Housing construction looks soft for 2027

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about homebuilding, builder sentiment and the Housing Market Tracker data.   Related to this episode:   Can mortgage rates get under 7% for the holidays?  https://www.housingwire.com/articles/mortgage-rates-below-7-holidays/    Top 5 Trending:   Can mortgage rates get under 7% for the holidays?  https://www.housingwire.com/articles/mortgage-rates-below-7-holidays/  Fannie Mae slashes 2027 mortgage forecast amid higher rates  https://www.housingwire.com/articles/fannie-mae-cuts-2027-mortgage-forecast/  Voters seize the ‘say’ in key state battles for housing affordability  https://www.housingwire.com/articles/housing-ballot-measures-3-states/  eXp settles sex trafficking lawsuit on eve of trial — here’s what it means for the brokerage  https://www.housingwire.com/articles/exp-agnt-roberts-settlement/  Pulte signals review of LLPAs, credit reports  https://www.housingwire.com/articles/pulte-llpa-review-credit-reports/   Want more from Sarah? Don’t forget to subscribe!  https://www.housingwire.com/subscribe/   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.

Transcript

00:00Welcome, everyone. I'm joined by my podcast partner, lead analyst Logan Motoshami, to talk about home building, builder sentiment, and

00:07the housing market tracker data.

00:09Before we dive in, here are the top five articles on HousingWire.com.

00:13First, we have the latest tracker, can mortgage rates get under 7% for the holidays, followed by Fannie Mae

00:19Slash's 2027 mortgage forecast amid higher rates.

00:23Then we have voters seize the say in key state battles for housing affordability.

00:29And EXP settles trafficking lawsuit on eve of trial. Here's what it means for the brokerage.

00:35Finally, we have Pulte Signal's review of LLPA's credit reports.

00:47Logan, welcome to the podcast, and here we are in person.

00:51Yes, yes. It's wonderful to be here. We're in Dallas, of course, at the HousingWire office, but we have a

00:57Builder Summit today.

00:59We'll be talking to builder CEOs and managers.

01:03And what a perfect day, in a sense, the Builder Survey came out, and it's been trending lower for some

01:09time, and back to the lows that we saw in 2012.

01:12Yeah, that was really shocking. It's like, ooh, builder sentiment down to 2012. Is that just due to rates?

01:18You know, there's multiple things with that survey that is a little bit different.

01:24Of course, new home sales, you know, picked up in the last report. We're going to get that next report

01:29soon.

01:29And it's still at 2019 levels.

01:32But I think the big publicly traded builders have an advantage over the smaller builders.

01:39And because of that, that survey looks really bad, even though new home sales haven't been able to break under

01:482022 levels.

01:49But I think, you know, it does make this case that higher mortgage rates above 7%, how long it stays

01:55up here, it's more of a profit margin story now.

01:59And it's just going to cost the builders more and more to try to get some of these homes sold.

02:05And you're never going to get an environment like that where the builders are ecstatic or thinking they can get

02:11demand up.

02:11And that's been the case. The builder survey is actually pretty good. Rates go lower, it gets better. When rates

02:17go higher, it gets worse.

02:19So this is the world we live in. It's the last four years have been pretty consistent with housing data.

02:24So you're saying that, you know, the headline on this is that that builders that we're going to see less

02:30building buildings going to be soft in 2027.

02:33Again, I would ask you, like, is that mostly rate driven? Is that demand driven?

02:37So back in June of 2021, we wrote an article saying that, you know, we're not going to be able

02:45to build our way out of this.

02:47Most of the inventory growth we've had in America actually comes from the existing home sales market.

02:51So higher rates actually could increase inventory, but it comes from the existing home sales stock.

02:56But when rates go up, the builders are, you know, going to be limited.

03:00We've had a downtrend in housing construction for years now.

03:05Now rates spiked up again.

03:07So the big publicly traded builders have been able to use their profit margins to, you know, pay down rates

03:13and get products sold.

03:15It gets harder when above 7%, even for the publicly traded builders.

03:20So naturally, we're not growing home sales.

03:23We haven't grown home sales in really in 10 years.

03:26If you take the COVID burst out of the equation, home sales haven't grown at all.

03:31So when you get elevated rates, that means the builders are going back.

03:36Do I really want to start housing permits in this environment?

03:40When the Fed funds rate starts to go up higher, is this an area where multifamily construction can really pick

03:47up?

03:47I say no.

03:48And the only positive thing that I see with the housing construction data is that big publicly traded builders have

03:56been able to wind down their total completed units of supply a little bit lower.

04:02So because of that, you know, once if you get rates low enough to where new home sales starts to

04:08grow again, then you get you got something.

04:11But we might have peaked for this entire decade a few years back and we're just going to be in

04:17a slow downtrend, which is a, you know, a big hit to the yes in my backyard people who keep

04:22on saying it's all regulation.

04:23You know, we have to build millions of homes that I go, homies, that's just not how they operate.

04:29Why?

04:30Because they're not the March of Dimes.

04:32They are not the March of Dimes.

04:34They're here to make money.

04:36They are just like everybody else.

04:38You know, we're having that home building summit.

04:40Very excited to kick that off here in a minute and really talk about the challenges.

04:45But one thing that always strikes me when we have this summit, when I talk to builders, is just the

04:50timeline they operate on.

04:51You know, they have to play the long game.

04:54They're playing the long game.

04:55They bought, you know, land 30 years ago.

04:58They're trying to decide when's the best time to develop their build or do infill or whatever they're doing.

05:03They're so finely attuned to what the market needs.

05:06They are not going to overbuild.

05:08This is why if you go back decades and decades and decades, total units completed for sale really does not

05:15typically move above $120,000.

05:17Even during the housing bubble crash period where inventory actually escalated, the builders never even got to $200,000.

05:24So they are very, very mindful of what the market is because, you know, people like to say, well, they

05:29got caught during the housing bubble.

05:32Guys, they've been doing this for decades and decades and decades.

05:35So naturally, if home sales aren't growing and they see, you know, they have to do more incentives, that's not

05:42the area where you go, let's start the permits and get it to grow.

05:47And it's been here since the 60s.

05:51And I think my job is to always try to explain that because a lot of people think that it's

05:55the builders that overbuild and that's where the supply comes from.

05:58Even though the existing home sale market is where most of the inventory growth comes from.

06:03And this kind of explains why we're at multi-year highs in active inventory.

06:08But the builders have been slowly moving that total completed units of sale down just a little bit lower.

06:15All good insights.

06:16Okay, let's talk about the tracker.

06:17You really took it on like, you know, could we see lower mortgage rates for the holidays?

06:22And I was like, the holidays, but I realized we are in October, we're mid-October, so Halloween, Thanksgiving, Christmas,

06:29New Year's.

06:30And you laid out four different things that could get us lower rates before the holidays.

06:34So one of the things that's happened in the last six, seven days is that the AI story just, you

06:42know, we'll use a predator analogy.

06:45If it bleeds, you can kill it, right?

06:47So one, you know, debt problem with one of the companies and, you know, bond yields reversed, Nasdaq sold off.

06:56So kind of in the last podcast, we said, listen, be a little bit mindful.

06:59This isn't like the AI bubble is bursting and all of a sudden, you know, growth is going to slow

07:03down.

07:04Today's a really good example of that.

07:07I think it was Goldman Sachs.

07:08Somebody upgraded the core weaver stock or core weave.

07:12And now the Nasdaq is rallying.

07:15So the 10-year yield was at 506, 507.

07:19Now it's up to 514, 515.

07:22Not because of any other economic news or anything like that.

07:25It's just that the Nasdaq's rallying.

07:27So keep this in mind going out in the future.

07:30You have something to work with.

07:32And the key for October was make sure we do not close above 5.35% and get follow-through

07:39bond selling.

07:39And then we lay the basic principles of, you know, what can get us mortgage rates to under 7%, which

07:47really is the 10-year yield has to be at 4.85% or lower.

07:52Trade war 2.0 can't get worse.

07:56The conflict ends.

07:58The AI story doesn't re-accelerate higher.

08:02And if the labor data gets softer more than what the people think.

08:06Of course, I think everyone's adjusted themselves to having low job numbers, you know, forever now because we don't have

08:12enough people looking for work.

08:14In that regard, those things can get us down.

08:17October, Halloween, Thanksgiving, Christmas, New Year.

08:20So you've got four holidays coming up.

08:22We'll see how it goes.

08:23But the 10-year yield was up today.

08:25Mortgage pricing was just up a smidge.

08:28Nothing too drastic.

08:28But, you know, you've got to get yourself under 5% on the 10-year yield.

08:32You've got to get to around 4.85 level spreads.

08:34You've got to get a little bit better.

08:35And that's how you get it.

08:37Well, and I think there is some optimism that after the midterms, we can maybe see the conflict.

08:43Get resolved, right?

08:44That's our hope.

08:45I know we've talked about that on different podcasts.

08:47Like, what happens if it keeps going into 2027?

08:49That would be bad for everyone.

08:53You know, it doesn't pull well.

08:56And if the things don't pull well and you've got midterms coming up, and we always talk about this for,

09:01you know, the last few years.

09:03It's very, very difficult in America to make these titanic changes because of two-year political cycles.

09:09And I go back to the article that I wrote in December of 2016, you know, and back then I

09:16said, this is going to be very, very difficult to get like a manufacturing.

09:20The dollar has to be weaker.

09:22You know, inflation will, you know, pick up.

09:25And will voters like it?

09:27We're a consumption-based economy.

09:29So, yeah, well, things will be a little bit different after November, depending on how many seats that the Democrats

09:37can capture.

09:38But clearly, trade war and the conflict in the Middle East has not done well for the Republicans in the

09:47polling.

09:47But I liked it that you outlined those four things because it's like, okay, this is what we can look

09:51at.

09:52And we got an example last week of how AI can, you know, it's not a monolith.

09:57Yeah.

09:57So, this gets into the markets, which I love to talk about.

10:01And I like to show people, hey, look, what happened here?

10:04And now what's happening on Monday?

10:06You know, core weaver upgrade everything and now bond yields are rising up.

10:10So, you've got to keep a mind on that.

10:11There's things that can be done to alleviate this, that at least we have some control.

10:17The AI is not in our control, right?

10:19If you have a bunch of bond issues having problems, then, you know, that would be good for rates.

10:24But for now, work with the variables you can see and control, and then we'll take the market reactions on

10:30other stuff every single day, which is fun for me.

10:33Which is fun for you.

10:34It keeps you busy.

10:36Well, let's talk about some of the other tracker data.

10:38We always like to look at inventory.

10:40We like to look at price cut percentage.

10:42Of course, we're in a particular seasonal decline of some of these things.

10:46What do you see?

10:47So, naturally, higher rates, inventory grows, right?

10:51We still have people that think that lower rates are going to bring all these sellers out, and all of

10:56a sudden, the data is going to explode higher.

11:00This has never been the case for the last, like, 13 years.

11:03Are you saying lower rates don't bring out?

11:04No, no, lower rates do not bring out active inventory growth, like people think.

11:09People think that all these sellers are just waiting, and then they're all going to rush to the market, and

11:14then inventory is going to explode.

11:16Middle-aged men, podcasts, stock traders.

11:20Bond traders, why?

11:21Because they look at housing like a financial asset that you could swing back and forth.

11:26So, higher rates, though, right?

11:28The whole concept of team higher rates in February of 2021 is we need higher rates to get inventory to

11:34pick up.

11:35And now I feel so much better now because even if rates got down to 6%, home prices aren't going

11:39to take off, right?

11:40You're just working with the supply and demand equilibrium.

11:42So, higher rates are bringing inventory growth a little bit higher.

11:45Now, we have much easier comps right now, and it's a little bit above 5%, so you don't see the

11:52escalation that some people are still, why isn't it going higher?

11:55We're closer to normal.

11:58When you get closer to normal, it's a little bit more difficult to get these really big percentage increases.

12:04But we probably have a few more weeks left before the seasonal decline of inventory, and we'll take it into

12:102027.

12:11But all of this makes this a better buyer versus seller equilibrium, unlike 2023.

12:19See, 2023 was really bad in the sense mortgage rates went from 6% to 8% back then, and

12:24inventory growth grew a little bit toward the end of the year, but home prices were up 6%.

12:28No advantage.

12:30No advantage.

12:31Now, home prices are up 1%, 2%.

12:34Price growth is slowing down.

12:36You know, I'm going to have a very difficult time of getting my forecast right, negative 0.62%.

12:41But even if I get it exactly right to the dime, it was for the wrong reason.

12:45I did not have rates getting above 6.75%.

12:49So, I needed higher rates, much higher rates to cool down prices.

12:53This is something for everyone to think about going out.

12:56This is why you have to have a live tracking model to track everything weekly, weekly demand inventory, price cut

13:02percentages, everything.

13:03So, you get the whole enchilada of what's happening.

13:06And now, with Housing Wire Intelligence, all of you can do it in your own city, state, or if you

13:11can go to anything you want.

13:12So, you could be three to six months ahead of everyone else.

13:15It's so fun to get into Housing Wire Intelligence and just, like, play with the data and be like, you

13:19know, on this chart, I want you to show me this.

13:20So, I have a chart right now that's showing me the inventory on a national level.

13:25And then, Florida, Texas, New York, just tracking those and seeing what that difference looks like, generally.

13:33And we're spotting all the outliers anyway.

13:36It's super fun.

13:36Are you telling me it's not the most sellers versus buyers ever recorded?

13:40By the way, we go with our new listings data.

13:43And I'm going to tell you, like, last week, back in, I think, 2011, we had 400,000 homes, new

13:49listings come to the market just for a week.

13:51In 2011?

13:52In 2011, just for what, y'all, homies, let me tell you this, 400,000 for one week.

13:57The highest print we've had from 2020 to 2076, why?

14:01Because we read books, we don't burn them, was 91,000 in 2022, right?

14:07Normal new listings for us during the seasonal peak is 80,000 to 100,000.

14:11We had 91,000.

14:12Some of that was those, you know, I think Zillow was dumping its portfolio.

14:16You got 91,000, and that would be normal.

14:18And we're sitting here, it looks very normal to me on the new listing side.

14:23But back then, distressed sellers, sellers that weren't going to be buyers, foreclosures were picking up in 2005, 6, 7,

14:308, and the credit data, they eventually become supply.

14:33That's how the equilibrium works.

14:34This is why the tracker is the most prolific tracker.

14:37We're not sitting here for 12 months telling people, it's the most amount of sellers versus buyers in history.

14:43And then, oh, home price growth is at a 12-month high.

14:45No, no, we all can do this together and all become very prolific.

14:50Chart mommies and chart daddies.

14:51Isn't that right, Wheeler?

14:52There we go.

14:53Props.

14:54You know.

14:55She hates them.

14:56It pains me to do it.

14:57It pains me to even acknowledge chart daddy.

15:00But I always get so much hate.

15:02First of all, if I don't call you, I'm joined by my podcast partner.

15:07People get so mad about that.

15:08Or when I was like, no, I'm not going to call you a co-host.

15:11Yes, your fans came out.

15:13Or if I say I'm not going to call you the chart daddy, people get upset.

15:17They should.

15:18Yeah, I know.

15:18I'm your boss.

15:19I'm not going to call you chart daddy.

15:20All right, whatever.

15:22Great point about new listings.

15:24We saw, I don't know, some crazy thing today about foreclosures are up, what, 40%?

15:29It was like, it was, you know, when you're working from such low levels of foreclosure

15:35data, and just remember, we have a bunch of questionable Twitter accounts or X accounts

15:40out there that all they do is do porn.

15:41So the percentage increase is like, it was like 5,000 foreclosures that actually happened.

15:46It's such a small thing.

15:48It's tiny.

15:49So that 40% sounds so big, but.

15:51I think people are realizing that there's just a group of people in this country who just

15:56are housing people.

15:57But they talk a lot.

15:58I, homies, I've got this from 2012 to 2026.

16:01And it was not a good business decision for some of these people that you have to meet

16:05because, oh, we, we have so many receipts out here.

16:09It's, it's beautiful.

16:10But of course that came out, but another good thing about the tracker that was interesting

16:14for people was that the, um, um, more, uh, the spreads almost caught up to 2025 levels

16:22here, uh, the spreads can get a little bit worse if bond yields fall down fast.

16:28Why?

16:29Because its job is to compress volatility.

16:32We saw this in February, right?

16:34When the 10-year yield was getting below 4% because everyone thought AI was taking all

16:38the jobs and private credit was going to send the economy into recession.

16:41The spreads got worse because its job is to compress volatility and keep it here.

16:46But it's nothing big in the sense, um, the, the 10-year yield has gotten so ahead of the

16:52Federal Reserve moves that you don't have to worry about the spreads getting really bad

16:56because of that.

16:57If you had a major credit, uh, contraction or some type of market stress, but that would

17:03also actually bring the 10-year yield lower.

17:05So we're, we're okay with spreads.

17:07Uh, you don't have to be afraid of the spreads all of a sudden getting back to 2023 or anything

17:12like that.

17:12Uh, uh, if the Federal Reserve all of a sudden got very aggressive and said, we need a lot

17:17more rate hikes, you know, the 10-year yield is not properly priced, but, uh, that's not

17:22the case.

17:22So I saw, you know, people saw that, uh, uh, sharp spike, but, um, the 10-year yield

17:28fell, it fell noticeably last week.

17:29So to, to me, it's not a big deal.

17:31In fact, last year at this time, we're heading toward multi-year lows.

17:35So the spreads are off from the low points that we had earlier this year, which was a

17:40little bit of, I think 1.81% were 212, uh, uh, but nothing, uh, dramatic out there to

17:46be alarmed.

17:47Uh, mortgage spreads have kept rates, uh, uh, below 8% really this entire year.

17:52If it wasn't for that, that wouldn't have been the story at all.

17:55Yeah.

17:55What you don't want to see is, uh, the bond yields climbing and then the mortgage spreads

18:00getting worse.

18:01That's, that's the bad combo.

18:02Yeah.

18:02I mean, the history, if you look at the history of economic cycles, since when, when Wheeler,

18:09since the Peloponies and the War, right?

18:11Cause they had a Fed funds.

18:12Oh, by the way, uh, Kevin Warsh and myself, we created a, a, a, a, a, a, a wrap band.

18:17And we did not, you created something with Kevin Warsh.

18:20So, uh, Kevin Warsh, you know, those AI wrap videos, it's him and I wrapping together and

18:24we call ourselves NFG, no forward guidance.

18:28You can go to X and Instagram and see, see Kevin and I, uh, a, a, a, a, a, a.

18:32Okay.

18:32But when you say we, Kevin Warsh had nothing to do with this.

18:35Let's just be clear.

18:36Okay.

18:37No, it's a very, it is a very funny video.

18:40You should check it out.

18:41But imagine how few people understand what I just said before guidance or Kevin and I

18:48wrapping, um, the history of economic cycles, when the Fed is starting hiking rates, it's

18:54not good for mortgage rates, but I think the difference now, and this is something to go

18:58with the spreads, mortgage rates were never like falling down sub 6% because we're going

19:05into a recession.

19:06Usually the Fed cuts rates to, cause we're in a recession and we got to stimulate the

19:11economy.

19:12We never even got to neutral policy.

19:14The Fed never even hit its neutral policy target.

19:17So the rate hikes right now, just, you know, two or three rate hikes just to get the insurance

19:22cuts back.

19:23So it's a little bit different.

19:24The 10 year yield got ahead of the federal reserve, which it always does.

19:27Uh, so we don't have to worry about, uh, spreads in that sense.

19:30But if for some reason the federal reserve says Beth Hammett goes, I want 8% fed funds

19:36rate.

19:36I want to get, I want to, I want to slow this economy so down.

19:40And so far that hasn't been the case.

19:42And I think that's why spreads have behaved like they normally do in this situation.

19:47We have got to be thankful for mortgage spreads.

19:50Absolutely.

19:50You were right to point them out a couple of years ago and watching them has been like

19:54now, now it's, it's one of the key metrics.

19:56Yeah.

19:57Yeah.

19:57I, I realized it like four years ago when I asked people how many people, and this is

20:01a mortgage audience, no mortgage spreads, like two people.

20:03So I remember, so I'm like, okay, I got to teach this, but, uh, with the weekly demand,

20:08same thing as always.

20:09Housing has been very, very consistent when rates get above 7%, especially when they move

20:13up fast, housing demand slows down noticeably.

20:17We have not had a noticeable slowdown in our weekly pending home sales until rates started

20:22to shoot up, especially towards 7.60%.

20:25Uh, so the pending home sales data that's going to come out, uh, for the NAR should, uh, should,

20:30should be soft.

20:31Uh, but we're talking about the marginal home buyer, right?

20:34So it's not like purchase application or anything is going like significantly lower than where

20:39we've been.

20:39We've just been basically stuck.

20:42Rates get towards 6%.

20:43Housing grows.

20:44Rates get toward 7% and goes above.

20:47Housing slows down.

20:48We are stuck here around this 4 million level, very, very consistent where the builders on

20:53the other hand are still at 2019 levels, sub 6% mortgage market in 2019 levels for existing

20:59home sales is about one to 1.3 million.

21:01So a very, very fascinating, fascinating housing cycle, 2020 to 2022, the COVID period.

21:09And then after 2022.

21:10So I am just glad to be here with all the data that we have to explain it all.

21:15No, me too.

21:15And I'm excited, I'm so glad you're going to be talking to the builders today.

21:18What great timing with all of this data coming out.

21:21Um, lucky to have you, Logan.

21:23Thank you as always for being here.

21:25And just so everyone knows, I'm very appreciative of Logan.

21:30I don't, I don't call him those things because I don't appreciate it.

21:35Thank you again, Logan.

21:37Pleasure.

21:46You

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