- 5 months ago
On today's episode, HousingWire's Senior Director of Data and Content Tracey Velt talks to Lead Analyst Logan Mohtashami on what happens to inventory if rates get to 6%, inflation predictions and what the Fed will be looking at over the next six months.
Related to this episode:
What's Fed Chair Jerome Powell's next move on rate cuts?
https://www.housingwire.com/articles/whats-fed-chair-jerome-powells-next-move-on-rate-cuts/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
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:
What's Fed Chair Jerome Powell's next move on rate cuts?
https://www.housingwire.com/articles/whats-fed-chair-jerome-powells-next-move-on-rate-cuts/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
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
00:00Hi, this is Tracy Velt. I'm filling in for Sarah Wheeler. I am the host of the Real Trending
00:12podcast and also head up the real estate content for the newsroom. Today, I'm speaking with
00:18housing wire analyst Logan Motoshami about inflation and interest rates.
00:23Yes, I know. Sarah got sick of me. She's on vacation. She said, I'm tired. I can't take
00:30forward podcasts with Logan while on vacation. Yeah, that's what she told me at least.
00:35She just ran off. Today, we are going to talk about it because Mike Simonson asked this question
00:40on Twitter. I thought it was a good one. What happens to inventory in America if mortgage rates
00:48go below 6%? He does these polls and a lot of people, it's all over the place. Half thought
00:55inventory goes down, half thought inventory goes up, and the other half said it'll stay
01:01the same. It's so much of my economic work over the last 10 years plus. It was very, very tricky
01:11during COVID because what happened during COVID is before COVID hit America, existing home sales
01:19kind of broke out to pre-cycle highs, and then inventory broke to all-time lows and rates were
01:26below 4%. It was like, oh boy, this is not a good thing. Then because of COVID, a lot of people just
01:32didn't think about it because they thought we're going to go into a depression. It doesn't really
01:35matter what inventory is doing, but we wrote the recovery model on April 7th, 2020. We said games
01:42on, but it created a very, very savagely unhealthy housing market. It's a good time to kind of think
01:48about what are we going to do now if rates go lower? Because inventory, while it's not back to
01:54normal levels, it's good enough to take the savagely unhealthy housing market theme off.
02:02So let's talk a little bit about the inflation. It's inflation week. So what is the Fed looking
02:10at for the next six months and what are you expecting?
02:13You know, it is interesting because on Thursday morning, one of the Fed presidents said, well,
02:20we think inflation is going to finally hit in the June reports, which is, you know, the three
02:25inflation reports in July will be for June. By the time this podcast comes out, you know, one of the
02:31reports will be out there. The CPI inflation data, that data line is very tilted with shelter.
02:39So tariffs don't really impact that. And that thing has been moving lower and lower for some time
02:46now. So if we get a cooler inflation print because of shelter, the Fed's not going to really care about
02:53that. It's kind of the personal consumption expenditures, which that inflation report comes
02:58out toward the end of the month. And going out for the next six months, the Federal Reserve needs to
03:03justify their stance. They need to have inflation really start to perk up to 3%, at least 3% to warrant
03:11holding rate cuts back. Of course, my take is there's always been the same. Without tariffs,
03:18they only would have cut twice. With tariffs, they would cut twice. If the labor market broke for some
03:23reason, then, you know, they can be more aggressive. But it will be interesting to see Fed statements after
03:31the CPI inflation report and the PPI inflation. So I'm interested in that the jobs report said that
03:40there was an increase in government jobs, but then the Supreme Court just said that Trump has
03:46the authority to let some of those people go. Have you seen any movement on that?
03:54So federal workers have taken the brunt of the damage. State and local hirings was abnormally large
04:03in the last jobs report. I mean, in all honesty, if you take the government jobs and the healthcare jobs
04:09out of the equation, the labor reports look completely different. That's kind of been the big
04:15drivers for the last 13, 14 months. Now, what happens in state and local is very limited.
04:21You can't really do anything unless you withdraw money from the system. You got to hire teachers,
04:28you got to hire firemen, you got to hire police, you know, stuff like that. But on the federal side,
04:33federal jobless claims already took a really, really huge spike. I like to show those charts because
04:38we never really cared about them until recently. And now they've kind of come down. I know Marco Rubio is
04:43going to be announcing layoffs in the state department, stuff like that, but that's still
04:48a small sliver of the over 162 million people still working. And again, the labor market has
04:56been getting softer for 18 to 24 months in terms of private payrolls, but it hasn't broken yet.
05:02So it becomes a little bit more interesting going out for the next six months as well as does the
05:08private sector pick up? Does it stay kind of flat at very low levels or does the private sector data
05:14start to get softer? Because if it gets softer and the Fed's inflation doesn't pick up, they get
05:21trapped in kind of a box out there for that. So I want to go back to the inventory question. And
05:28what do you think will happen if rates go under 6%?
05:32So when we look at the history of housing data in the 1980s, 90s, and 2000, what traditionally used
05:42to happen is home sales rise, prices rise, and sales rise together. This is, you know,
05:47we call it crayon economics. I draw these black lines to show that's what inventory and sales and
05:53prices used to do. And then after 2010, qualified mortgage came in. And what that means is that
06:00everyone's legit, you know, if you're, if you're filling out an application and you're ready to
06:04buy a house, you're a legit home buyer. Then what happened is the millennials came. And I always say
06:10that everyone likes to blame BlackRock, even though BlackRock owns zero homes. The millennials were the
06:16biggest home buyers in the world. And those pesky kids do not give you a house, you know, since 70 to
06:2280% of sellers or buyers, they at least give you a property, the baby boomers and Gen X, but the
06:27millennials for a long time, they just buy a house and take it away. So what, what occurred was inventory
06:33slowly was moving lower and lower and lower for years, because in that kind of makeshift model, you
06:41could understand if the, if the first time home buyer is still buying homes, that just slowly withdraws
06:47the inventory. However, what happened in COVID all hell broke loose inventory got to all time lows. We had too
06:52many people chasing too few homes. So part of being team higher rates in February of 2021 is like the
06:58only mechanism we have for inventory to grow is to suppress mortgage demand. So inventory can breathe
07:04itself up. It's not like new listings data has been taken off in any big fashion. The last five years
07:10have been the lowest ever, but you slow sales down and inventory can breathe itself. But now the question
07:17is hypothetical, let's say the labor market breaks, mortgage rates go down to six, below 6%. Does that
07:24really change the inventory curve? And what I would say is that what we have seen after 2022 is whenever
07:31rates do get down to 6%, it slows the growth rate of inventory. I think early 2023 was a really good
07:40example. Mortgage rates went all the way down to 6%. We had one big home sales print. Inventory grew
07:47very slowly, but rates went up back up to 8%. Inventory was able to grow. The last two years,
07:52inventory has been able to grow. What we don't have to worry about, what I don't believe we have to worry
07:58about is if mortgage rates get to, let's say just five to 6% range. I don't believe we need to worry
08:04about the mass inventory push lower. Affordability is still an issue. We will get a little bit more
08:11demand, but it's not like existing home sales are trending at 6 million. We are far from that level.
08:19So I think it'll look a lot different than what people were accustomed to in the past. And this is
08:24probably my wishful thinking. I don't want the last decade. I want the 80s, 90s, and 2000 back.
08:32The music was great back then. My hair was even good back then. I had curls even at one point.
08:37Back then you get rising sales, rising inventory, rising prices, but the price growth stays very,
08:43very tame. The housing bubble years was very unique. That was a very big credit boom, credit bust.
08:49But what we saw in the 80s and 90s would be very, very acceptable. So I'm hoping if that day comes,
08:55because it's really hard for me to even forecast below 6% mortgage rates unless a bunch of things
09:00happened. But if that comes, I don't believe we have to be afraid of inventory just collapsing
09:06or just heading back down to the lows that we saw in late 2020, 2021, or 2022. We will see a pickup
09:15demand, but the buyer seller profile should look a lot different with mortgage rates at 5% to 7%
09:22than mortgage rates from 3% to 4% because home sales are still significantly depressed.
09:28If I thought home sales could get back up to 6 million or anything like that in any short time,
09:33that's a whole different equation. But I just don't see that kind of demand bursting up higher.
09:39We'll get some pent up demand because there's people who've been waiting for many, many years.
09:43But I think it'll be a much more healthier aspect than what we saw during COVID where just
09:48people forget in 2020 inventory just collapsed. We never had any seasonal increase. That was terrible.
09:55Like at the end of 2020, I was like, oh no, this is really, really bad. I remember going on Bloomberg
10:01Financial, you know, the first two, three months of 2021 and people were worried about forbearance.
10:06I was like, no, does anybody know how low inventory is? It doesn't matter. Even if demand is stable,
10:12you still have too many people chasing too few homes. So we are in a much healthy spot. We are no longer
10:19in the savagely unhealthy housing market. We're no longer in the unhealthy housing where inventory is able to
10:24grow. And we have so much of a cushion now, and it's not like rates are down at 3%. We have enough
10:30to keep that supply and demand equilibrium working in a very healthy fashion. And we're like now,
10:36like we have one more week for the tracker to filter the July the 4th data out. And it'll be
10:41interesting looking out for the rest of the year until we hit the winter holidays. How does the data
10:46look if, hypothetically, if rates fall down even just towards 6%?
10:52That's great. So what are you looking for? What are the key things that you're looking for in the
10:57tracker for the rest of the year? So before July the 4th holiday came,
11:03I saw a stabilization. I saw a two-week stabilization in the data. And mortgage rates got down to like 6.75,
11:11around there. So some stabilization. Purchase application data has been picking up the last
11:17few weeks. What I'd like to see is, do we get something of a repeat of last year? Now, do we
11:24need mortgage rates to get down to 6% to kind of have the repeat of last year? Or is 6.5, 6.75 good
11:32enough in 2025? So does inventory accelerate like it has in the previous few years toward the end of
11:41the year? Does new listings data, it's going to have its seasonal decline, but do we see a little
11:47bit more aggressive seasonal decline? Does the price cut percentage just basically flatten out
11:53until the seasonal decline? What happened last year is when mortgage rates got down to 6%,
11:58the purchase application data started to get better. Nobody cared about it because there was
12:02no year-over-year growth. But the forward-looking data got better. Our pending weekly sales,
12:07our weekly pending sales and our total pending sales started to deviate from the trend. And we're like,
12:12whoa, it's going to take a few months for this to hit the existing home sales market? So things are
12:19changing. I lost my price forecast because of that. I knew in September and October, I said,
12:24I'm cooked. I'm going to be too low this year. So that's what I'm looking for for the second half
12:30of the year. Because this year looks totally different because purchase apps are up. Sales
12:34are no longer declined. But we don't have like the pending home sales data showing any kind of real
12:39growth. So we're getting existing home sales reports soon. I don't think it's going to be
12:43anything spectacular, roughly kind of in a flat sales trends. But going out for the rest of the year,
12:48that's what I'm keeping an eye on. Because I had a lower price forecast this year than I did last
12:53year. I have back-to-back negative real home prices. So I need to be really aware if the data,
12:58it goes against me, I need to get that target and say, okay, I lost it here. Explain it to everyone.
13:05And that's how you explain kind of the supply and demand economics, how our live fresh weekly data.
13:12So people can see, does this shift the marketplace? Does this not shift the market? Or
13:16does lower rates bring out more sellers than usual? I don't believe in that theory. But
13:22it becomes a little bit more exciting in the second half of the year if mortgage rates just
13:27get down to six and a quarter, something around in that level. Great. Well, Logan,
13:31it is always a pleasure talking to you. Thanks so much. My pleasure.
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