Why new home construction has stalled

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about housing construction and recession triggers.  Related to this episode:  Housing starts stall as new home supply outpaces demand https://www.housingwire.com/articles/housing-starts-supply-demand/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  The Top 5:  How much higher can mortgage rates go? https://housingwire.slack.com/archives/D0A8X8APWA2/p1779389934308999  Lenders wrestle with the nuances of modern credit score pricing https://www.housingwire.com/articles/gse-modern-credit-scores/  Land leases, ARM buydowns emerge as lending options while mortgage rates stay elevated https://www.housingwire.com/articles/land-leases-arm-buydowns/  The housing market is increasingly rewarding functionality over scarcity https://www.housingwire.com/articles/price-cuts-housing-market-strength-signal/  Should America’s agents own their own MLS and home search portal? https://www.housingwire.com/articles/one-national-mls-agent-ownership/  To learn more about Total Expert click here. https://www.totalexpert.com/

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about housing

00:14construction. I first want to thank our sponsor, Total Expert, for making this episode possible.

00:19And rounding up the top five trending stories on housingwire.com, we have Logan's article

00:24from yesterday on how much higher can mortgage rates go, followed by lenders wrestle with the

00:30nuances of modern credit score pricing. We also have a story on how land leases and AR and arm

00:36buy downs are becoming popular as mortgage rates stay high. Next is the story headline,

00:42The Housing Market is Increasingly Rewarding Functionality Over Scarcity, which talks about

00:46inventory as a measure of a market's hotness and how that's breaking down right now. And finally,

00:51we have a contributor piece by Greg Hedge on should America's agents own their own MLS and

00:57home search portal. Lots to read at housingwire.com. And remember, you can get a 20% discount on a

01:03subscription with the code podcast20, which means you can read all of Logan's stuff. So Logan,

01:08welcome back to the podcast. Chartout is here, ready to go, Wheeler. So still, we're waking up

01:16Thursday morning, jobless claims still low. I always take that scene from Antonio Berenderes

01:21Desperado where he goes, not yet. And I always, whenever we have the headline jobless claims data

01:27on X Twitter, I just place that gift just to make sure that we don't go into the recession talk,

01:34because it would be a really big deal for housing, because housing could outperform actually in that,

01:38but it needs jobless claims to rise, which kind of ties into what we're talking about today.

01:41A housing construction still dead, dead for years. We were, we were told we need to buy,

01:47build millions and millions of homes because we're 3 million short, 5 million short, 7 million short,

01:5410 million short. The White House came out and said, I'm going to outdo every one of your reports,

02:0010 million housing short. None of that's true. And this is just my thing for a very, very long time.

02:07Um, how the market works for decades and decades, isn't how academic reports, uh, operate. And, uh,

02:17we, we, we, I encourage everyone, if you really want to nerd out our article, June of 2021, why you

02:23can't build yourself out of this kind of hot housing market. We don't do supply first economics and then

02:30just sit there and wait for demand to come to it, right? Because of profit margins. And here we are,

02:36housing starts, nothing bad on the report, but I always like to show people housing starts for

02:42the last few years and new home sales hasn't gone anywhere, right? It's not breaking in a big fashion,

02:47but it's not rising in a big, it's gone literally nowhere for years. And I don't think we, this

02:53decade, we come to the highs that we saw, uh, uh, early in COVID. And this is just how housing

02:59operates

03:00for years and years. And now rates have gone up, you know, on top of everything else and profit margins

03:05are falling for the builders and all this stuff. So there's a lot going on here, but housing

03:09construction is still dead, not much going on. I think the thing that, um, you and I have talked

03:13about so much, uh, when we first started doing this podcast, I'd be like, Oh, we need more homes.

03:17We, you know, builders need to build more homes. And your, your point then your point now, which

03:21makes so much sense. If there was a market for 10 million more homes, the builders would be happy

03:26to build that many, sell that many. There's not like they're, they're meeting the demand

03:30based on what they can sell. They don't want a whole bunch of over. So whatever they're

03:35building is, it's kind of where demand is. There's not like this pent up demand for new

03:38homes. That's not being, that's not being built.

03:41So just for all my guests and my backyard people and economists and academic people and colleges

03:48who write, we need to build more homes. Dan Aykroyd gave one of the greatest lessons in the history

03:53of America in Ghostbusters. This is the private sector, man. We expect results. This is not the

04:00public sector. This is not government government. You can lose a lot of money. You can do stuff

04:05and it just doesn't matter. But in the private sector, you just can't simply put your head

04:11down, build a lot of homes based on what somebody says in a paper and then sit there and go,

04:16well,

04:17new home sales should be booming. Right. You know, it just doesn't operate. It hasn't operated

04:22that way since the Peloponnesian war, Sarah. And, you know, this is why we always want to be

04:27the detective, not the troll. Let the data kind of talk for itself. And here we are today. It's

04:332026. You know, permits and starts really have been trending toward the early levels,

04:39recession levels of COVID because housing actually broke out before COVID even happened. A lot of

04:44people forget that. It starts and permits and new home sales. But it's just, it's not going to go

04:49anywhere to me. I mean, in my view, it's not going to go anywhere for the rest of the decade

04:53unless,

04:53you know, something happens where rates fall down and you get some construction. But it's math for

04:58a lot of people, right? For multifamily, for apartments, it's math. It doesn't make sense.

05:05Thankfully, it looks like they're taking away the seven-year sell rule in the housing bill.

05:11Right. For institutional investors, correct?

05:14It is. It's interesting how when I was at the conference in Miami and talking to people,

05:19they were so surprised how the kind of construction was slowing down massively because of this bill.

05:26You know, and I think this is where I think progressives kind of lose their mind on, you know,

05:32it is not a bad thing to have people with money build a house and sell it, okay? Or acquire

05:40something

05:40and rent it out. Renters are human beings. They're American citizens, right? They're not some,

05:46you know, third class where you could go, no, no. And one of the things I've tried to emphasize over

05:53the last few years is, you know, a lot of people say, well, why don't we just ban all investors?

05:58Why don't we have investors sell all that? You are kicking families out of their house and you're

06:04forcing them into a lower supply market. And that's inflationary. What politician is going to sit there

06:12with videos. People are going to take videos of families getting kicked down and go, where's the

06:16rental supply? We just kicked a bunch of supply out of the market. So there's a crazy left and right

06:23kind of wing thinking about this whole thing. And when we, a thousand years from now, we're going to

06:29look back and go, well, there was a flat earth, crazy people back in the days. And then there's a

06:34Wall Street owning all the homes that we have to, people. And it's just, it's, it is comical that

06:40we even got to this stage of lunacy, but here we are. And, and just, you know, it just doesn't

06:47make

06:47sense for permits and things to really take off in any big fashion, not surprising to us.

06:52You know, we see a concentration of institutional investors, Wall Street investors, if you will,

06:57owning, you know, large, large swaths of, of rental housing in places like Atlanta and very specific

07:03neighborhoods, communities, but it's very small. You always bring out your, your, how tiny that,

07:09that percentage is. And to your point, if they're not willing, they're doing that because other people

07:14maybe weren't willing to do that. They're taking a chance on a house or a neighborhood or a set of,

07:19you know, a set of houses to revitalize. And a lot of this happened, started after the great financial

07:25crisis when the, when the federal government was like, Hey, we need you to go in there and, and make

07:31these homes, you know, rehab these homes and make them available for rent because they're just sitting

07:34empty, vacant, driving down property prices. You know, it's, when we, when we go back to

07:41the housing crisis, right, there was a lot of homes that needed to be purchased, get whatever fixed and

07:48then sell right away. You know, so much of the homes back then were distressed sales too, you know, what

07:55we call bulk foreclosure buying. You know, this is why I always thought it was crazy for the 2008

08:00people. Like, you know, people could read and write would, would realize this is not that kind

08:04of marketplace. We don't have a swath of major distress sales, 26 cents to the dollar buying it

08:10and then selling them in bulk when they're, when they're ready to go. So in any case, um, everyone

08:15kind of has a purpose in here. This was completely overblown, uh, with the institutional investors,

08:21but, but with housing starts again, we're talking builders and most of this is single family homes.

08:26Multifamily construction is very wild, but it's at low levels still, uh, uh, for the fed funds rate

08:32coming down lower, it does help with the, with the cost. But a lot of people just say, well, it's

08:36all

08:36zoning, right? If we just get zoning all the, and that doesn't, that's not working as well. Cause

08:43there's, there's places that have less, like when I talked to the investors in Miami, I said,

08:48there's less migration and there's less immigration. You guys have to, you know, be a little bit

08:54careful now. If people are less, people are coming to Texas, less people are coming to Florida and you

09:00have less immigration. Do you really need that much housing anymore? Uh, so this is a, the whole 10

09:07million homes we are short now. No, that's not how the real world operates. So, uh, not shocking to us.

09:13That's why we wrote that article in June of 2021 that when rates rise guys, cause the builders were

09:19really pushing the price, you know, their, their profit margins and everything. They really pushed

09:23it out there. That was the whole, we need higher rates to put home builders on there because now

09:28they're willing to make deals right now. They're like, okay, total completed unit sales are up to

09:32121,000, you know, let, let, we need to move product, but, but here we are. It makes sense to

09:38me,

09:39but I think I'm still living in a world where this entire conversation is, is revolved around

09:43madness. It's like the Mad Hatter madness. It's like Mr. Toad's wild ride, you know, every day

09:49on social media, it's just like, sit there and think what is wrong with you? No matter how many

09:53times I put that pie chart, where it's those Blackstone, uh, owning 0.06% of single family

10:00homes. We have people who goes, well, wall street is buying all the homes. Corporations should own,

10:05you know, not own homes. People. I mean, I'm just like, oh, oh man, they're, they're going to like,

10:11look at this period and go, boy, the intellects of this crew just quite, quite wasn't there.

10:16No, I think these are all really great points because I think that we, um, that consumers have

10:21a reaction to wall street investors buying stuff, right? It's easy. You've always said like,

10:26they're an easy target. Let let's blame them. But who actually owns most of the investment properties?

10:31Who's who actually owns most of the homes that are being rented out to other people?

10:35And that's small mom and pops. Yep. And you can't touch small mom and pops. Why? Because

10:39the class warfare doesn't work. You know what we're dealing with the Russians in the last decade

10:43on Facebook with their fake accounts there, the whole wall street thing was, was, was a great

10:47thing to divide, uh, uh, Americans up. So politicians on the left and right have figured it out as well.

10:52So this is just the world we live in, but also tying it to the economic cycle. Um, why do

10:58we,

10:58why don't we go into the recession talk yet? Because jobless claims haven't, uh, break in, but

11:03usually typically there's just a few sectors of the economy that break first.

11:08There's most people are always working even in a recession. You know, you, you, you typically have

11:13over 90% of the people working, but manufacturing, but also residential construction. And, and what's

11:18happened is the builders had profit margins. They were selling homes. They weren't working from an

11:22elevated level. Uh, uh, and they can get these homes off the marketplace. If you look at new home sales,

11:28it bounces off these low levels all the time. They're managing that system right now. You can't

11:34really grow in a managing, but also we haven't had a wave lower in residential construction job.

11:40A lot of that is also remodeling work. And, you know, as we have a lot of equity in, in

11:46homes right

11:46now, short-term rates are going lower. So the remodeling portion of the United States of America

11:51is holding up. And we have to remember, we have a lot of old homes. We've got a lot of

11:56homes from the

11:561930s to 1975. That's still out there needs a lot of work. You know? Uh, I mean, we, we tear

12:03down

12:04to 300,000, uh, homes a year. Uh, they're not livable. So, uh, there's still enough demand to

12:11keep that labor pool from doing this traditional waterfall dive. When that traditional waterfall

12:16dive in residential construction laborers happens, then typically jobless claims at some point in the

12:21future from that point starts to rise. And that's the economic cycle. So a lot of people are

12:26just like, what happened this cycle? Well, new home sales stopped going down. And there was a lot

12:31of homes, uh, that still needed to be processed from not started into construction. And here we are

12:38still dead in the water, uh, on both sides. So you look at new home sales chart, you look at

12:42housing

12:43starts, they look eerily the same. And it's been here for years. You know, you, a couple of years ago,

12:49you, um, you did a lot of writing about your, um, six recession red flag model, where what you look

12:54at

12:54to say, like, here's, here's what we can say. We're going into a recession. In fact, let's not

12:58remember, let's not forget the conference board had you, um, you know, uh, what was it reporter or

13:05like give a presentation, give a little mini dissertations to the conference board, which

13:09created the IMF, the world bank, which gives their information to the white house and the federal

13:12reserve and wall street about your recession model. And they're the ones who decide like when we're in a

13:17recession. So very interesting. Um, and to me that, that residential construction has always been one of

13:22your big flags. And it was actually the one that did not go down when you were like, yeah, yeah,

13:27that, or it hasn't gone up. However you want to say it, that didn't, that didn't flag something

13:30that didn't, you know, we go back to all six flags were up on August 5th, 2022. And then we

13:36wrote that

13:36article on October 23rd. I thought, and he said, okay, the next move lower, the next move in the 10

13:41year yield should be lower. If the builders start to get their confidence index up and could sell more

13:47homes, this data line, their, their, their labor pool is not going to break. Right? So what happened?

13:53Builders rates went lower rates went down to 6% builders were selling homes or using profit margins

13:58there. It, it never broke. It's, it's one of these things that when you look at it, you go, wow,

14:04that's a

14:05really good recession indicator, but also this thing never broke at all. So wait, that doesn't break.

14:12Typically jobless claims doesn't break. So you think about all the recession calls we've seen since 2010.

14:17And like Wheeler, you didn't know me because you like kicked me out when I, when, when someone put

14:22me in, into the top 40 or 40, you go, who's this 40 under 40, our rising stars. I don't

14:27know who

14:27this guy is. Get them out of here. He's not, he's not in there, but dealing with the recession people

14:33in the last decade, you know, certain labor triggers have to happen and jobless claims have to break,

14:38but it's, it's more fun to tell everybody we're on a recession because of the inverted yield curve,

14:44or this happened. You could take 7,000 different data lines and say, well, the last recession,

14:50this happened. No, there are late cycle triggers. You have to be disciplined enough. This means you

14:56can't do porn. That's the problem. You can't do normal economic work. Isn't just not that exciting

15:02to get attention, but, but there was a reason why we didn't go there. And now we're May, 2026.

15:08We have a graveyard of very unsophisticated, untalented men and women who have been doom

15:14porting for many, many years. Most anti-central bank people put some MMT people into that mix as

15:20well. Middle-aged podcast. Yeah. Middle-aged. Yes. Yes. For anybody listening, one group of people we

15:26don't listen to are middle-aged men podcast stock traders like that, that doom port all the time.

15:32Like just like, just, they look like they're on drugs 24 seven. When they talk, they're just

15:37rampant. They just, it's such an awkward group of men, but they're trying to get attention to

15:43themselves by, and you think about all these high, high net worth investors that go on TV,

15:49these baby boomers, they're always, they always have this dark take on everything. And then I go,

15:54don't believe them guys. They're all net long, all of them. So go ask them, go ask them,

15:59are you net long, sir? Uh, just shut up. You're net long. All this bearish take you've taken for

16:04the last 10 years. You've been net long the entire time, because if you weren't net long,

16:08you'd be fired. So just remember what they say and what they do are two different things. And this

16:13is why we've always had this thing with middle-aged men podcast stock traders. This is why we challenge

16:17people to debates all the time. You get them in the open, you get their name and face and forecast

16:21models and you crush them Wheeler. And you make it a YouTube video. Like we did that poor kid this

16:26year.

16:26We said 50% home price crash. And then you let that stay for the rest of the life until

16:31they are

16:31buried six feet under the ground. And they go into the afterlife, no eyes, no tongues, no ears.

16:37So we are heading into Memorial day weekend. Um, anything could happen. Literally anything could

16:44happen with the war. We could get a peach steel. We could bomb some things. They could bomb some

16:48things. What are you looking for this weekend? You know, I mean, how many peace deals were on the

16:54verge? I mean, Trump's been pretty good in trying to like jawbone the market into getting, but one of

17:00the things is that we're seeing these really big inventory drawdowns and oil prices aren't elevating.

17:06Um, you know, you, like I said, if we start going to June, July, and August, I'm most likely other

17:14countries are going to have to get involved. You know, there is a point to where Iran really makes

17:19themselves kind of a world target and Russia is not going to go help them. China is not going to

17:24go help

17:25them. Right. They don't really have it. If they're not getting money revenue, there's a point where you

17:30could overplay your hand on, on that side. So I'm just kind of trying to get clues on what it

17:35is. And one

17:36of the things that oil prices are not breaking out higher with these inventory data is just drawing down.

17:41And we're getting closer to June, like June to September to me is this like Mad Max there, uh,

17:48uh, area. And for those kids who don't know who Mad Max is, go look it up on Google. Great

17:52character.

17:52Um, so I'm just trying to like figure that out. And, and because you, you need a legit deal for

17:58this

17:58to work, right? You can't, we're, we're, we're winding out of time right now. And with the 10 year

18:03yield at four sixties, four 61 right now, and oil price is still kind of around a hundred dollars.

18:10It, it, it, it, there's pressure there on, on everyone, but I think it really impacts Europe

18:15more. And I think Europe has finally figured out, boy, we, we probably might need to get NATO in

18:21there. I know NATO made a comment that if this doesn't open in July, we need to get in there.

18:25So there, there's a point to where Iran makes themselves even a bigger target, not just for,

18:30uh, America. Well, I would just let everyone know, of course it's Memorial day weekend,

18:34but that doesn't mean Logan is off work. So he's going to be riding the tracker.

18:39We're going to get our normal Friday night, uh, update on all of our data, housing data.

18:43So look for the tracker this weekend. And if something happens, he's going to be on it.

18:48We'll, we'll make sure we cover it between he and our newsroom. We've got it, uh, we've got it all

18:51sewn up. And also remember it's the weekend. So the tracker always gets impacted with holidays.

18:58So going out, uh, in, in the next two weeks, you know, if the data looks a little bit funky,

19:04just remember that's what weekends do to weekly data because you're not working at full force.

19:08So we'll see, hopefully one of these days we're going to have good news and then we could take

19:12it. But for now we're still trying to make a deal, trying to make a deal, Logan. Thank you so

19:17much.

19:18Once again, we will talk again soon.

19:19Pleasure.

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