'll post it on
17:08instagrams too but uh that explains why that percentage is historically very low but then the
17:14interesting thing is the rental vacancies now the rental vacancies had been stabilized around
17:19a little bit above seven percent for some time but it perked up to about 7.6 so i think
17:23the the
17:24interesting aspect going out next year's housing construction has fallen down a lot the last few
17:30years but we're still like kind of 2019 levels there so um you know one concern is that because
17:36rates are still elevated and you know we're not building a lot of apartments or rental units that
17:41eventually uh rent inflation will take off again we're seeing stabilization in the rent data uh but
17:48also now you could see that you know rental vacancies by the census is is is is elevated to uh
17:54post
17:55recovery highs and wage growth is running at three percent so i for me to counter rental inflation i would
18:01say that vacancy rates are still elevated and wage growth is is is that cycle loads right and so if
18:08you
18:08had wage growth running at five six percent and regular rental vacancies down that's a bad oh that's
18:14it's a really really bad story and that's what happened during covid right uh all global pandemics
18:19are very inflationary including rent you go back to if you go back to 1918 and look at you know
18:25rent
18:26inflation back then uh you saw it really took off and then the disinflation happened as i think one of
18:30my
18:31uh interviews uh on squat box four or five years ago i said a rent uh inflation will pick up
18:37but then
18:37the disinflation will happen and that's where we are that's what it's been for the last few years but
18:41it's something to keep an eye on for 2027 uh if it just stabilizes and just stops going down or
18:48does
18:48it pick up a little bit you know i mean all things considered i feel like we're we're coming into
18:54a like you said i mean it's more positive than it could it could be do we wish rates were
18:59lower yes do
19:00we wish we had more origination yes but it could be so much worse yeah again my my concern was
19:05that
19:05because after the mou deal broke off you see this very very violent reaction with the 10-year yield
19:12and oil and getting back up to 5.35 if for some reason we closed above that and the conflict
19:20got
19:20worse and nominal growth is here and everything the bond market could sell off even more until the
19:26federal reserve tries to calm things down thankfully the 5.35 level held and even with
19:31all this economic data that we had today that was very solid we're starting to look past some of the
19:37craziness so you get the conflict over with you don't make trade war 2.0 and you know the ai
19:44uh boom
19:44can't last forever those are three things for an older country that does not really have a lot of
19:50older countries don't have these major demographic domestic investment things because we built out so many
19:55homes and commercial buildings and everything for so long uh you can make a case that maybe the worst
20:00is over but again there are a lot of ifs and variables that you have to take over but uh
20:05uh the
20:06last week of october man with the fed meeting and everything that happened boy that thing held and
20:11the last time we checked we're under like four like 4.98 on the 10-year yield and uh whenever
20:18that
20:19happens we survive the five percent 10-year yield so of course we all want rates to be just a
20:23little
20:23bit lower where demand can grow and everything and you know inventory is up to a level where it's
20:28healthy you don't have to worry about prices taking off right you know what covid was was the first time
20:33where it was very supply driven and then rates were very low so uh uh we late 2019 to early
20:402020
20:41was the lowest active inventory in the history of america this is why we were very very cautious i
20:47remember one of my tweets in may of 2020 uh uh during covid i said guys we have to start
20:53worrying
20:53about home prices taking off the whole hey guys we need team higher rates we need to get inventory
20:58back up and we we're just working this stuff out in the history of housing economics for decades and
21:04decades you have periods like this uh as long as wages could outpace home price growth you know
21:10affordability gets better you keep inflation in check uh those are positives
21:16we went from savagely unhealthy housing market which i still think is one of your best uh phrases that
21:22you've come up with um to now it's you know it's pretty oh it's it's healthy i i i love
21:26this i love
21:27this i i hated the housing market you know when we went from unhealthy to very unhealthy just savagely
21:32unhealthy in february february of 2022 when i saw 287 people sitting outside a house in la that did not
21:39deserve like two people but um uh that's when you you needed to blow this thing up uh to get
21:47any kind
21:47of normalcy because things could get out of hand shortages are the worst man there's nothing good
21:51that happens with shortages because whatever inflation you get is not deserved or earned and all
21:56it does is impact uh future demand and you see some of that in in in what's happening in san
22:02francisco
22:02it's a very unhealthy housing market there but that's not so much of shortages it's like a lot
22:07of money right you got a lot of wealthy people out there and you know everyone wealthy people like to
22:12have a nice house and uh uh they're paying up and you never want to see that but the dynamics
22:18of housing
22:19i think there was a there's a new york economist he was you know the professor galloway show and
22:24they were showing the new york times and since 1856 every decade there's always there's a housing crisis
22:30there's a housing crisis there's a housing everyone's been complaining about housing since
22:331856 you and i have talked about this with oh this technology is going to take all the jobs
22:40history keeps rhyming itself but one the one thing that always have wages rise right wages have risen a
22:46lot since 1856 so you know if you part part of the housing problems people make money right especially
22:52dual household incomes make money and that's enough to keep housing total home sales near near 5 million
22:59which in the last decade as i've always liked to show even with affordability the best ever and
23:04mortgage rates super low and lots of inventory the highest levels of sales from 2010 to 2019
23:10was around 6 million so you're you're with all this said the construct of housing demand is there
23:16uh if you get 700 000 more sales you're back to somewhat kind of normal and then to get to
23:22the
23:22peak of the last decade not 2020 or 2021 but the peak of last decade when rates were lower and
23:28affordability was just a million more homebuyers so you slow and steady wins the race here and uh
23:35just like they said in contact small moves ellie small moves it's it's always a movie reference i love
23:44it um logan thank you as always thanks for dressing up because i think i love lipstick yeah yeah i
23:50think
23:51now you look like jeff goldblum as a vampire oh great that's what it looks like now you remember that
23:56uh
23:56where there was a teenager in orlando that said you look like the guy in wicked the wizard you're the
24:03wizard of wicked i'm like oh it's talking about and and to be clear you were not wearing any makeup
24:09i was
24:09not wearing but you were just you know the hair i'm i'm getting older so i look more like jeff
24:15goldblum
24:17well thank you so much we'll talk again soon pleasure
24:21you
