The shocking jump in new-home sales

HousingWire

n today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the surging new-home sales data.  Related to this episode:  ⁠New-home sales reach highest total since January 2022 | HousingWire⁠ https://www.housingwire.com/articles/new-home-sales-surge-august-highest-level-three-years/ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠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.

Transcript

00:00welcome everyone my guest today is lead analyst logan modashami to talk about that new home sales

00:12report that came in so hot and then what to expect for existing home sales logan welcome

00:16back to the podcast yes it's been quite an eventful morning uh i had two different producers

00:22from cmc wanted me to come on one was like extremely early and i'm on the road that wasn't

00:27going to happen and then uh later on the day it was after the new home sales report and new home sales

00:32huge beat of estimates the highest level of new home sales uh post uh 2022

00:39sarah wheeler what has happened in the last eight weeks the last eight weeks we have seen mortgage

00:47rates get below 6.64 percent down towards six percent towards six percent so um it was a very

00:54very live interview i took shots at powell beth hammock and you know try to explain the supply

01:02and demand equilibrium and what the builders have to go through um but we've been here before

01:07like rates get down towards six percent and the feds start to

01:11i know how you know we need to balance the economy so they start pushing back just a little bit

01:17um but unlike last year the tenure yield never got the 362 and you know we haven't had a really strong

01:25reversal and yields yet mortgage spreads are doing so much better this year i even told anchor you see

01:31a mortgage spread you give it a hug so she says yes hugs all the way around um but in this case

01:39we've done this dance before rates get down near six percent purchase application data came out today

01:46we have eight weeks now of uh rates being below six points it's the best eight weeks of 2025 not

01:52shocking um and as long as you don't get a reversal in yields and just sitting here you know i i like i

02:00understand it's very hard for mortgage rates to get below six percent with fed policy and where the

02:05spreads are but just getting to six gives you a little bit of life now the builders have way too many

02:11completed units of sale and you know before they start issuing a lot of permits and stuff like that

02:15but um the question is can rates just stay down here and get sales picking up again for purchase

02:24application data we still need uh about six more weeks of that before it starts hitting the data

02:30line so we want 12 to 14 weeks of positive data the last eight weeks seven positive one negative

02:35you know eight straight weeks of double digit year over your growth but

02:40i i'm just hoping that this time around we don't have the reversal up to seven again

02:48and uh it's a much different backdrop the labor market this i mean we were talking about this

02:53this morning on x with a lot of uh uh wall street traders what's the difference this year than last

03:00year well job growth is a lot lower this year uh now you have uh confirmed weakness in residential

03:07construction or specialty uh trades concerned manufacture all these things are coming down

03:12uh together so it shouldn't be taking a hawkish stance if rates get down to six percent so uh

03:19uh that that i think you know is a very valid conversation anybody could have with any fed president

03:25any fed governor jerome powell anytime 24 7 uh uh and it shouldn't shock people that sales grew but

03:34the new home sales is very volatile it gets revised all the time uh uh so we're all i guarantee you

03:41whenever you see a big beat you're going to get some kind of lower revisions uh but you can you can

03:47make this kind of work with near six percent it's the volatility back up to over seven that's always

03:53made it more difficult and the builders have no leeway anymore their completed units of sale are

03:58at levels that historically they do not really push the permit level and we see it in the housing

04:03starts data i think that's what was surprising to me is that we know that the what is it the permits

04:09um have been at recession levels right i mean you're talking about coven 19 levels yeah for a few

04:15years now and you know for 14 years the builders just didn't have like 120 000 completed units by the

04:22way when i tell people that in every city i take that the builders only have 120 000 complete they're

04:26like what oh yeah none of y'all must have seen the charts of course not because you're normal people

04:32only geeky nerdy people see that um but uh in this case they have no leeway anymore and uh you see this

04:40in the gross profit margins you know lennar starting to get hits out there so uh what's held it is that

04:46the the the big the big builders have been using their profit margins to try to uh pay down rates

04:52and uh any kind of reversal shock just gets harder now you know uh in that context so i say i because

05:00i know the fed staff owners are listening since sarah wheeler will not give me a press pass to ask

05:05i'm asking you invite me look all these cities are asking for the chart daddy to come with a nerd tour

05:12let me give you a thorough presentation to everyone every fred governor every data scientist

05:17every there and then i could get you all on board on what's going on and how the housing market has

05:22worked since the peloponnesian war so you don't have to be old and slow anymore well we will see if we

05:28get that invite that that would be wild but yeah okay so here's the other thing about the builders

05:33right they are already operating in a sub six percent world so what does that mean when when we're down

05:38where we are now how does that stimulate uh what they can do so two points number one not all builders

05:45have the ability to pay down rates and number two when mortgage rates come down towards six percent

05:50the it it's cheaper for the builders to do the pay downs uh than at seven seven and a quarter seven

05:57and a half especially eight percent so uh you use your margins the best you can and we talked about

06:02on cnbc the builders are not the marcher dives they are efficient sellers they sell homes like a

06:08commodity so they're just make it build it get it out because they don't want uh completed units piling

06:15up because then people want more discounts and all of a sudden you know profit margins and then that

06:20really hurts permits and that's how housing cycles have worked for decades but uh i do expect that the

06:27builders confidence index which is tilted to small builders to start to pick up the last two months

06:32we saw a little bit of pickup on the six month outlook you just got to stay here you know i mean

06:37if it was sub six percent mortgage market we're okay but i i'm just i'm always staying to the stance

06:43it's really hard with this federal reserve to get that to go there unless the labor market breaks and

06:48here we are almost in october by the way the lighting on the cnbc things boy that i'm going to do some

06:55ai magic with that because i look like you know michael myers and jason and freddie cougar were

07:00you know hanging out with me in denver but um not all builders are the same but getting down the

07:07bigger builders can you know it makes it easier on their margins and then the smaller builders have a

07:12little bit uh a better shot so it's three three times now the trinity that is a trend right six

07:19point six four down to six percent it has worked it's not spectacular it's not a housing boom

07:24jerome powell if you're listening if people have sex have kids it's going to be okay life finds a

07:29way homie right and please somebody tell beth hammock stop to say robust housing or a labor market

07:35that person okay also i just have to take an aside that i wonder how your brain works because we're

07:42talking you're talking data you're talking and then you're like oh yeah the lighting and freddie

07:45krueger and i'm like what sarah wheeler you do not want to know what goes on in here this is

07:52this is like a bosh painting when the matrix put together where charts and data it does not stop

07:5824 7 that's why you got to have the big hair man you just got to keep it all in there right it

08:03insulates your brain the hair insulates your brain it's a sea of madness man it's a sea of madness i've

08:08been that way since i was a kid you know i love it okay so i think it's interesting because you and

08:15i talked about at the at the beginning of the year before maybe even in 2024 at the end of the year

08:19you were talking about the builders supply and demand you know like they had a supply and demand

08:24problem what do you think now that we're almost in october what do you think about what you wrote

08:28back then about the builders so that that was a that was one of the uh legit calls for the year that

08:33the builders have a supply and demand problem because the supply is growing and there's a

08:38difference here i a lot of people look at monthly supply for the builders and they think first of

08:42all what was the fight club rules we do not mix the new home sales market with existing because people

08:48see that 10 months of supply and they go oh my god there's so much supply out there and then they're

08:53like never read you could tell that somebody who never reads a new home sales report ever because

08:57they break down on in construction not construction started yet and and finished products the completed

09:05units were perking up so what happened late last year is that the builders confidence was picking

09:10up and then we wrote the article they have a supply and demand problem but you people said well you've

09:15always said follow the confidence data i said yeah they're they're rolling with trump right now

09:19and rates are going up so uh the supply will be the story and the supply is a completed units of sale

09:26this is why we show those charts because nobody nobody shows those you know what to this day period

09:30nobody shows the multi-decade completed unit charts i don't know why but uh this is where the builders

09:37go no boss no that's it and then all of a sudden now residential construction workers are losing their

09:42jobs wow it all flows together because that's how that's how cycles work you just got to find the

09:48patterns and things that historically have been the case and that's why we wrote that article that's

09:53still here because it's too the completed units are elevated so they need sales to make sure to wind that

09:59down and make sure it doesn't uh uh escalate even more so shocked a lot of people right everyone's

10:07like new homes we were we were talking about this on nx so people are saying six percent rates aren't

10:13going to work the builders gross margins highest new home sales since 2022 it's like when ronnie lott

10:21used to see a wide receiver come down the middle and he knocked him on his ass they go what six percent

10:26did work again follow the data just let it let it do its thing let it do see and by the time this

10:31comes out we'll have existing home sales so we won't we won't fight club rules we're not talking

10:35about you know but tomorrow is existing home sales now now okay so the existing home sales market is a

10:41little bit different right the existing home sales market needs 12 to 14 weeks of positive weekly

10:46purchase application data before it starts to really kick in to the existing home sales we have not

10:52had that happen this year we've got positive year over year growth but the weeklies are are key so i

10:57don't expect much from the existing home sales mark we're halfway kind of to the point to where you

11:03you need to you need to be at uh but if we can string out 12 to 14 positive weeks then it same thing

11:10as the last few years all of a sudden existing home sales grows uh a little bit and people get shocked

11:17by that see last year i think a lot of people were confused because they didn't see any year over

11:20year growth and purchase application data so they assumed that nothing's happening that sales were

11:25going down and we're like no the weeklies are positive you got to give it time and our tracker

11:30data started to pick up a real big divergence on the weekly pending sales data and all of a sudden you

11:35had a couple hundred thousand more sales that's all it is right this isn't like a work this is not

11:39like the kobe 19 recovery where we just have a v-shaped recovery just gives you a little bit of growth

11:43and again it's all about duration and we have a working model with rates when it happens in the end

11:49every year that goes on as long as price growth cools down and wages grow households form the

11:55affordability metrics get a little bit better on that front and again if you have sub six percent

11:59mortgage rates it it can work but we have a federal reserve that literally freaks out oh my god

12:07that when rates get at six percent we're going to do a clip of like all the years when rates get down

12:11to six percent and watch all these fed people come on to you know i don't watch out you better watch out

12:16people might buy homes you might live again in this country okay it's just too soft sarah it's

12:22just like one of these things where there's they get petrified you know and we talked about that on

12:26cmc like you know i can understand if it was three four five percent mortgage rates even but six these

12:33homies are like oh oh better watch out you know and it's just like you know the world works with

12:40ball players that want to win the world works the world doesn't work if you're soft and always afraid

12:46of living or anything like that so you know at some point the labor market does break and it gives them

12:52cover but you know we had the lowest mortgage rates and interest rate curve in the history of america

12:58last decade it didn't create the inflation that a lot of people thought you know cpi pc could barely

13:03stay at two percent you know global pandemic inflation is is is very inflationary and then

13:10the disinflation tariff inflation even the fed isn't you know uh predicting uh or forecasting big

13:16inflation growth there so you have to you have to pick pick your choice you know do you want to live

13:22or do you want like covet 19 policies suppress stay back you know out there and i i remember saying

13:29that about the fed years ago on cnbc said this is almost like a suppression policy standard right

13:35if we keep housing permits at recession levels we won't build homes if we keep home sales low

13:39then people won't buy homes and more stuff wage growth if we could get wage growth below three percent

13:45again then people don't have to worry about paying higher wages and you know you know uh uh trying to

13:51to keep labor and if these things happen it makes the fed's life easier and we're here september

13:572025 they held it the entire way for three years they are flawless in in reading their mindset

14:05okay so let's talk about it's been a week since um almost a week since fed chair powell uh lowered

14:12the fed funds right um where have mortgage rates gone and are you surprised at where we are right now

14:18no i mean the unique thing about mortgage rates right before the fed it wasn't like the 10-year

14:24yield just like fell really bad it was falling slower and lower but mortgage spreads got really

14:30good right before the fed meeting and then that really good pricing gave it away so there's not

14:36much movement if you take the spread difference variable out of there and the 10-year yield last

14:41time i checked was like 414 so it you know it isn't anything big on that front compared to what we saw

14:49last year last year you know we went from 363 all the way you know to 479 even uh so that was a big

14:55reversal but we haven't we haven't seen that action and again uh talk about like being really nerdy try

15:02to explain people the mortgage spread variable was the one that really drove braids and people look at

15:06you what what's a mortgage spread but in any case where mortgage rates are yeah perfectly perfectly normal

15:12and again if you see a mortgage spread give it a hug because we wouldn't be near six percent at all

15:16if they did not improve especially from the highs of 2023 we'd be over seven percent again still

15:21and the fed would be like oh we can't have rates go down my god people will buy homes what are we

15:25going to do you know so hug a spread yeah it's it's encouraging because like you said i mean that's

15:31what we're seeing in the purchase apps we just said seven weeks yeah a really good thing to your point

15:38uh purchase apps we had a the first reversal of yields and rates and it was slightly positive week to

15:45week and the year over year growth was still there usually when you get it like even a very minor

15:49reversal you get apps falling week to week about three percent maybe that happens next week that

15:54could be the case on on on the late turnover of the rates but uh so far it's it's it's it's a lot

16:01better than what it was earlier in the year right and earlier in the year we did see year-over-year

16:05growth but the weeklies it was just choppy it was just very choppy there wasn't any consistency on

16:10the week-to-week data but now we have some consistency so if any of y'all fed staffers hear

16:15me you know who to call call the chart daddy we'll we'll correct some of your mistakes but you don't

16:21you don't have to be afraid of living if rates get down near six percent i'll just gotta like chill

16:27relax go watch a movie go get some popcorn relax it's gonna be okay the world's not gonna end okay

16:33well let's end there that's a that's that's a good call to action for the fed but also appreciate

16:38you um talking about these things that you're tracking so closely and this what you do in the

16:43housing market tracker every weekend um i love it because that's the weekly data and so

16:48we're not we're not caught off guard by things because you're tracking these things every single

16:53week and uh if people read us they won't be caught off guard either sounds good and always

16:57remember existing home sales much different than new home sales existing home sales still needs

17:01about six to eight weeks of positive for data to make it make it grow make it work fingers

17:06crossed all right logan thanks so much for being on

17:18you

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