How the stock market affects the housing market

HousingWire

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Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about how the stock market

00:11and housing interacts in wealth creation. It's going to be really interesting. And we are in

00:16person in the studio. So that's exciting. Logan, welcome to the podcast.

00:19It is good to be here. And Sarah and I had our first foosball fight last night at an event. And

00:27she won because I scored on myself three times. I will take it. Yes, you did score on yourself

00:33several times. I'm not the best at foosball. Let me just say that. That was the first time I ever

00:36played. Man, and he scored first. Anyway, at least I came out on top. It was fun. That was a great

00:42event. We were with American Pacific Mortgage. Yes. Very fun. So, okay, let's get into this topic.

00:49This is a little bit different for me, like talking about the stock market. So explain what

00:55you wanted to say here about that. So, you know, the economic data has firmed up a little bit.

01:03Mortgage pricing hasn't had this sharp reversal on the economic data. And there's just a lot of talk

01:08that the upper income households and the stock market is keeping consumption going, right? People

01:16can withdraw money from their brokerage accounts and pay for stuff. But what does that actually mean

01:22for the housing market? And it's an interesting non-correlation, I always thought, because a lot

01:30of people say, well, if the stock market goes down 20%, you know, people will pull back from housing.

01:37We've had many 20% bear markets in the last, you know, I would say 10 to 11 years, even in the last

01:46decade, COVID, what we saw in 2022. But for housing, the economy stays better, right? It keeps rates more

01:57elevated. But the correlation with equities, you know, whenever stock market fell in the past and

02:04rates went down, housing demand always kind of picked up a little bit. So I understand the logic

02:10that some people say, well, you know, you'll have more money to put in your down payment. But to me,

02:16over the last 14 years, since qualified mortgage has been put into place, every curve that we've seen

02:22higher or lower in demand has really moved off of rates, really moved off the 10-year yield more than

02:28anything else. And even when there's a bear market, you know, we saw that COVID, you know,

02:35not COVID, but the Godzilla tariffs, 10-year yield went down, demand picked up, you know,

02:40with tons of chaos this year. You know, a lot of people said, you know, well, will anybody fill

02:47out an application to buy a house? I mean, literally, purchase application data has been

02:51positive year over year, the entire year, pretty much. And by double digits for about 20 straight

02:57weeks. So I understand this correlation on, you know, people think that the middle and upper

03:03income classes are holding the economy afloat with their spending. But for housing, you know,

03:11I always still think the 10-year yield and mortgage rates matter more. And in this kind of environment,

03:17we've seen, you know, where the 10-year yield has come down, mortgage rates have finally broken under

03:226.64. We've had positive forward-looking data for the first time in consecutive weeks,

03:28better than what we saw earlier in the year, that I'm not that big of a believer in that kind of

03:36wealth creation and being a big part of the housing market. I've just seen general housing market trends

03:42move off of the 10-year yield more than anything else. I also think, I mean, that's assuming that

03:46people even have any, you know, have any say in the stock market, sorry, are building any wealth in

03:54the stock market. So yes, if you have luxury clients, absolutely. Baby Boomers, Gen X is

03:58probably, if you have younger clients, they may not have anything in the stock market and they may

04:03never have anything in the stock market. That assumes your clients have a certain amount of

04:09money or a certain kind of job or, you know, there's tons of people who own houses who don't

04:13have any stock market wealth. It is. I think one of the stats a lot of people say is that the exposure

04:18to the U.S. consumer or U.S. household where stocks are at the highest levels ever out there. And

04:26the stock market is pretty wild, right? You know, stocks can move 5%, 10% in a day where the housing

04:33market is, it's not that liquid. It's very sticky to the downside. You know, the existing home sales,

04:42median sales price up 2% year over year, which actually brings me to another topic. Michelle Bowman,

04:51one of the switch over to Team Logan labor over inflation. She's, she was talking about, you know,

04:57I'm a little bit concerned about, you know, home prices now, you know, single family construction

05:02prices and rates are elevated and supply is picking up. For me, it's just like the Fed should just

05:09not say anything if home prices fall. And, and I, and I said, it's like literally home prices were up

05:162% year over year. And people are, this is a wall street thing. I think where everyone says, well,

05:22the, uh, uh, the wealth effect, people aren't going to feel wealthy enough and they might not purchase

05:29goods and services like they used to because home, I was like, guys, it's literally up 2% year over

05:34year. What are you, what are you all talking about? So I think the Fed needs to like,

05:37never say that ever. I'm not a fan of the Fed saying, Hey, home prices are falling. We might

05:44need to do something. Uh, um, I can understand if there's massive foreclosures and underwater

05:50mortgages and, you know, uh, uh, it could create a very unhealthy economy and that's none of that's

05:58happening at all. And so it's not, that should not be part of the, it's, it's like when Jerome Powell

06:03said, well, the housing market was in a bubble during COVID. No, it wasn't. We literally just

06:08had too many people chasing too few homes and prices escalated out of control. And if you're

06:13our sale, you know, prices follow sales that the crash happened in 2022. And it's like almost 2026

06:21now. So in a bubble, you would see an escalation of inventory. You would see prices fall immediately

06:27and prices go back to where the bubble started. No, not in the national markets.

06:32I love the way that you define bubble there, because I do think people feel like when things

06:36just, you know, when prices escalate, that's a bubble, that's always a bubble. And what you just

06:41said was like, no, it would, it would be a bubble if you saw inventory escalate.

06:45I mean, to me, the history of bubbles, they don't usually in the same sector back to back

06:51in recent history. That's, that's very well noted. I still think there's just a, there's

06:58this storyline of housing 2008 that generates so much attention. And it's just been frothed

07:05with some of the least talented human beings we've ever produced in the United States of

07:09America. And they all have YouTube channels now. So Lord have mercy. We have collected

07:1414 to 15 years of absolutely our most talented people out there in calling for home, national

07:19home prices crash. And it just never happened. And by the way, just what I want to remember,

07:24I remembered everything and I've, I've created a database of myself of how wrong you guys have

07:30been and what will it take? And will you even be alive to even see your original calls? And I

07:36guarantee you 99.9% of you will not be alive because you're so off for so long and it didn't

07:43work, but for grifting, very, very effective. Doom porn works everywhere we go. We always say

07:48doom porn works because it generates, if it bleeds, it leads, I'll generate all this. But

07:53okay. Two comments. First of all, you have a lot of excess free time. If you are categorizing

08:00everybody's bad takes for the last 14, 15 years, that's number one. Number two. Okay. So Michelle

08:05Bowman said that, but what would the action, what action would the Fed take if they're seeing that?

08:10And would that be beneficial to housing, even if you don't agree with her motivation?

08:15What I said when I saw that statement and I retweeted, I said, if you want to, if you want

08:22to say that the labor market is, is weakening because of elevated rates, I'm yes. We, how

08:29many times have we shown that residential construction chart? We're like, it's never a good thing when

08:34this starts to fall. Right. And traditionally speaking, the Fed tends to ignore it. They tend

08:39to say the economy is great. You know, you don't have to worry. By the way, another Fed president

08:44said something really hilarious. Barkin. Barkin. I mean, we have to have age limits on, on, on Fed

08:49presidents. He said rates went from 4.375 to four, four and one eighth. You know what that means?

08:55We're going to see some massive hirings out there. It's like, what? This is like Mary Daly last

09:00year who said the Fed, we've cut rates and then we've seen the builders come out of the

09:05woodworks. Homegrown, what? Permits are at recessionary low still. First instance of

09:12a homegirl in this podcast. Okay. But wait, go back to your original point. What, what would

09:16they do? What would Michelle Bowman do? Could that still be good?

09:20I don't believe they target at least the existing home sales market. But if you want to say we,

09:24we need to be a little bit more dovish and if mortgage rates go lower, we don't need to,

09:30you know, be so hawkish in our statements. Because to me, it's just, it's just very hard

09:35to get mortgage rates under 5.75. Right. It's like, a lot of people ask me this, like, you know,

09:39are all the Fed rate cuts priced in? Pretty much if they get to the whole door line, that's neutral

09:44policy. So for everyone kind of thinking about this in the last decade, November 8th, 2018,

09:51the 10-year yield hit 3.24%. Spreads were fine, nothing abnormal back then. That got you 5%

09:58mortgage rates, but that was zero interest rate policy. Here, the Fed funds rate is, you know,

10:04even if you're pricing the curve to neutral, which is three or three and a half, it's really hard.

10:09Like, we have had so much good news priced in that if she comes out and says, listen,

10:16the labor market, construction workers are losing jobs, specialty trade are losing jobs,

10:21manufacturing are losing jobs. We believe we get short-term and long-term rates lower. We can,

10:26we can help, you know, ease that. Not like the quarter that Barkin said, oh my Lord,

10:33homeboy was just like, we're going to start hiring people like crazy. You can imagine like a business

10:38says, hey dude, Fed just cut a quarter. Let's get that. Let's get it out. Let's print out and let's get

10:44some people hired and, man, Fed, see, this is the problem with the Fed. They're a little bit out

10:50of touch, right? They're kind of academics out there. So they say things that they don't even

10:55understand. And then five minutes later, he's like, the Fed communication seems to be a problem.

11:00Look what you just said 10 minutes ago. Come on.

11:04Like, are you part of the problem here?

11:06So back to Bowman. If you, if you get rates at least down to six, it gives you a fighting chance

11:11because, you know, the builders have a lot of completed units for sale and they're just not

11:15going to be coming out of the woodworks and, you know, issuing a lot of housing permits in this

11:20kind of environment. So I understand it, but I just think they should, you know, leave the home

11:24price thing out of it. Because if you want to say that we need, we need higher rates because home

11:30prices are escalating out of control. I get that, right? February, 2021 here, but

11:35your, your, your price stability and employment, right? You should just stick to that. And it's

11:42kind of like what Trump, Trump keeps on saying, we need lower rates to balance the budget.

11:46We're lower rates. That's not, that's not going to work. If you want to say we, the labor market

11:50is softening and, you know, we believe lower rates can help the labor market there. You, that's

11:56what the dual mandate is. Right. And it's kind of like foosball. We were playing dual mandate,

12:00you know, ball, you know, whoever's going to win, have it like that. Leave the fear of,

12:07well, home prices are falling and they can, no, no. If you want to talk about single family

12:11construction, remember, what do we say about higher rates in 2022, right? We needed higher

12:17rates because back then we were already at 6% and rates were falling back to five. I was like,

12:21this is not going to work. And think about it now. Think just, just now that we're in 2025,

12:26we're heading to, imagine if rates got to 5% and everyone was okay with that. We would have not had

12:32the inventory growth. We not would have had the builders on their ass. That's what it was. That was

12:36the statement back then, three different times that year. What are the builders doing? They sell

12:40homes as a commodity, right? And now they're cutting and they're making deals. That's good

12:44for the buyer. Now, of course that's demand destruction. What does that do? Housing permits are

12:48at recession lows, but you don't want to live off of that. But I think there, there, there are times

12:52you want to, uh, uh, uh, uh, make sure that monetary policy can, can balance out a sector

12:58of the economy that needs it. But, but Bowman talking about that. Oh, not, not, not the biggest

13:03fan labor. You can, you can go for, but her home price comment, uh, surprised me. Yeah. Okay.

13:09So you mentioned Trump, you mentioned tariffs. So we have to talk now we are recording this

13:14on Friday morning. So anything is possible between here and Monday, really between here and the end

13:18of the day. Yeah. When we were playing foosball, he put tariffs on furniture, kitchen cabinets or

13:24something, you know, we have to talk about this because it did seem like a, I was asking at the

13:28time, I was like, it seemed like a very random list. Like does one country do this? Like what

13:33is the, what is, why are we putting tariffs on kitchen cabinets, upholstery, upholstery furniture?

13:38I think some of the tariffs that were announced last night goes into the 232 section thing. But

13:43I mean, my first thought is that Trump probably thinks he's going to lose. So why not just put

13:48tariffs on everything? Lose what? Lose the court case. That's coming up soon. It's like,

13:53I wouldn't be talking about national security on stuff that, you know, can make my case go worse.

13:58So there's a part of me that just says Trump got the word that this isn't going to pass. So I'm

14:01just going to tariff everything. I'm going to tariff every Godzilla doll everyone has and everything

14:06and just like whatever. And then, and then they're going to, I'm going to have to force and get it and

14:11send money back to everyone because the tariffs are illegal. See, that's the thing with national

14:15security. Is this like, like, like we're, we're tariffing bananas. We're still tariffing bananas.

14:23I was like, well, why do we need to tariff bananas? You know, but I mean, in this case,

14:28you know, I, there's, there's a part of me that thinks that, you know, he knows he's going to lose.

14:33So he just loves tariffs. He does love tariffs. I just, I'm trying to think like, if you're trying

14:38to remodel or if you're, if you're a builder, like the kitchen cabinets is going to sting the,

14:42um, bathroom sinks, I think we're on that list. Oh man. I'll tell you, there's a lot of husbands

14:47out there that are probably saying, yes, tariff. Yes. Save me money. My wife wants to do all the

14:52kitcheting back, you know, so tariff everything, you know, I hadn't considered that, that option,

14:59that angle of the husband's being like, no, we don't need to redo the kitchen right now.

15:03Tariffs. That's so funny. Okay. Well let's, let's get into the tracker a little bit, right? Um,

15:08what are you expecting to see this week? Last week, um, you really focused, you broke out

15:12mortgage rates, obviously, and you talked about inventory. What are you looking for this week?

15:16The tracker's going to go back to normal now, but, um, uh, I, I, I'm, I'm hoping to see if I get right.

15:22If we get a little bit of inventory growth, then we recaptured the highs, uh, uh, in inventory so far

15:28have been wrong on that inventory growth. A lot of things have slowed down since, uh, uh, mid June,

15:34and that has stayed its course. Um, and it's still staying the course right now, but I just didn't

15:40quite buy into the peak, right? Not much is happening right now, but usually in the last

15:46few years, October, November have been the, the peak of inventory. And, uh, even last year when

15:51rates were going lower and demand started to pick up, we still had to be inventory. Now this is maybe

15:55my bias of the, the chef kiss, right? Rising sales, rising inventory price goes, doesn't go out,

16:01get out of control. That's, that's, that's my own bias out here. Probably why I want to see

16:05inventory growth pick up just a little bit before the season will decline. Okay. Well, you know what,

16:10that, that works for me. Um, anything else that's coming up, what's coming out next week?

16:14Well, here, here's one thing. A lot of people are talking about a government shutdown.

16:18Oh yes. I was going to ask you. Okay. So if we get a government shutdown, we're going to get no data

16:22out there. So, uh, there's going to be no, uh, jobs Friday or anything like that. So if,

16:28if it does happen, we're going to be like looking at private data at that point, uh, the government

16:34isn't going to, uh, uh, uh, provide anything. And also, you know, some government functions,

16:39FHA, you know, gets condo approval, stuff like that, you know, uh, those will be delayed. So

16:44that's a toss up. We'll, we'll, we'll take it. What, whatever happens.

16:48Yeah. It's always hard on the government shutdown. Cause first of all, you never know if they're going

16:51to make a last minute deal and it's going to go through and all of that talk was for nothing

16:54or, uh, on the other hand, or if it could go for a while. And in this, uh, instance, as we,

17:00as we talked about yesterday, uh, Trump said that he will go ahead and fire people, not just put them,

17:05you know, like, um, what is it like, uh, paid leave, paid leave. So then you go, okay, well,

17:11what is, if that goes on for any length of time, how does that affect something? I hadn't even thought

17:15about the data. See, I mean, you're thinking about the data. I was thinking about other things. So,

17:19but it's hard to talk about it ahead of time because literally it could be, you know,

17:23one minute to midnight and they make the deal. Well, who knows? Sunday, we'll have some more

17:27information. We'll have some more information. Um, thank you so much, Logan. Thanks for being

17:32in the studio and we will talk to you again soon.

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