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Logan Mohtashami on housing market economics

This week, HousingWire’s Editor in Chief Sarah Wheeler interviews Logan Mohtashami, HousingWire’s lead analyst, to discuss how the housing market performed despite impacts from the COVID-19 pandemic.

Additionally, Mohtashami dives into his most recent HW+ article that asks: should Americans buy a home in a super-hot housing market?

Here is a small preview of the interview, which has been lightly edited for length and clarity:

Sarah Wheeler: Housing market demographics is one of the hallmarks of your work and what you’re looking at to predict what’s happening next. So, tell us why 2020 to 2024 is so unique and why that informed your whole model.

Logan Mothashami: So, if economics is demographics and productivity, then housing economics is really driven by demographics and mortgage rates. So, coming from the weakest housing market recovery ever, the labor force peaked in 2007 and declined. Household formation has to work itself up because demand will never warrant it, which is probably my biggest disagreement with every economist and analyst who thinks we don’t build enough homes. Builders only build off of their own demand curve. It was the weakest new home sales cycle ever recorded in history; 2013 was a miss, 2014 was a miss, and 2015 missed estimates. In 2018 the housing market had a supply spike, but builders said it was the worst quarter since the great financial crisis: there was not only an 82% crash in new home sales, but we had the weakest recovery. However, come years 2020, you got a little bit more buyers, you have a little bit more demographic buyers than you had in the past. So, that should kick in and demand should pick up a little bit. That’s it, there’s no credit boom, you just have a little bit more buyers coming in. So, the demand should be there and stable. This is why I use the term replacement demand, stable demand. If I use the word boom, I need to show a credit boom and we don’t have a credit boom, just look at the purchase application data from 2002 to 2005. Compare that to 2018 to 21. No, it’s not credible, you just have people who just want to buy homes. That’s it. That’s all it is.

The Housing News podcast explores the most important topics happening in the housing market, mortgage, real estate, and fintech. Each week a new mortgage or real estate executive joins the show to add perspective to the top stories crossing HousingWire’s news desk. Hosted by Sarah Wheeler and produced by Alcynna Lloyd.

Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:

Sarah Wheeler: Welcome, everyone. This is Sarah Wheeler, editor-in-chief at HousingWire, with the latest episode of our “Housing News” podcast. I’m excited to introduce our guest day today, which is our very own lead analyst Logan Mohtashami. Logan, welcome.

Logan Mohtashami: It’s good to be here.

Sarah Wheeler: Great to be here. Unlike some of my podcast guests, I know you fairly well. We worked together and so this will be fun. We’re gonna start out, the way I ask everyone, the way we start all of these, which is how did you get into this business, right? But with you, it’s a little bit more complicated because, you know, really which business are we talking about? You are a lead analyst, but that’s informed by your years of being a mortgage loan officer. So I would love to understand the story of how you got started in the mortgage business and then how that led to your really…your economic work.

Logan Mohtashami: Well, my original plan was to actually be a high school basketball coach in the previous century and to teach history as well. In 1996, I got into the stock market. Somebody thought, you know, it might be a good area for me. And then my family’s had their own mortgage company since 1987. So I got into both, in 1996. Been doing mortgages as a loan officer since 2004.

And then about in 2010, somebody from Benzinga, Jason Raznick actually saw me on Facebook and I was debating economics with a CNBC anchor and decided, “Would you like to write about political economics?” I’m like, “No. I think I could write about real estate though, because, you know, I think I could provide some information there.” One thing led to another, I created my own blog, and then after, you know, 10 years, you know, just started to become more of a data analyst, not just for the housing market, but for all economics. Right around about 2015, 2016, I changed it up and retired from the mortgage industry last year, so basically all I do is look at charts now, for the rest of my life.

Sarah Wheeler: Well, we appreciate the work that you do there. And really, I just have to back up a little bit and say, you know, you’ve been a contributor at HousingWire for years, and last year, you know, obviously, we were confronted with a really different kind of economic conditions coming down with the COVID vaccine and your economic work really took on, I think, even more importance. And last year, you wrote something on April 7th, about the…America is Back model. Before that, you talked about the chaos theory in the housing market. I would love for you to kind of recap what you saw and what made you really alone among economists to really see that we were going to have a recovery faster than some other people thought.

Logan Mohtashami: Well, you know, my prize, even though people know me for housing, is really tracking economic cycles. I think the world has become almost like a professional grifter area, with all these social media sites. And I didn’t see information being valid. I saw ideological takes, whether they’re right-wing, left-wing, stock traders, ideological, economic people. So I said to myself, no matter what happens, priority number one is to talk about the economic recession and expansion. So I created this six recession flag model to kind of give people a guideline.

And the most unique thing happen is that the economic data itself, toward the end of 2019, was getting better. The first two months of 2020, data was get actually much better than even I thought. But, you know, the chaos theory, when I wrote that in February, was that, you know, if this event happens, kind of, you know, if COVID actually comes, there’s nothing you can do about this. You know, the economy’s going to shut down, we’re going to go into recession, bond market’s going to go lower. Stock market’s going to go down, but don’t overreact, right? And there’s my kind of theme in the macroeconomic world is this is not 2008. You don’t want to get into 2008 mode. And what I’ve seen is that everyone, whether it be housing, stock market, labor economists, everybody got stuck in 2008 mode.

So about a few weeks into the crisis, I thought, okay, let’s create this model. This is a once-in-a-lifetime opportunity. You can run and scream back in the villages while the demons come, or you could confront it head-on. So I designed a few things for people to track. I gave a few dates as well. I think that was more important, you know, that, you know, by May 18th, we should be stabilized. And a lot of the reaction to COVID was fear, right? You know, the hoarding of toilet paper, the, you know, hoarding of water and bread and people panicking. Naturally, of course, it’s… I mean, in our recent modern-day history, it’s our first global pandemic. And a lot of people, again, stuck in 2008 mode. Housing is going to crash, 70%. Unemployment is going to go to 30%, all these oppressions. So I said, let’s do this the correct way. Let’s give people dates, things to track, and convince them that they have to go with it, right. When the data gets better… Because what I saw in the previous expansion is that the housing market data was getting better, but the ideological voices took over.

So in that point, I thought, let’s do it this way. Let’s just give people these few things to track and then, piece by piece, month by month, week by week, you know, let’s show them all the way to the point to when we could shut the model off. And that came in December 9th of last year, the last thing was the 10-year yield needed to get to about 1% in 2020. And it did. And then the final nail in the coffin was that we need to create a range on the 10-year yield between 1.33 and a 1.60. And by that time, everybody who is a functioning human being would realize that the depression didn’t happen, the recession is over, and now, we’re going into this expansion.

And it meant a little bit more to me because it’s years 2020 and 2021, right? This is the beginning of the housing demographic patch that I’ve always talked about, household formations getting better, balance sheets. That’s been a big topic of mine over the years. Household balance sheets just look a lot better this time. Loan quality is much better. There’s not going to be a housing market crash. So let’s take them all out. Let’s take the housing bubble boys out. Let’s take the extreme right-wing, left-wing bears, whatever is left in this society. Let’s document this.

So a hundred years from now, when they look back and go, well, who kind of didn’t think this was going to happen? That’s why the historian in me made sure to document this over and over and be repetitive. Repetitive, it’s very boring. It’s not sexy, but it’s the right way to do economics. And I think that was, you know, forever, I think that that’s my work right there, because that was a once-in-a-lifetime event, and documenting it and seeing it go through fruition and then getting to the 10-year yield at 1.60 this year was just… I don’t think I’ll ever be able to replace that because the opportunity hopefully never happens again for our country.

Sarah Wheeler: And, you know, that’s a great point. I think that, you know, if people just started… If their introduction to you was this year or 2020, they might just think, well, oh, you’re just…you’re always on the positive. You always see it growing. But that really comes from your demographic, you know, study. And in the years, you know, up until 2020 and 2019, you weren’t saying that. So it’s not just that you’re always seeing the housing market go up. You’re not one of those people that are like, “Oh, buy now, buy now, buy now.” So explain kind of what the demographics tell you.

Logan Mohtashami: Yeah, it’s funny. I have a recession model. You know, the basic English language is if somebody has a recession model, they cannot be perma or anything. But in the society that we live in, people are trying to get attention. Right. And my kind of work is very boring. It’s not very… It’s just basically looking at data and the numbers itself. So three of my six recession flags were actually crossed off already. So I think the big mistake everyone made is that people assumed we were going into a recession in mid-2019. And then, I mean, just the basic ability to visually see data and have the literacy to read, you can see that the data was getting better. I think that’s where a lot of people whiffed because they couldn’t acknowledge the fact that the economic data was getting better, especially the first two months of 2020. I mean, the leading economic index was at an all-time high in February.

But because of the violent nature of COVID, everybody just went into their doom-and-gloom phase and it was such an opportunity, right? This is a once in a lifetime. I’m never going to get this chance again. You have to get it right. So you have to show people a pathway to walk. You have to explain why. It’s not the actual answer itself, right? It is the why factor and explaining why. And for the housing market, it was really simple. You ran into the best housing demographic patch ever recorded in history coming from the weakest housing market recovery ever recorded in history with sub-4% mortgage rates, with over 133 million people still working. No, housing was never going to crash.

The housing bubble boys are a conspiracy theory, gypsy cult running around every day saying, “Look at me, look at me, look at me.” So we have to take these people down. And it’s historic, right? 2020 gets here 2021 is here, it’s over. Right? The worst-case scenario that people had hoped for and talked about last year is over. And for the rest of their lives, they have to live with that, because they chose to talk about that on whatever YouTube or social media, whatever it is, that’s the way they went. Not here, not what we did in HousingWire.

Sarah Wheeler: Now, I really think that’s an interesting point because really, before I started reading you, I guess I didn’t follow the same people on Twitter. And so I just didn’t realize there was this whole, you know, industry of people who that, you know, their job is…how they make money is telling people about the housing market is about to crash. But I know I’ve told you before, I mean, that has been a search term since I have started at HousingWire. And I started in 2013, and over the last five years, especially, it’s like, “When will housing crash? Housing crash 20…” whatever the date is, right? 2019.

Logan Mohtashami: It’s a doomsday cult. And most of these people are what I call anti-central bank fanatics. They’re gold bugs. They are people that, you know, the dollar is going to collapse. I mean, these are the great American bears of our lifetime, right? And they cannot change. Why? Because they’re old. Right? And when you’re old, you’re stuck in your ways until you die.

I mean, I literally say this, these people will walk the afterlife — no ears, no tongues, no eyes screaming that America is going to crash. And this is why my theme is that all American bears have failed since 1790. This time, we’re documenting them. So their children and their grandchildren could say, “Yeah, dad was crazy. Grandma was nuts.” You know? And then history will go on in itself because we’ve had people like this throughout history. This is not the first, you know. Every decade, every 40 to 30 years, always people that think America’s like this empire, like, you know, the British empire, the Roman empire, these are Dungeons & Dragons kids who’ve never grown up.

But there’s a way you can actually show people that they’re… I actually don’t even believe they believe this. Right. I would say that these people are long stalks. Most of them, if they really believed that America was going to collapse like they did, they wouldn’t be. So it’s more of a grifting. I think I’m unique in that sense where we specifically want to go after this group. And this was a time where everyone was all in, and then within five or six weeks, you know, if you look at the leading economic index, it bottomed down in April, and then it’s been rising ever since, right.

And you know, a hundred years from now, hopefully, they go back and they think, wow, there were some people that said demographics do matter. Credit matters. Balance sheets matter. The United States of America’s currency is the king dollar, you know. There’s a lot of things that are historic that we look back in this period in time, and it was just, to me, it was like a gift, right. You know, you have to get it and you have to knock it out of the park, and explaining the why factor is always the most important thing for me.

Sarah Wheeler: Well, you know, it was important for us. And the reason that we wanted to bring you on as a lead housing market analyst was really, you know, people are making decisions, big decisions based on the information that they get. We hope they come to HousingWire to get that information. They’re definitely going to get better information than, you know, their aunt or the crazy person on Twitter or whatever. And you’ve mentioned this, that, you know, people… And we still get this. Should people buy a house? You know, is this the right time to buy a house? But also, you know, the fact that people might have held their money and now, you know, like the housing prices just went up. So it would be a sad day if people were like, oh, the housing market is just going to crash. I better not buy a house.

Logan Mohtashami: Yeah. And, you know, for me, one of the great things that I saw in 2020 was that, you know, people always say, should you buy a house, housing is this. There’s a conceptual theory that why would you buy a house if it’s going to drop 10%, 20%, 30%? You would buy then. People don’t operate that way. Gypsy grifter cults operate that way. Right. You know, they are, oh, though, why would you buy…

I mean, the bubble boys, if you believe in the conceptual theory of a bubble, they need now… Home prices really have gone up almost 80% since the interim low in 2012. They need an 80% crash in a calendar year to warrant all the trolling of the United States of America that their lives are based on this…almost this fairy tale that one day, a lot of people who are doing well are going to sell you their homes at an 80% discount. This is a cult. This is what happens when you believe in a cult.

Now, I, again, believe that they are not…they don’t believe this. They’re just professional grifters. They’ve been wrong for so long. So naturally, of course, here’s COVID. Oh my God, this’ll be my cover. Now, housing is going to crash. And for the American people, after six weeks, to look the demon in the eye and say, “No, I’ve got my job. Rates are low. I’m buying a house.” Talk about an economic victory against some of the greatest American bears that we have seen in our lifetime. People went and lived, right? They bought homes. They’re having children. They’re doing things that they normally…

There was just about a six-week…okay, everybody pause. What’s going on here? Hey. And more Americans, and this is why I’ve always stressed this, more Americans bought homes with mortgages in 2020 and 2021, than any period from 2008 to 2019. Housing market demographics are a little bit better. I don’t believe in a housing boom or a credit boom or construction boom or anything, but they did it because they chose to live and not live in fear. And a lot of these people, they can’t change. They have to go to their graves thinking that America is going to collapse, America is going to crash. And that’s just who they are. So there has to be a counter, you know, there has to be a light to the darkness, right. But you have to show people why. Why did this happen? Why, you know…

And of course, getting ahead of people, you know, the whole forbearance crash bros, right, that we created last year. You know, it was designed… Knowing your enemy. What do the enemies do? They always move the goalposts to the next year? Well, the housing market would crash if forbearance wasn’t… No, demand is stable. Even my counterparts in other countries, they go, “Why are Americans so obsessed about crashes when demand is stable?” And that’s the thing. The demand was stable and it picked up and you don’t have it typically crash when demand is stable. So it was beautiful to watch in 2020 and 2021.

Sarah Wheeler: Well, it was really interesting to watch. And I know that, you know, we feel like this information is so valuable to our audience because they’re running mortgage businesses, whether they’re in, you know, real estate or in mortgage or in titler, or valuations or whatever, like the answer to these questions is their bread and butter. I mean, this is going to affect what they do. And so, you know, we felt like that was great.

I would love to ask you, you know, your background as a mortgage loan officer, how do you think that equips you differently to look at some of these things? Like the credit rating right now, people who are buying houses, like how does that background really influence your economic work?

Logan Mohtashami: I think debt structures is always number one in my book, in terms of… Post-2020, one of the things I’ve noticed that a lot of people thought lending is tight in America. No, it isn’t. We still have very liberal lending standards, but we lend to the capacity to own the debt. And because you lend to the capacity to own a debt, all of the loans that were created, that didn’t matter if you had a 780 FICO score, two people working full time, even equity in the house, those were not good quality loans because the structure of the debt. Now being in the industry, you could see this, how the debt is structured and what the consequences are.

Post-2020, it never happened. Now, there was a widescale belief, even today, that, well, people with under-640 FICO scores aren’t buying homes, lending is too tight. No, it is the exact opposite. When you lend to the capacity to own a debt, you shouldn’t see low FICO score Americans buying homes. Why? Because when you have a low FICO score, your cashflow is not good, which means that your credit card balances are too high, or you miss payments. Typically, homebuyers aren’t in that category. So the FICO scores, especially 620 and under, if you look at the originations, not much, right, even 640 and under, not much.

What has happened is…one of the things I’ve always talked about, homeowners have this benefit — fixed low-debt costs versus rising wages. So one of the reasons why the housing bubble boys aren’t going to get their 80% crash is that these households have never looked better in their lifetimes, right? They have fixed low debt costs, rising wages, cashflow is good. 747, 760, 780 FICO scores on all their originations are blown up higher. And that’s the important thing. That’s the quality of the credit balance sheets. Going into this crisis, that is another factor that, in 2008, you didn’t have that. In 2008, your primary age labor force, it peaked in 2007, it was declining. That was a really big deal in economics, doesn’t get talked about still today, and then balance sheets needed to be deleveraged. We didn’t have to deleverage anything, right? It was there, it was nested equity.

I mean, I always say whistle at homeowners balance sheets, because there is nothing more economically sexier than that. That thing is as good as it gets on a historical basis. And it is, again, the exact opposite of 2008. So a lot of people put their eggs in this basket since 2015, the silver tsunami, in 2016, the bubble crash, whatever it is. And then in COVID was their last great hope, the collapse of America, right? The collapse of housing, the dollar. And it didn’t happen in… The way we recovered so fast, right? The way we got the 10-year yield at 1% at 2020 the year, the way we got the bond market to rise up. And it is a historical victory for the United States of America and its people and a damaging self-destructive mindset of some of the greatest fanatical American bears we’ll ever see in our lifetime

Sarah Wheeler: Your passion for the subject comes through, your enthusiasm and your optimism, which is, you know, it was really great to see last year and great that it was founded not just…that’s not just your personality. You’re not just like, “Hey, I just love to be positive.” You were looking at indicators. So let’s look at one of those right now, which is demographics is one of the things…is one of the hallmarks of your work, of what you’re looking at to predict what’s happening next. So tell us why 2020 to 2024 is so unique and why that informed your whole model.

Logan Mohtashami: So if economics is demographics and productivity, then housing economics is really driven by demographics and mortgage rates. So coming from the weakest housing recovery ever, right, you know, primarily age labor force peaked in 2007, a decline in household formation has to work itself up and it’s years 2020 to 2024, that I talked about, two things should happen, only then…which was really hard to convince people in the last nine years that this was going to be the case. Housing starts will never start a year at 1.5 million because demand will never warrant it. So this is…

Today, my probably biggest disagreement with every economist and every analyst is that people think we don’t build enough homes. Builders only build off of their own demand curve. It was the weakest new home sales cycle ever recorded in history. 2013 was a miss, 2014 was a miss, 2015 missed estimates, 2018, we had a supply spike. The builder said it was the worst quarter since the great financial crisis. There was not only an 82% crash in new home sales, we had the weakest recovery.

But come years 2020, you got a little bit more buyers, right? You have a little bit more demographic buyers than you had in the past. So that should kick in and demand should pick up a little bit. That’s it. There’s no credit boom. There’s nothing. You just get a little bit more buyers coming in, so the demand should be there, should be stable. This is why I use the term “replacement” demand, stable demand. If I used the word “boom,” I need to show a credit boom. We don’t have a credit boom. Look at the purchase application data from 2002 to 2005. Compare that to 2018 to ’21. No, it’s not a credit boom. You just have people who just want to buy homes. That’s it. That’s all it is. These are people who make good money, so they have two choices. They either rent or they’re homeless. So guess what? You’re not going to be homeless and renting, well, guess what? I could afford a house. I could own a home. And that’s what it is.

And part of the discussion in 2021, the reason why my tone has changed so much saying this is the most unhealthiest housing market, you know, I’ve seen 2008, we have an inventory shortage. So when you have an inventory crunch, like we do, it seems like demand is booming because we see these 30 bids, 40 bids, 50 bids, you know, for a house. That’s only because the supply is this low. It’s not because demand is like booming crazy. And because of that, we have unhealthy price growth and it’s happening in a year that we should only be a little bit higher in existing home sales than last year. And, for me, it’s like guiding people to the moderation. Right?

Last year, I said, well, housing data went parabolic. It never goes parabolic, guys, trust me, where, you know, existing-home sales are not trending at 6.7 million. Trust me on that. All it was was make-up demand. So we got to get sales back down to below 6.2 million. Two months ago, I talked about, we’re probably getting a few prints under 5.8 million, 4 million. I talked about it before the last existing home sales report. It didn’t happen, but we’re going to get that and we should be a little bit higher. Eventually, all this wild economic data will find a base. And when we find that base, we’ll work it off there.

But the price gains that we’re seeing, to me, are unwarranted because it’s an inventory shortage. Not because, you know, demand is just booming crazy. And that’s why I say it’s the most unhealthiest housing market, because, you know, I talked about this period, if we get just five years of just 23% annualized home price growth, that’d be great. We survived it, because I’m worried about, guess what, you know, it’s actually 2022 to 2023 that I was more worried that inventory would get to these levels. COVID-19 in itself has created an unnatural economic marketplace.

Forbearance, of course, is coming down. We’ve already cut it in half, but naturally, if you had those…no COVID in that situation, some of those would have been seller, someone… It would have been more fluid market, but mortgage rates have always been our stabilizer, right? When rates get over 4%, I know it seems low, but it’s always stabilized prices. We don’t have that now because of COVID. We have unbelief economic data. If you look at the United States of America, it just zoomed through this crisis. And the world is desperately trying to get their economies ready and going, but they can’t catch up to us, so we have this really solid economic data. We have low mortgage rates.

So this is why it’s very unhealthy because we have an unnatural economic event and our economy is on fire. So naturally, the bond market should be higher, and mortgage rates should be higher, but even for myself, who is more bullish on the United States of America than anybody, more bearish on the bond market than everybody, I still have only capped my 10-year yield call in 2021 at 1.94%. Because again, we’re dealing with the world economies now, and United States is the only economic growth superpower really left. So we lead everyone out and everyone’s going to have to come up and catch us or be more stabilized.

And Europe can’t, right. Because guess what? What does the United States of America have that a lot of other countries have? We’ve got young workers. We have young replacement workers, primary age labor force growth, United States, next three decades, positive. China, no. Japan, no. Europe, no. Right. It’s only us. And that doesn’t change. Whatever you think of immigration and birth rates or everything, it’s irrelevant to the fact that the millennials are big and so are Gen Z, right? So when baby boomers leave the workforce, right, and eventually they die, you have replacement workers, replacement consumers. It keeps things at a… It isn’t this booming aspect, but it keeps things that may were… Other countries, right, Europe really hasn’t been able to grow itself because too old, they don’t have a really massive young demographic force to replace them.

So that’s our advantage besides the fact balance sheets are good. We have the reserve currency of the world. So yeah, it was just like COVID-19 versus the United States of America. In my timeline, I have to defend my keep. This is it right? This happened right at 2020. I’m like, wow, this is an opportunity to show people why we’re going to do this. Because if you can’t show people, you can’t explain why, then you know, you let the fanatics run around and just say just whatever conspiracy theories they want. So you always want to be the detective, not the troll.

Sarah Wheeler: That’s one of my favorite phrases that you say often in your stories, be the detective, not the troll. And I think you’ve given people some good ways to do that for themselves. So I’m going to come back to Gen Z. You mentioned Gen Z, but right now, I want to ask you something. And that last bit that you were talking about, you mentioned low inventory. So if we have low inventory, why is it that home building is not the answer for our low inventory problem?

Logan Mohtashami: Well, builders build off of their own demand, not the existing home sales market. That’s the one thing… I wrote about that supply. How do we create supply in 2021? Just to let people know that when rates rise, right, and the builder supply picks up, we’re already seeing, you know, I have always made a rule of thumb… When monthly supply is under 4.3 months, life is very good for the builders. Why? Paper, rock, scissors, rates beat lumber, always. Right? And you can see this, like, I mean, legitimately, this was a very honest question. A lot of my trader friends were like, well, how are new home sales and housing starts going with lumber, because the demand is there. Right? So think about, for the new home sales market, they have to deal with all this input costs, you know, and they’re still selling homes. Why? Because they’ve actually really benefited more… In the previous cycle, people always said, well, the builders are benefiting because there’s low exist-…

Listen, the low existing home sale inventory myth, if you haven’t got it by now, it is a marketing lie. From 2013 to 2019, whenever there’s a miss-sale, go to the videos, you see, there’s just no homes to buy. We have record… No, there are plenty of homes. Why? Because in 2020 and 2021, when total inventory levels hit all-time lows, we have more sales. So from 2013 to 2019, there was always homes to buy, days on the housing market, it was over 30 days. It was a more healthy housing market. Here, the builders just really took advantage because new home buyers are older, they’re wealthier. You know, they, you know, I’m going in. They’re a mortgage buyer, majority of the markets, so they’re going into buying those.

Eventually, in time, when rates rise, it’ll impact them. And if supply gets too high, they’re just not going to build enough. Right. It’s an inefficient housing market because you’re asking a small portion of the economy to build against this massive, massive existing home sale market, which is 141 million units. So we’re going to get this, right. There’s no catching up. Demand has to allow it. And we’re already seeing supply creep up a little bit. So it’s good… I mean, there’s nothing extremely terribly wrong about the new home sale market and housing starts, but you could already see some pressures coming into the system.

So that’s where my fundamental belief has always been…which is different than everybody. Everybody says, you just got to build more homes. You just got to build… Builder’s like, “Hey man, it was the weakest new home sales cycle ever. We’ve consistently missed estimates.” The builder stocks were down over 30%, 35%, 40% in 2018, when mortgage rates got to 5%. They don’t build when supply gets like that. So there is a real big disconnect, I think, from the academic world and the business world, and maybe some analysts world. You’re asking these people to do too much.

Now, if you want a deficit finance, you want the federal government to say, “We’re going to pour in a lot of money and we’re going to build them. You guys just build them, we’ll find labor or whatever needs to happen because construction productivity is terrible. It’s the worst sector we have in the United States of America.” If you want to pay them to build, they don’t care. They just want to get paid. However you want to handle that, that will give you, you know, when things get slowed down a bit, you’d still have building production, but we don’t have that system in place. So don’t hold your breath for that to come out anytime soon.

Sarah Wheeler: So lumber costs have been…and actually, costs of all sorts of building materials, appliances, you know, we have a lot… Is that something you’d like to tell us about? Do you track those kinds of things?

Logan Mohtashami: My whole thing on Twitter finance, for my trader friends or macroeconomic friends, is that watch out for the inflation playbook. And one of the things I do is I like to show a chart of inflation back in the Great Recession, you know, it bottomed out, very low prices, and then it had some really high percentage gains. But that was from like 2008 to 2012. Imagine the sharpest V-shape recovery ever recorded in modern-day history, with a global pandemic that has shut off production levels to be fluid, you’re going to get some crazy prices, right? I mean, I put my money where the mouth is. I basically retired betting on inflation taking back up again. In time though, that should moderate. And we already see lumber prices coming down.

Once the world starts producing normal again, especially here, it’ll work itself out. I don’t believe we’re just one of these fast-growing inflationary countries. So the inflationary data should slow down over time, once production and everybody’s working again. But short-term, boy, you could see these really sharp prices because demand just came right back up. I mean, you know, so the production levels are not there, still not there, but they should be able to work themselves out in time.

China’s no longer a fast-growing economy in the sense that their GDP rate of growth has been falling. Europe doesn’t grow that much. We are leading everyone out of the recession, but even we have limits. So it’s going to be really crazy, like all economic data’s going to be crazy until we worked out all the extremes. But in time, inflation should calm down from what it is, because we just… We have the ability to produce enough goods and services when the whole world is working at kind of a full capacity.

Sarah Wheeler: Well, this goes to my next question, which is you just wrote an article this week for us, on “Should you buy a home in a super-hot housing market?” which is right where we are. And we want to, you know, you and I talked about this article and the way we wanted to do this, because we know that real estate agents are hearing this, lenders are hearing this, and anyone involved in housing, people are asking, “Is this the top? Should I not buy? Is this as good?” At the same time, there are people who are, you know, feel like they missed out and feel like there’s still room to go. So, you know, how did you… I thought you were very diplomatic in your answer to that. I’m just going to give it to you. Should people be buying right now?

Logan Mohtashami: So this question is always asked, and I’ve always hated the question, because I honestly don’t think people care. I don’t think people care to experts, because if they did, we had the greatest detrimental short-term housing market event ever recorded in history. You had people screaming about prices falling 40%. You had people like Suze Orman, major following, don’t buy a house until December because home prices will fall 50%. How do you get that number? What is she talking about?

Americans, but we said this, are not soft people, right? They got right back up in six weeks and they bought homes. A homebuyer to me is always ready. They know. Because you don’t ask another adult should you buy a house? You’re a grownup. You know when to do it, because you know your own finances better than anyone, better than the bank, better than Suze Orman, better than anyone else. You know this. So why are more Americans buying homes now than the previous cycle? Because there’s a little bit more of them, and they bought homes. And that, I don’t think, is going to change.

So you have to look at your own finance, right? And you think about, am I stretching myself? And then you have to make that answer because everyone else is buying homes when they’re ready. Right. They are. They don’t care about you. They don’t care about Suze Orman. They don’t care about me. You have to be an adult. Right. And if you have to ask…like somebody on Twitter a few weeks ago said, “Should I buy a house? Do you think I’m ready?” No, I don’t think you’re ready. And that person got all mad. “Well, how do you know that? You don’t know me.” Of course I don’t know you. You have a fake Twitter account and you have a picture of a horse, of course. But if you’re asking another grown man, you should buy a house, you’re not ready. You sound like a renter to me. You sound like a lifetime renter to me, actually. And the guy got so upset, but it was true. If you have to ask another person permission or an idea to buy a house, you’re not ready.

Americans, when they’re ready to buy a house, they’re in, right. They look at that payment, because that’s what you’re buying. That payment is what you’re sleeping with at night every day, you’re waking up in the morning. Fixed low-debt costs, rising wages. That’s why Americans buy homes. Right? They’re ready. If you have to ask someone, no. That’s why I’ve said that. When people just… They don’t really fall. I know the fear in great people like they do, but they don’t, because Americans aren’t soft people. They’re pretty much bad-asses. And they show themselves during 2020 and 2021. Right. You know?

So you have to look at your own finances because Americans don’t care. They will buy that house before you do. Right. Because they are ready, because credit, even though it’s liberal, you lend to the capacity to own a debt. And that means you don’t have to worry about maybe an overextension or anything in that regards to where, you know, we’re just coming off a recession. So we’re in it early, in expansion, all that stuff is taken care of. But you have to look in the mirror and you say to yourself, “Am I ready to buy that payment?” That’s it. Your kids are going to go to school. You’re going to have dinner at your house. It’s all it is is a house. It’s the cost of shelter.

If you’re worried about home prices falling 50…you’re not ready. You should, in fact, I’m telling you, you should probably be a lifetime renter. Why would you want to live in a home when you’re petrified about prices falling 50%? The quality of life goes down. Right? And I just don’t think people think like that, because guess what? If they did, you wouldn’t have seen the housing market rebound so fast in 2020 and 2021. [crosstalk 00:36:03.802]

Sarah Wheeler: So I think [crosstalk 00:36:03.802] if you’re a homeowner or an owner-occupier, that you’re an investor. What if you’re an investor? What if you did well this last year?

Logan Mohtashami: If you’re an investor, you got to, again, make your own decisions, right? I mean, I understand the investment side, but my economic work is primary residence, right? So everybody’s trying to find an angle. Guess what? The people that told you housing was going to crash for seven years are telling you again, housing is going to crash. So you either need to listen to better people, or you have to look at yourself and think maybe I need to find my own way to make that decision. You have to be responsible for your own decisions as an adult. So if you’re an investor, if you’re a homeowner, you have to figure out what is it?

Like for myself, I have a rental real estate property. I own it free and clear. Rental yield is very good. I haven’t charged rent for my tenants since March of 2020, have [inaudible 00:36:56.883] not gonna charge that until 2022, but a lot of investors are actually like a rental property because of the rents they give and yield. So a lot of questions I get, why aren’t investors selling? Well, low-interest rate environment, rental yield is good, and rents are about to go up. Rent inflation is about to pick up big time, right? So they’re seeing, oh, bonds aren’t doing anything. Cash is, you know, nothing. I need rental yield to provide some sort of income. I think that’s the one thing, if I could relate why investors don’t sell is that in a low-interest rate environment, they like the rental yield for that.

But if you’re an investor trying to flip it, you’ve got to find…you got to figure out your own strengths or weaknesses, right, out here. So again, if people had this fear, that housing was a crash, they would have all sold their properties in 2017, ’18, ’19, but they didn’t for a reason, right? So there is a cinematic, theatrical tone to housing always… But most people have to figure out, you know, housing market demand is stable during this period, mortgage rates are low. So the concept of a 70% or a 80% crash means that wealthy households or people with good incomes are going to sell you their house at an 80%, 70%, 60%, 50% discounts, with housing tenure at 10, it’s probably going to be 11 years after next year, boy, that’s a really tough sell. You know, and if 2020 and 2021 hasn’t shown you that these are probably not the most talented people to talk about housing, then you have to look at yourself in the mirror and think, hmm, maybe I’ve been duped.

Sarah Wheeler: Right. No, I appreciate that perspective. Now. I want to talk about Gen Z because, you know, a lot of your work has been 2020 to 2024. Before there was ever COVID, you were looking at these outperforming years because this is when the millennials are going to hit their peak homebuying years, which is later than in other generations. So I would love for you to talk about, you know, it’s not just that millennials were hitting that stride, but there were some really interesting things going on economically. And do you expect that same thing to happened when Gen Z… First of all, how big is Gen Z and what are you thinking of Gen Z?

Logan Mohtashami: Gen Z is massive. They’re bigger than Gen X. In theory, they’re bigger than the Boomers as well. But the reason I looked at the 2020 to 2024 housing market is because, again, my concern is home prices taking off, okay, during this period. Because why? Total inventory is the one thing I always emphasized, take a look at inventory data. You know, we put that in that recent article at the HousingWire, total inventory levels are falling. Purchase applications are rising, right? So my concern was more about 2022 to 2023, getting these kind of low inventories, but it’s happening now.

So after this period, and the reason why we stop at this five-year period is that you have to look at first-time homebuyers, then you have to look at move-up buyers, move-down buyers, cash buyers, and investors. You have to take the aggregate whole of all the demand, and you have to worry about home prices taking off. So eventually, whatever happens in 2025, there are people there that want to buy homes. You have to see how much damage is done during this very unique period of time. And it’s once it…this is it. This is the once-in-a-lifetime demographic, little kick-up. And then you go back to, you know, there’s still a lot of people, Gen Z, and they’ll probably buy homes a little bit later than even millennials, but it’s not this unique period.

So I don’t look at 2025 yet, because I have to see how much price damage is actually done. Where’s rates are? Where are all these things? But you got a lot of people. And then again, you have a lot of, again, move-up, buyers, move-down buyers, cash buyers, investors on top of that. But this year’s 2020, it’s just this one historic event where you just get that extra kick in, and mortgage rates are all-time lows. So you, kind of, just want to keep it simple. You have the best housing demographics ever, and mortgage rates are low. The two things that drive the housing market are the best ever in history. So the people that thought home sales would go below 2 million or 3 million and… No, it doesn’t work that way.

So I will cross into 2025 after I see what happens during this… I don’t believe in a credit boom. Because I don’t believe in a credit boom, I think inventory levels should pick up higher. We had a lot of damage home price heat in the last eight or nine months. Hopefully, that subsides. And we’ll take it from there. But there’s a reason why I don’t talk about 2025 because I have to see what happens during this five-year period. So far, kind of the…my worst mindset is that home prices take off and you can see what’s happening in the housing market.

Sarah Wheeler: Well, thank you so much. I feel like we could talk for another two hours. In fact, if anyone here is on Clubhouse, they know that you can go for two, two and a half hours and still have just a lot of really insightful things to say about the housing market. So we’re so thankful that you share it with us. We love that you have decided to feature your work on HousingWire. We feel like it’s really important work and, you know, kudos to you for making the call last year that was just… You know, it was a bold move and you were very optimistic. You were very confident in it because you knew you had the backup. All of that came to pass. Really exciting, and just looking forward to what’s next.

Logan Mohtashami: Yes. And always believe in people who believe in economic models. If they can’t show you why something’s going to happen, then they’re probably just grifting. And as always, be the detective, not the troll. In time, all of you should probably finish my sentences because I’m very repetitive. That’s how economics is. It’s kind of perpetual lines until you see a breakout or something that happens. So we want all the jobs back by September of 2022, that’s my goal. We should get all the jobs that were lost to COVID-19 by that timeframe. Once we get that, we’ll be off and going and we’re all gonna walk the Earth freely again.

Sarah Wheeler: I love that. We look forward to that and look forward to more articles in HousingWire. Everybody, look for those. Thank you very much, Logan.

Logan Mohtashami: Pleasure.

Housing News

Hosted by HousingWire Editors, the HW Weekly Newscast is a conversational look at the most important stories coming across HousingWire's news desk.

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