- 5 months ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Trump’s continuing pressure on Fed governors and whether housing permits are flagging a recession.
Related to this episode:
Are housing permits flagging a recession? | HousingWire
https://www.housingwire.com/articles/are-housing-permits-flagging-a-recession/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
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
Related to this episode:
Are housing permits flagging a recession? | HousingWire
https://www.housingwire.com/articles/are-housing-permits-flagging-a-recession/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
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
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about whether housing
00:11permits are flagging a recession. And we're also going to talk about what is going on with Pulte
00:16and Trump going after Fed governors. So it's going to be a great episode. First, I want to say thank
00:22you to our sponsor Optimal Blue for making this episode possible. Logan, welcome back to the
00:27podcast. It is wonderful to be here live. And first thing we have to do, come on. Okay. Paper, rock,
00:33scissors. Oh, okay. First one goes to me. Yes, we have a lot to talk about. Of course,
00:40yesterday's housing starts report starts in itself did beat estimates, very volatile data line,
00:48especially when it's multifamily pushing it. But housing permits are at a cycle low. So I think
00:54like we talked about previously, you went on CMBC and talked about what's going on here. And same
01:01theme as always, the builders can sell homes when mortgage rates get closer to 6%. We saw this in
01:09the new home sales application that was positive and mortgage rates are just a tad lower than that
01:15period in July. So it's a very complicated economic cycle. I know all my Wall Street friends are asking
01:23what's going on. And the honest truth is that the builders labor is very limited to a degree. And if
01:31they do have a lot of homes that are still in construction and a lot of homes waiting to start
01:36construction, if mortgage rates do go to 6%, they want to make sure that they do not lose that labor
01:41to keep things going. It's very different than previous economic cycles, other previous economic
01:47cycles, housing permits, multifamily permits starts, they would all fall together and then labor breaks.
01:52We're already seeing four months of labor decline in the residential construction workers. We're
01:59seeing specially contract trade workers already roll over from sometimes we put that in the chart.
02:05Historically, that's never a good sign for the economic cycle. But permits being this low really
02:11means that there's not a lot of wiggle room left. If rates, let's say hypothetically, went up to
02:16seven and a quarter and seven and a half percent and new home sales fell even more. If you breach under
02:21that 2022 low, things just get worse. So all the wiggle room that we have had for 14 years, by the way,
02:31it isn't just post COVID, with the builders and completed units, everything is hit that threshold. And it's not
02:38shocking that the last three months as the lowest job growth, on average, you know, really in the 21st
02:47century, if you don't have a negative report, and residential constructions are rolling over,
02:52especially construction, labor's rolling over, and manufacturing jobs are rolling over. So there's a
02:58lot of things here on the labor side. And can AI really save the growth in the economy? Of course,
03:06data centers are being built in a very accelerated rate. We haven't had that happen in our history.
03:13So that's keeping the total construction data from looking worse. But it's such a unique cycle in that
03:19way. Because if you ran previous economic models, you would say, why are the builders aren't firing
03:24people? But there's tangible variables that are very unique. We've written about it many times to try
03:30to explain it. But housing permits being at a cycle, not a positive.
03:34So this is really key to your economic work and something we're looking at, which is when
03:40residential construction workers lose their jobs. That is one of the keys for the housing,
03:45not just the housing market for the economy to go into a recession. But I do think it's weird with
03:51the data centers and some of the other construction going on. Does that does that throw off that key
03:55variable? It does on the total construction side, but we're seeing not only residential permits roll over,
04:03obviously office space construction has been rolling over for some time. The AI debt data centers are
04:10keeping it. I mean, really, Mark Zuckerberg from Facebook is putting in a lot of money into the U.S.
04:16economy. So a few companies are shelling out a lot of dollars that we haven't had. And also, you know,
04:22I know a lot of nerdy people talk about deficits are so much larger now than you would see in a
04:28traditional cycle. It's just because mandatory payments are are so much larger. We have a lot
04:32of people that are getting checks, right? Social security checks. So it's it's it's it's a very
04:38unique cycle in that front. A lot of people say, you can you possibly even have a recession with
04:43deficits? Because when you inject money into economy, it's an impositive, right? And you're not going to
04:48necessarily shut down Social Security or Medicare or anything like that. So it is it is intriguing. But
04:56I'm just going to go back to what I said. If we've had the worst three job month growth and a lot of
05:04people say, well, it's population growth is slow. We can't. This is not it. Jobless continuing claims
05:09are at a three year high. You don't traditionally want to see manufacturing and residential jobs fall.
05:15That's not been the case in the previous 14 years. But for the first time, this is happening. So we
05:21show it the respects and we keep it we keep an eye on it. But new home sales still haven't breached
05:27below 2022 levels. They've been in a sales range, as I talked about on CMC, since really 2018, 2019.
05:34We we we just been hovering back and forth. Whenever rates go up, sales go down. Whenever rates go down
05:39to six percent, I know it's really weird. But that channel and sales data has been key. And the
05:44builders aren't going to really let go of that labor, especially with the homes they have ready
05:48to start and good to go. So very unique cycle in that front. Very unique. So just one more question
05:53about the recession. What what else are you looking at that you're like, hmm, we need to keep an eye on
05:58this when you look at your recession red flags? The number one thing since late 2022, jobless claims
06:05for a week moving average has to head toward three hundred twenty three thousand. If you look at the
06:10history of economic cycles in the US and you tie it to the civilian labor force, there's a certain
06:16percentage just gets really nerdy, Sarah. I don't even want to put those charts up there because they're
06:20so nerdy. But there's a certain percentage that jobless claims and continuing claims rise together
06:26that has been part of every single recession post World War Two. So in 2022, things were low enough to
06:33where I could say, listen, we got to get to here. Don't go into the recession talk until that happens.
06:39And jobless claims every year. It has a seasonal increase in rise, but it's never broken toward
06:45that three hundred twenty three four week moving average. Now it's a little bit unique because
06:49population growth to slow down, immigration to slow down. But that's not what's going on with the
06:55with the job support. So unless we get some positive revisions, none of this is good. And I know a lot
07:02of people say, well, the labor, a lot of people who don't want the Fed to cut rates because they hate
07:06everything and they want to say everything break they want. They're they were so trained to believe
07:10that Fed rate hikes would destroy not only the stock market, by the way, all you stock traders,
07:14you're embarrassing yourselves for all the terrible calls you've had for the last three, four or five
07:19years. And no shame, by the way, with your doom porn websites. This is why we do not listen to
07:24middle aged men podcast stock traders on anything. I just have to let that out. Good rant. Good.
07:31And also the U.S. consumer is in such better shape than anyone ever understands. And everyone
07:39keeps on hiling credit card debt is rising. Just give it a rest, guys. It's like four years now.
07:45Every recession theory has been based on credit card expanding. That's been a function of every
07:50economic cycle growth. Right. So here we are. Qualified mortgage came in in 2010. The 2005 bankruptcy
07:56reforms laws. Any analysts listen to this right now. You go verse yourself on those two laws.
08:02They changed the structure of the U.S. economy for this century. If you're not versed with those
08:06two laws, then you wouldn't understand why consumption data has been holding up. Even
08:10with the Fed rate hikes, even with the 10 year yield going up, even with the credit card delinquencies
08:15and auto loan delinquencies, the structural hole of the middle and upper middle class that do a lot of
08:19the spending out here are not in that category group. Qualified mortgage and the bankruptcy
08:25reform laws changed everything. And that could explain why things are holding up. But with that
08:30said, you don't want to see a three month average of 35,000. If it's 78 to 133,000, yes. I mean,
08:38I would be out here saying, hey, listen, tie it to the labor force. That looks about right. But that's
08:43not what's occurring right now. You know, we do have that one other variable, which I know you have felt
08:49like the federal job loss has not come really moved that move the picture at all come into the picture
08:55at all. But a lot of those people have been being paid through the end of September. So I feel like October
09:01numbers, maybe we see some impact there, because you have a lot of people who are being paid through
09:07September, who it's really uncertain right now, are they working? Are they not working? How many people are there?
09:13There's all those court cases. But I feel like at the end of September, that will stop. So October
09:18numbers are going to be interesting. You can get job losses due to that. But like we've always said,
09:25we have over 162 million people working. It's true. They are the federal workers are very small
09:31sliver of that workforce. So it could impact it. But when we think about economic recessions,
09:39what happens is consumption starts to fall, and the aggregate growth starts to slow down. And then
09:46you see natural layoffs because corporations have to protect their profit margins out there. That's
09:52not been the case. There's a lot of things you could keep an eye on going out for the rest of the year
09:56as we import more stuff. What's going to happen? Are corporate profits going to fall because the
10:01companies eat it? Or are they going to raise prices and some companies just can't pass on?
10:06There's things to look at. Federal workers is not going to be big enough in the big scale.
10:13And they have enough time to kind of sit and think about where they want to go. But
10:17again, I'm just trained to believe that you do not want to see manufacturing jobs lost and
10:24residential construction jobs lost together. Now, industrial production data has been holding up
10:29fairly well in that. But there are things that we naturally see break in a recession. They're not
10:35quite here yet. And we talked about this a few months ago. What if you had 40,000 to 60,000 jobs
10:42created for four years, but no layoffs? I mean, it's a very, very slow job growth. But technically,
10:50if there's not layoffs, that means the consumption data is holding up. So we keep a track of those
10:55things. But again, this is a very, very unique cycle. And we're in a period in time where we have
11:03a lot of attention given to a few really bad actors out there who keep on saying recession and crashes
11:09and everything. And they get highlighted for doom porn. This is why we do challenges, a lot of debates.
11:14And we force these people, by the way, 99.9% of the people run. But teaching this, we can explain what's
11:21going on here. But we're at a different stage of the economic cycle, for sure.
11:25Okay. Well, speaking of very unusual things happening, just today, we have Pam Bondi,
11:33head of the DOJ, saying that she's going to go after one of the Fed governors. So this is really
11:40unusual. We also have Bill Pulte, FHFA director, calling this out. So this is part of a larger strategy
11:47that we've talked about now for, what is it, like six weeks ago, you were talking about how, you know,
11:53if Trump wants to change the Fed, the thing he has to do, it's not just Powell, it's the governor.
11:58So how do you see what happened today?
12:00What do we say, was it five, six weeks ago? Prepare for Fed governor assaults. They're going to
12:09pick stuff out. There's stuff out there that they can go after. And you're going to see a wave. Because
12:15if you want to neutralize the Fed, right, all I'm doing is, is reading the guy and what the game plan
12:21is here. You can find skeletons out there. And then you try to inflict as much pain as you possibly
12:29can. Because if you lose more governors, you can put more of your people in. And that neutralizes
12:36Powell. Powell's going to be gone anyway. But whoever's the next Fed chair, if you got your own people in
12:42there, I mean, there are people that would say, that's not going to work, the market's going to,
12:47but again, 65 to 75% of where the 10-year yield and 30-year mortgage rate is still kind of Fed policy.
12:57I tweeted out this morning, I said, even though Bostick, I don't believe is a voting member anymore,
13:03he's been slightly hawkish. They are probably going to go after him next. You neutralize your enemies.
13:08And that's how you have to look at it. I know it's not conventional. But if you play New York
13:14bully ball, this kind of mob boss attitude, this is how you do it. You go after these people. And
13:20that's why we said it six weeks ago, I think, where we said, look for Fed governors to be the
13:26next target. Because it's a chess game, right? There's pieces out here. If you got more of your
13:32Fed people in that are going to be chairman and more voters, you neutralize this. And also,
13:36it leaves kind of a bad taste in your mouth. Do you really want to be a Fed governor in this
13:42environment? So I think when Kalger retired early, I mean, she was planning to leave in January,
13:52you know, there's, again, people are human, right? You know, everyone deals with things in a different
13:59way. And I think in this case, trying to put pressure on people to try to get them to resign,
14:08to put your own people, whatever, even if you disagree with it, as an analyst, I don't care,
14:14agree or disagree. All I have to do is see how the game plan is going to be met. And this is why we
14:19brought this up six weeks ago. This is why we also brought the shadow Fed boxing technique about,
14:23you know, let's just put all these candidates out there and see which one of them are going to go
14:29out in public and say, we want for lower rates, right? They're all going to be Fed chairmen,
14:35whatever. That's not the case. You don't know. But they're trying to get more people to say things
14:39publicly. And again, this is all going after Jerome Powell. Neutralize him when he leaves his
14:45own person in. You get more pieces to the puzzle on your side. Agree or disagree, that was how the game
14:51plan should have been viewed a while back. I also think that, you know, to your point,
14:56people are people. I don't think that Fed governors are probably used to this. You know,
15:00very few people would be used to this kind of intimidation. You're a Fed governor. I mean,
15:03that's not really what you signed up for. No, but this is the world we live in and elections have
15:10consequences and people should have kind of, you know, when we when we brought the shadow Fed
15:16president theory. I mean, we were talking about this for November, December that this is going to
15:22there's going to be changes here because what what does what does the White House want? We the Trinity
15:27effect. We've talked about November 7th, the day after we said lower dollar check, lower energy prices,
15:35check lower mortgage rates. That's the thing. So if the mortgage rates were down at 6% and home sales
15:44are growing, why? Because whatever happens with tariffs, if prices do go up and inflation go up,
15:50let's mind ourselves that core CPI is 3.1% out of 2%. The PPI inflation, very volatile data line. It is
15:58also hot. Trump and his White House teams believes that they can win if energy prices are lower and if
16:06mortgage rates are lower. Why? Lower gas prices. Everyone's in their minds are thinking, hey, lower gas
16:11price is good. Lower mortgage rates, right? It's the third calendar year of the lowest home sales ever.
16:17You're not talking about three, four, five. I know Trump is talking about emergency rate cuts. That's
16:21not going to happen. It doesn't matter how many people he puts into the Fed. But in any case, it
16:25changed the economic landscape for normal people to play less in gas and less in mortgage. And in the
16:34sense, he believes that general thing wins. Even if corporate profits have to go down, they'll put it
16:40Main Street versus Wall Street. This is a tactical plan that was starting in. And the last piece of
16:46the puzzle is the one that's holding back. So unlike when he floated the idea of like, hey,
16:52I'm just going to fire Jerome Powell, the Fed chair, markets did not like that. He got a lot of pushback
16:58on that. It feels like what he's doing with the Fed governors isn't really having an effect on the
17:03market in a bad way, in a negative way. Where the 10-year yield is today, it looks perfectly normal. With Fed
17:10policy, where inflation is right, there's nothing. And we've been talking about that. If you actually look at
17:15the last few years, waves and channels, right? We don't ever target mortgage rates here. We target the 10-year
17:21yield and where Fed policy is, where the economy is, nominal growth, inflation expectations. There's nothing
17:27abnormal with where the 10-year yield is right now. Mortgage rates were slightly higher than normal because the
17:33mortgage spreads were bad. That has gotten better. So again, at this point, you're only talking about
17:41half a percent. I mean, I cannot go below 5.75, you know, just because of everything, pet policy and
17:48inflation, unless there's a recession happening. If a recession happens, the Fed goes into another.
17:54We've never talked about an accommodative stance with the Federal Reserve because they've never brought
17:58it up. Everything was about getting to neutral policy. Neutral policy for everyone is different.
18:03And of course, my take always been, I would have never raised the Fed funds rate above 4% because
18:07the disinflation from global pandemics are very historically known. Now you have the tariffs and
18:12trade war and everything. And once the Fed raised this inflation expectations due to tariffs, that was
18:20war. And that's how Trump looks at it. It's a declaration of war, Powell versus Trump. And here we are
18:26almost in September. And now they're going after governors, right? And this is how you try to do
18:32a war. You have to take out the pieces out and put your people in. And it's a numbers game out here.
18:38So I, this is not the last, you know, I wouldn't be surprised if Bostick, Atlanta Fed president is
18:46next. There are skeletons there that they can go after if they wanted to. But we'll be, you know,
18:53I mean, this national podcast, what are you talking about there? Because that that sounds very ominous.
18:57No, I mean, there's a lot of Fed people. I mean, some of them have been reprimanded for
19:02their trading and investments over the years. So Bostick is somebody that, you know, has not been
19:09extremely dovish. And it wouldn't shock me. I mean, I wouldn't put that on a tweet out here
19:15to say that he might be next on the list. If they're going after Lisa Cook for mortgages,
19:23boy, there's other things. So again, it's, it's, it's, some of it is optics. Some of it is,
19:28hey, listen, we want our people in, you're not one of us. So this is how the man operates. We deal
19:35with what we can as analysts, we just have to function. But to me, again, the economic data
19:40matters more than all of this. And we run off of that first, before any of the Fed governors or
19:47Fed presidents and chairmen stuff. On our next podcast, we will be talking about the Jackson Hole
19:54meeting, what you're looking for there. That's, that happens on Friday. So that's going to be very
19:58key to what happens next. Are you, just give us a preview. You expecting anything big from Powell?
20:06Powell can do something really funny if he really wanted to, you know, knowing traditional Powell,
20:12he might just highlight that, you know, the jobs data might be something he's a little bit more
20:17cautious about. Mind that I truly believe if the Federal Reserve had those jobs numbers in front of
20:26them, and they were reported that way, you would have already seen a cut. Why do I say that? Because
20:32last year, you know, Jerome Powell admitted that they waited too long, and then the negative revisions
20:39forced them to cut 50 basis points. The funny thing is that, you know, the Trump White House,
20:47is talking about, you know, firing the BLS for the negative revisions, but the negative revisions were
20:52happening during Biden's administration, and now they're happening here, which is a common trend
20:58in that. But if you want lower rates, it's really the labor data. So in a sense, you need the negative
21:04revisions, correct? You know, if you, if that's what you were going for, you had a case now. Now it's,
21:10you know, data gets very interesting in that light, but does Powell just basically say, hey, listen,
21:22you know, last year, job growth got toward $160,000, $170,000. That was lower than what we were
21:31working off from. The last three months is $35,000. I mean, on average, that's different.
21:38That is a severe, severe decline. Even a few months, was it two months ago, I even said for the first
21:43time, my economic work, the labor data is underperforming, right? And he, it would be
21:51interesting. I want to see what he says about that, because that's the biggest shift miss in labor data
21:58that, to my knowledge, Powell has ever dealt with. Because if it was 133,000, even if it was 80 to
22:0685,000 jobs per month, that would be, you know, maybe they could say it's just population growth,
22:12there's nothing. That's not happening. You don't have manufacturing jobs being lost and residential
22:17jobs being lost and this much job growth slowing down that much and just say, the labor market is
22:22strong. Sarah Wheeler, the labor market is strong. This is the lowest job growth, job,
22:28you know, continuing claims are at three year highs and manufacturing residential jobs. Something
22:33is wrong there on the Federal Reserve sides, on the labor data pool. And you have more Fed presidents
22:40who are now saying, well, this is all just population and immigration growth. I don't know
22:46why they've broken from historical data line pools. And we said, they're going to probably do a lot of
22:52phone calls, right? We did a whole podcast. The thing about this, that the Fed doesn't so much trust
22:58the data. And I'm assuming that their phone calls didn't get the answers that the labor data is
23:05showing. And I think that's the miss, that's the connection miss, because they would have cut rates
23:10if they knew job growth has gone down to 35,000. And that didn't happen. So my whole thing is,
23:17what does Powell say? Because that's not a oops, that is a big oops. And they've been doing phone
23:24calls. So if they say, hey, listen, our phone calls with people, no one's laying off anyone.
23:28That's why we're staying here. Okay. At least that's a legitimate claim. But if they can say,
23:33hey, listen, our phone calls, things that nobody's hiring, but you know, now we're going to have to be
23:38a little bit more careful of labor. That to me is probably the most plausible because that was just
23:44to go from his kind of hawkish tone in the Fed presser to, oh God, boy, that's a big wist. That
23:50reminds me a lot of 2024, except this is a much extreme case. Totally agree. Okay. Well, we are
23:57out of time. Thank you so much for being here in the studio. This is so fun to have it live, or I guess
24:03not live, but like in person. Great to have you on. We will talk to you again soon. Pleasure. One more
24:08time. Paper rocks. Okay. But you have to go one, two, three, and then on the fourth one, you do it. Okay.
24:12Okay. Okay. One, two, three. Yes, I won. Okay. No, no, no. We're even now. We'll continue on some
24:20other time. I won. Let's just talk about I won. By the way, for those who don't understand,
24:22paper, rock, scissors, labor overinflation, the growth rate of inflation fell. Mortgage rates
24:26never got below 6% because Fed policy is up here. Inflation was down there. They told you they were
24:32going to stay restrictive. That's why mortgage rates are still elevated because 65 to 75% of this is
24:38still Fed policy. Also, I won. Let's not forget that. All right. Thank you, Logan.
24:42you
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