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

00:10connection between housing inventory, home prices and sales, and how that might be changing

00:16in this economic environment. As always, I want to thank our sponsor Optimal Blue for

00:20making this episode possible. Logan, welcome back to the podcast.

00:25It is wonderful to be here and somebody, one of our listeners reminded me that the existing

00:33home sales monthly sales report is actually higher than the forecast we had for sales

00:40at 4.2 million. And I thought about, you know, one of the things that people saw is monthly

00:47supply grow, inventories growing, right? We're getting that seasonal. And in the previous

00:52decade, when mortgage demand grows, sales are somewhat elevated, picking up. Total active

01:00inventory in the NAR data never grew. It was slowly moving lower and lower. And I thought

01:08to myself, this is something that, you know, I try to teach people over the years, but

01:12it isn't common post qualified mortgage for active inventory and sales to grow together.

01:21It's actually the reversed. For many decades, what we do is crayon economics with our charts.

01:28We draw these really black lines. And in the previous decades, when sales grow in the mid

01:3480s, in the 1990s, even in from 2000 to 2005, that was a housing bubble demand curve. Inventory

01:45would grow and sales would grow. Then here comes qualified mortgage and here comes the

01:53millennials. And in this context, what happened was active inventory was slowly moving lower

02:01when mortgage demand grows, right? We wouldn't see active inventory grow with it. It's the

02:06first time in many decades. And I had always explained it in a very simple way. 70 to 80%

02:13of home sellers are buyers, but there's one group of people, right? That do not provide

02:19you a house. And they were the biggest home buyers for many years and millennials, right?

02:23They're mortgage buyers. So purchase application data would be rising from 2014. Inventory

02:29would be slowly moving down since 2014. So we would have these rising sales, but active

02:36inventory would fall. But now you have the case to where sales are so depressed and active

02:45inventory is not back to normal, right? Then the NAR's normal inventory curve is two to

02:50two and a half million. That's traditionally would be the case. 1.24 million. We're not

02:56even anywhere, anywhere close to normal. And we're not going to get there in that curve

03:02this year, but we can make a case that because sales are so depressed and inventory is not

03:10back to normal, you can actually have what we saw in the eighties and nineties and 2000.

03:15Hypothetical. Let's just, I'm not saying this is going to occur, but let's just say mortgage

03:19rates go down to 5.375 and stay in a range between 5.375 and 5.87. People will list their

03:28homes. You have more sellers that are buyers, active inventory, because we're not back to

03:34normal can grow in sales could grow. And this would be the first time, boy, I would say

03:40since 2000 to 2005, that this could occur. Which is like, that's my dream fantasy. That

03:49because, because that would mean that, you know, you couldn't have prices escalate out

03:54of control and you get more supply, which the reverse has been happening.

03:59This is why the whole like, oh boy, we're in trouble. Um, hello. And we might need higher

04:04rates here. This, you never, never want to have the 2020 to 20, early 2022 housing market

04:10ever again, because prices could escalate out of control and it's no one's really fault.

04:15We just don't have enough product. So it was, I, I saw a little bit of this last year. Now

04:22our tracker data is a little bit more prolific than the NARs. We're into the weeds more with

04:27a active inventory, weekly new listings, price cut percentages, everything. And I'm like,

04:33like last year, I was totally happy. I didn't get this in 2023 yet, but last year we were

04:37able to grow inventory, uh, price growth, cool down. Uh, we have more choices and allows

04:44a year to wages for grow household to form. And boy, you could just see it there. You're

04:49just at that point to where you could get growing sales and growing inventory. You

04:53don't have to worry about prices getting out of control. And that would be just a beautiful

04:58housing market, uh, that everyone can be happy with.

05:04So when you look at these, um, when you, when you look at this, is your price forecast still,

05:09um, you know, do you stand by the price forecast or has that changed any

05:12As of now, my price forecast again, like last year might be a little bit too low. Um,

05:20but we're still in the rage. Now, when we talk about price forecasts, the history of

05:25home prices, it kind of moves with inflation and like between 4.7 to 5.3% is the norm.

05:32Nothing, nothing abnormal about that. But the reason I don't like doing the inflation

05:37theory, by the way, there's like people that like forecast, but I, I'm not a big believer

05:42of like two year forecasting or, you know, some poor, some poor wall street firm had

05:474% mortgage rate forecast in 2025. He did it in 2023, you know, and I totally get it.

05:55If you really believe, if you really believe that we were going to go into a recession,

05:59then yeah, you could, I mean, in theory you could, you can make a case there's a four

06:02handle, but I just, I never thought that to be very useful. Things change, man. I mean,

06:08uh, um, and you kind of got to go, go with the new data and you forecast so far out.

06:15But last year my price forecast was a little bit lower than everyone else's. Um, and how

06:21do I explain that? Well, I'm not a mortgage rate lockdown person. I believe active inventory

06:25could grow with higher rates, right? And then price growth can slow down in that, in that

06:30environment. I thought I was going to be right. I thought the curve, my whole model curve was

06:35working and I was like, okay, it's going to work. It's going to work. And then mortgage rates went

06:39lower. Right. And even in the seasonal soft period, uh, the price growth actually firmed up.

06:46And because of that, my, I lost my curve and we ended up, you know, depending on who you're there,

06:51there's so many different price, uh, uh, people between Zillow, Freddie Mac, Fannie Mae,

06:56Kay Schiller, everybody. But, uh, um, it looks like 4% home price growth. So I was off by, uh,

07:02but roughly like my 1.7%, uh, percent, but here I was even lower than last year, 1.77%. And while

07:10why active inventory can grow, um, uh, with that, the price cut percentages with elevated rates can,

07:19uh, uh, stay elevated and the price growth can cool down now. 1.77 is that's back to back years

07:24of real home prices being negative. But here, if rates actually went down to 6%, you could get

07:31active inventory to grow in prices. Won't like get out of hand on a national basis. And I always say

07:37this, um, I always put into consideration Texas and Florida and, uh, parts of the U S the States

07:45that, uh, are dealing with a little bit different issues than other, uh, parts of the, uh, uh,

07:51country, uh, Mike Simonson does these great webinars where he talks about, uh, uh, like a,

07:58kind of a quarterly update and gives people an idea about where the pricing curve is.

08:02And what, what I do is I try to calculate, well, if Texas and Florida are the States that are

08:08trouble with pricing and everywhere else, those go into the equation. And we, we always highlight

08:14this. If I take 2007 to 11 out of the equation from post-World War II, we only had one year

08:20nationally where home prices fell was 1990. It was 1% only, but, um, a lot of that had to do with

08:27Southern California. Uh, the economy back there was, wasn't very good. And that allowed the curve

08:33to go lower. So we've had so many years where we were like at zero home price growth or one home

08:39price growth. And that traditionally what happens after you have a very hot period of home prices,

08:45there's, there's basically a very, very low period where in theory, real home prices are

08:51negative. You don't see it much nominal home price growth. And I'm, I'm running off of that

08:56out here. So active inventory growing and sales growing. Oh, Sarah. I mean, I'm telling you

09:03that would be the most perfect year. Uh, I saw glimpses of it last year and, uh, but, uh,

09:10rates didn't stay low enough, long enough to really grow sales. But in this case, I could

09:15just, I'm seeing here, I'm looking, okay, it's year to date purchase application date is positive,

09:20right? If rates just go down to 6%, it doesn't take because you're, you're working from so

09:25such low levels and you can actually grow sales at inventory. And that would be like,

09:31out of all the years I've worked in housing, where that would be the perfect year.

09:35Right. And, uh, uh, what I saw in 2020, you know, 2021, 2022 was not what I consider healthy,

09:43but last year healthy, like we're getting, we're getting back there. But if you can grow sales and

09:48have inventory grow and prices, price growth is very tame and normal. That would be perfect.

09:54That would be perfect. You know, it, it's interesting to me, inventory and home prices.

09:59I mean, we know people who, um, you know, they put on social, like

10:02there's 25 people standing outside this open house. That still happens. That's still happening

10:06in different markets, depending on where you are. And on the other hand, you have markets,

10:10maybe like Austin where things are staying on the, on the market much longer. And you're seeing

10:15prices, uh, come down quite a bit. So, you know, from your perspective, that national home price,

10:22what is the best use of that when, when you're out there and you're running a business?

10:26You always, you always go off of your, your, your local market, but in general contexts,

10:33right. If national home prices are falling, you know, there's something, there's something wrong

10:39with the economy. That's, that's basically, it's 84 years of, of macroeconomic data out there.

10:45Uh, it's cause it's, it's really rare for home prices to fall. So 2007 to 11, what happened?

10:51Credit boom, credit bus foreclosures. And, and, and how I, how I try to explain it is

10:56if you look back in that marketplace, we have 4 million active listings in 2007.

11:01Then it started to fall, right? A lot of people, uh, keep on saying, well,

11:05well, inventory was falling. It was inventory was up here, but the homes that were coming

11:09onto the market were all distressed, right? That's why we always highlight the new listings,

11:14new listings data back then 250 to 400,000 per week or per week per, I mean, it's, it's

11:21funny thing is the new listings data, the peak in the last five years was like 91,000 one week.

11:31Wow.

11:3291,000. Even if I doubled that wouldn't be the lowest level of the, like the 2008 to 2012,

11:40a new listings curve, because they were forced credit sellers. When you, when you're underwater,

11:46your foreclosures or bankruptcy shorts or whatever it is, you are not a functioning

11:50housing market because that was nationally, uh, uh, an economic story. It's not the case.

11:58And we always highlight like back then 23% of the homes plus or underwater record lows,

12:04allow the loan to value. This is the killer one. Uh, the loan to value back then with the people

12:11that do have mortgages for 40% of homes don't have a mortgage, but it was like 85%.

12:16Yikes.

12:16So you didn't have much wiggle room. The crazy thing is like, I can do all these crazy stats.

12:21The average down payment now is 18%, you know, for a house. So the LTV values actually would be,

12:30uh, negative, uh, uh, if we had like very, very low down payment loans, but at 18%,

12:37that's a lot of nested equity. So then of course, you know, a lot of people make the big,

12:42FHA, there's a foreclosure crisis guys. 2007 to 11 was a foreclosure crisis. We've had

12:48decades and decades of recessions without having crisis. Not everything is going to be a crisis.

12:53Okay. So, uh, the loan to value at 40, 46.6. Oh, it's like, if I was, if I was a bearish Chinese,

13:02Russian or Iranian or an anti-central bank person, and I actually read housing data and

13:07I'm sitting there telling people home prices are going to fall 40%. I'm, I'm cuckoo. I'm gone.

13:14I'm gone. I'm, I'm Jack Nicholson's in, in, in what flew the nest, but, uh, a different marketplace.

13:21Each, each cycle is very unique in its way. Um, Austin is a really good example.

13:27Somebody asked me about Austin like a year ago. And I remember telling him, imagine if America

13:32went up 76 and a half percent in home price growth in two and a half years, 76 and a half,

13:38because that was Austin. But you went from a 3% mortgage market to a 7% mortgage market.

13:44But imagine if America needed foreigners to come to your country to buy homes because

13:50Austin needs migration, right? Cause it's, it's elevated. So the areas that need migration,

13:57if migration slows, you have less buyers, your pool of buyers have to come from the local

14:04economy. And does your local economy really have the wages to offset, you know? So, uh, that's

14:10another variable that, uh, you have to go into it. And of course, Florida, I mean, I let's be honest

14:17here. Florida wants to, uh, get rid of property taxes. And I was actually, uh, I saw, I was, I,

14:24I watched a DeSantis, uh, speech on, on Instagram videos. It just popped up. I was like,

14:29how'd you get here? And I can see where he's going at, you know,

14:34migration slowed in Florida and homeowners are mad, but the local population, if migration slows,

14:42the local population has to do the bulk of the buying and insurance. I mean, they, they are

14:47allowing insurance to come in charge as much as ever. So they have coverage, but the costs are up.

14:53So in that context, I totally get what he's doing. He's trying to get the cost of housing

14:59down for homeowners and home buyers, because if migration slows, right, he's got to, he's got to

15:05find a way to get people to come here. And he's got to find people within the, uh, um, um, the,

15:12the intricacies of the local economy to, to, to buy homes. And that, that had been the problem.

15:18Of course, Florida has this condo issue that is, is very, it's much different than other places.

15:23Then the condo market is in a lot of areas where I think anybody who knows the mortgage industry,

15:29boy, those condo approval projects for certain places, man, you're just,

15:33you know, you're going to be rough. Yeah. You're not going to, you're not going to get it. So you,

15:38you limit the, uh, ability to buy homes, uh, get mortgage buyers in that situation.

15:44Okay. So contrast that with what the, the insurance situation in California, right?

15:50Both coastal areas, uh, both have some, you know, obviously coastal California,

15:55some of the highest priced real estate in the whole nation, but they were like, Hey,

16:00you can't raise prices. So you had, first you had, you know, insurers leave, then they said,

16:04okay, we can, you know, we will, we'll have a different system, you know, state farms back in,

16:10but it's like, okay, we want to raise it like this huge amount after the fires. And they're like,

16:13no, you can't. So it's, it's a really interesting situation that the contrast there between Florida

16:18and California. That virtually unhealthy in that sense. Um, it's, it's one of these things where,

16:27you know, you, you, you talk about fires and hurricanes and tornadoes and, and, you know,

16:34you're, you're, you're getting to the economic side. That isn't just the destruction side. It's

16:40the ability to ensure. And I just, I don't know where FEMA is going. Uh, I don't know where the,

16:49what, what in general is going to be how the federal government works, uh, for this. Uh, so

16:58it, it's, it's, it's going to be, it's going to be interesting over the next few years to see,

17:02like, I want to see what, what is, what does FEMA look like after Trump gets to do his thing

17:07to everything? And, and is it good? Is there going to be like, well, if we give you money,

17:14I could totally see this happening. We're not going to give California any money unless X,

17:19X, X, X happens, you know? Yeah. So, so it is, it's, it's fascinating to, to, to see if, if,

17:28if that's the case. Um, and there's a lot of rumors and speculations of what's going to happen

17:33with Freddie and Fannie out there. Uh, uh, and we're during a phase where we're not, we were

17:42always kind of somewhat sure of what the government role was, and we're not sure what the

17:47government's role was. And in regarding an insurance, uh, if your insurance company keeps on

17:52raising, raising prices, but you know, a lot of these States and cities were always banking on

17:59FEMA coming in, you know, they can't, they can't fund it. And, and one thing about California,

18:04they, you know, I remember in 2014, I was at the BNY Mellon stock conference in California. And

18:12that was my first presentation with Bloomberg financial back then. Uh, and I said that 82%

18:19of the working population in California is priced out of housing. And that was 2014.

18:25That was 2014. It's, it's basically still stayed the same because if you're buying a house in

18:30California, you really make three times more the income. So I think the, the income back then was

18:36like 60,000. So I was, I was like, homebuyers like, don't make that homebuyers make a lot more.

18:41So if people want to know like, how are, how do we have 5 million home sales? Homebuyers always

18:45made a lot more, right? That's why I'm not the biggest fan of like median income to medium price

18:50thing, you know, cause it doesn't, it doesn't equate homebuyers, especially dual household

18:54incomes, uh, in California, uh, make money. But in this context, the affordability issue

19:02gets much worse, right? With insurance, because insurance keeps on going up higher and higher.

19:07You don't know when this is going to end. And I think that's, that's the thing going out.

19:12A lot of people say, well, the bulk of the insurance costs are, you know, already in,

19:19and it'll slow itself down. You don't know how many fires and hurricanes are coming. And if FEMA

19:24is not coming in, in the future years, what do you do? Like what, like how do you, how do you

19:30operate? And that's why when we did that, or when I did that interview with Yahoo early in 2024,

19:37there are just some places in America that homebuyers just say, no, I'm not going to deal

19:42with it. If I can't get insurance and my insurance costs is here and FEMA is not going to come in,

19:46I'm, I'm, I'm not risking my families. You know, I'm going to go somewhere where

19:51I'm not going to get fires. I'm not going to get a hurricanes. You know, I can go somewhere cold.

19:56Where is that? I mean,

19:58Boise, Boise. I, Oh my, I I've been to Boise twice. I love it there. I was like,

20:04if there was one place I would move to, I'd be going to Boise, but, um, the Midwest, you know,

20:10Ohio, Ohio, Illinois, those areas are, you know, affordable and you, you don't really have like

20:21the natural, no, we just did a story that hailstorms are the new hurricanes, as far as

20:26how much it costs and how much your insurance is going to go and Midwest, but your house,

20:31your house is storm central. Your house isn't going to get destroyed within like 30 minutes.

20:38True. It's different. It's different with hurricanes and fires, Pacific Palisades burned

20:45down in a very short amount of time, you know, a hurricane could just, you know, so it's different

20:52because what are you going to do? You can't do anything in regards to that. Your, your house

20:56is pretty much destroyed. And then the whole process of, uh, uh, you know, your children's

21:05school, everything. Do you really want to deal with that? I mean, if you're, if you're, if it's

21:09becoming more and more common, right, do you want to deal with that? And, and parts of their country

21:16that doesn't have those situations for some people, not everyone, but for some people, it just makes

21:21sense. Maybe Arizona. I don't think Arizona has a lot of natural disasters. I think the heat in

21:29Arizona is, is really the thing that some, some people don't like, but, um, but yeah, I mean,

21:35there's, there's, there's parts of the country that just aren't prone to hurricanes and fires.

21:40They're cold, they're hot, but you know, they're not, um, they don't have the natural disasters.

21:48And if this gets worse as time in history, if it starts to get more common that these things

21:54happen, there's a higher risk that you lose your house. So true. Logan, thank you so much for being

22:01on. We have so much going on. I know I'll talk to you again very soon. Thank you for your time today.

22:06Always instructive, always insightful. Pleasure to be here, Sarah.

Logan Mohtashami: Can housing inventory and sales grow together?

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