Logan Mohtashami on the good, bad and excellent housing market of 2021
Housing demand soared in 2021, putting upward pressure on home prices as homebuyers competed for scarce inventory. But Logan Mohtashami, HousingWire’s lead analyst, doesn’t think the run-up in prices means we’re due for a housing crash.
In this episode of HousingWire Daily, Mohtashami joins Editor in Chief Sarah Wheeler to outline what was good, bad and actually excellent about the housing market in 2021. The two discuss Mohtashami’s 2021 end-of-year recap of the housing market, as well as his housing market forecast for 2022.
Here’s a small preview of the interview, which has been lightly edited for length and clarity:
Sarah Wheeler: We know it wasn’t all roses for the housing market last year. So what was the “bad” part of housing in 2021?
Logan Mohtashami: Listen, the biggest concern should be home prices accelerating. Already, my five-year cumulative price growth (model) has been taken out in two years because the one thing I was worried about was home prices overheating. And we saw that last year. Even though I do believe the rate of growth of pricing is cooling currently … it’s still above a level that I’m comfortable with, because I look at it as shelter costs. So, you want to have stable shelter costs, you don’t want prices accelerating. We don’t want to become like New Zealand, Australia or Canada. We just want stable prices so people can buy homes and live in them.
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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. I’m Sarah Wheeler, editor in chief at HousingWire, here with the latest episode of the “HousingWire Daily” podcast. On Mondays, my guest is always HousingWire lead analyst, Logan Mohtashami, and we’re always gonna cover the latest economic news. Logan, welcome to “HousingWire Daily.”
Logan Mohtashami: Great to be here. Happy 2022.
Sarah Wheeler: Happy 2022. It’s gonna be an exciting show because not only did you do your 2022 forecast, but last week you really wrapped up all the economic news we saw in 2021, which was, you know, leading the way there. So we’re gonna talk about both of those stories, very exciting, so much going on as usual. So, let’s look at your how HousingWire…Your housing recap for 2021 is called “The Good, the Bad, and the Excellent.” So let’s dive into that. Let’s start into the good, what was the good about 2021 housing?
Logan Mohtashami: Well, housing acted accordingly to what I’ve always thought. Again, years 2020 to 2024 were gonna be a little bit different than what we saw in the previous expansion from 2008 to 2019. More Americans bought homes with mortgages in 2021 than in 2020. And also again, more Americans have bought homes in the last two years than any single year in the previous expansion, which looks perfectly normal if you believe in demographics.
So, even with the headlines of Delta and everything we’ve had to deal with, even with some of the survey data that said it’s the worst time to buy a home in America, which a lot of bears mistook that to be the impending crash, Americans simply bought homes as shelter. That’s always been my thing. Housing is the cost of shelter to your own capacity, to own a debt. It’s not an investment. If you look at it as an investment, you become these trolling housing bears for the last 10 years and not get it right.
So the good is that mortgage rates were low. A lot of Americans have sub-3.5% rates on their primary resident purchases homes. And they’re in a very, very good for themselves, not only for last year but going out into the future, they have very fixed low debt costs with their rising wages for decades to come.
Sarah Wheeler: I love that. And, you know, that’s a huge difference from in the past. You know, we do have rising prices, which I believe is gonna be the bad that you get to, the good, the bad. But it’s the demand that’s stable and it’s the kind of people who are taking on mortgages. We didn’t get to this by expanding it out to people who really can’t afford it who are on the edges. I mean, these are really solid borrowers.
Logan Mohtashami: Well, the speculative nature of housing has been gone for a very long time in the sense where credit…I’ve often reminded people that adjusting to inflation, mortgage debt is not even positive versus the peak of the housing bubble years. So we don’t have a credit boom, we’ve never had a credit boom, but housing should be very boring vanilla. It should be a fixed long-term debt product based on your income.
And then the benefit of being a homeowner in a sense is over time, your wages rise but your debt cost stays the same. And we’ve clearly shown that, on a historical basis, homeowners now in America look better on paper than ever. And I think that’s the quality of the homeowners that we’ve had. And it truly is one of the best times in history in that regard that when you have a very safe, secure debt going against your house, all you need is your job and wages grow, and then your life gets better because your cash flow gets better.
And I think that’s the thing that a lot of people should be taking from the last, you know, five or six, seven years. But again, when rates fell, a lot of homeowners, the stock of homes, the bulk of homes were able to refinance their debt as well. So as their wages have been rising for many years, their debt costs just got lower again.
Sarah Wheeler: Well, it wasn’t all roses, we know, in housing. So what was the bad, you know, the good, the bad of 2021?
Logan Mohtashami: Oddly enough, you know, one of the things I’ve always talked about last year is it’s the most unhealthiest housing market. And I think, you know, last January, you know, when I went on Bloomberg and said, “Listen, the biggest concern should be home prices accelerating, not this forbearance crash, you know.” And I think the problem is that many professional grifters, or I’ve always said the most untalented American citizens we’ve had, tend to be housing crash addicts.
And I think there was some kind of notion that because of forbearance, even though demand was stable, home prices would crash. No, the ability for home prices to accelerate when total inventory is below 1.5, 2 million, something I’ve talked about for some time now, is not a healthy thing. So, of course, for myself, if you believe in economic models, you have your price model and already just because of 2021, my five-year cumulative price growth has already been taken out in two years because the one thing I was worried about was home prices overheating and we saw that last year.
Now, even though I do believe the rate of growth of pricing is cooling currently, the Case-Shiller Index lags, is something I wrote about last April that home price growth will cool down. It’s still above a level that I’m comfortable with because I look at it as shelter cost. So you want a stable shelter cost. You don’t want prices accelerating. You don’t want to end up like New Zealand, Australia, and Canada. We just want stable prices so people can buy homes and live in.
Sarah Wheeler: Well, you know, one of the things you’ve talked about a lot is you’d like to see the time on market rise, that that would be a good indication that there was, you know, more of a balance in supply and demand. But we really haven’t seen that. Even in some markets, even in December, time on market shrunk, which was amazing.
Logan Mohtashami: Yeah. You know, when demand is stable and then you have the seasonality of inventory, and I think that’s something I’ve also talked about last year, you know, it’s inventory rises in the spring and summer, a lot of housing bears like to construe that as “Oh, look at demand is failing.” No. But the problem also is that it fades in the fall and winter. And not a lot of people know this, our best existing home sales prints actually come in the fall of the winter. It happened last year. It happened in 2020 but if you go back in the previous expansion as well, people think demand fades. Actually, our best sales prints do come in the fall and manager. And again, that just takes the days on market.
So for me as always, it’s the same thing. I just want the days on market to go up about 10 to 12 days. And then again, you have a stable market, which means the bidding wars, and if I need to sell my house, where am I gonna find a home? You know, stuff like that where the process of housing…you know, which I do agree with the surveys, it’s the worst time to buy because think about it, you’re competing with your fellow Americans who are supposed to be in student loan debt crisis and can’t buy a home.
You want a stable, relaxing market to buy, and you don’t want what we saw in 2020, in 2021. So the days on market rising, well, get me to stop saying this is the most unhealthiest housing market but that wasn’t the case last year. We’ve been pretty much at a teenager level the entire year last year. So hopefully, if there is a positive in 2022 that the days on market can increase.
Sarah Wheeler: Well, you know, the headline for your article is “The Good, the Bad, and the Excellent,” not the ugly. We missed out on the ugly. So what is the excellent? Why are you so optimistic?
Logan Mohtashami: Yeah. Well, the truly excellent data line was the absolute destruction of the forbearance crash bros. Lot of professional American grifters in this country tend to always talk about housing crashing. These are not very talented or skilled individuals, but they are really good professional grifters. They literally 24/7 live in a world that they truly believe housing’s gonna crash every second. Forbearance was their savior. They thought COVID was their savior in 2020. So they moved the goal post to next year, which now they’ve moved the goal post out of the stadium. Forbearance was never gonna be what they thought. American homeowners, the previous decade from 2010 and on, the profiles looked very excellent, like the best ever.
So naturally, when the job started coming back and we started this term, the forbearance crash froze in the summer of 2020, I knew it was gonna be a fraudulent grifting tactic. I just have to show the American people who the talented people in housing are and who the grifters are. So as the jobs started coming back, as the country started coming back, these people kept on rooting for an American crash. Now it’s personal. We had rules on trolling the United States of America.
Trolling during a global pandemic when our American citizens are dying, uh-huh, you’re not getting away with that one. So as every month has come by, we went from near $5 million forbearance, which was not even bigger than the shadow inventory in 2012, and it started creeping down, creeping down. I knew it was gonna creep down. And now it’s below $882,000. So the whole premise that housing was gonna collapse in 2021 could be one of the worst economic calls ever recorded in history. And a lot of these people times stamp their nonsense on social media.
And I think it’s a positive for the American people, for the country of America that these people failed in the most spectacular fashion ever. And now all these Americans have fixed to low-debt cost versus rising wages. Their mortgage payment, as a percentage of disposable income, all-time lows pretty much. Household debt payments as a percentage of disposable income, all-time lows. They have long-term fixed debt products or FICO scores are all above 760s, cash flows. This was truly not the ugly. And this Western movie is truly the excellent in one of the devastating years ever for the American bears in 2021.
Sarah Wheeler: You know, you’ve been saying this, you know, since April 7th of 2020, you laid out your America’s Back recovery model. You made a call in the middle of the pandemic that nobody else made. And by now you’ve been saying this now for this whole time but there are still many, many people out there doing this. Like, I get it in contributions to our site. You, of course, get inundated with people doing it. But I was just so surprised, even last week, I got a contribution from someone in the industry that was like, you know, the [inaudible 00:10:15] it’s gonna be huge. iBuyers, they talked about panic selling. I was just like, “I don’t understand where they’re getting that from.”
Logan Mohtashami: I’ve always stressed this for the last few years. In fact, I even did this in Twitter this morning, our most untalented American citizens are housing crash addicts. Like, the way they talk about housing is basically like going to a haunted house in the summer camps and trying to scare little kids. These are not economic people. These are not data people. They don’t have economic models. They don’t even forecast anything.
Housing has become a very good professional grifting area where people just want clicks and they crash and doom because so many people own homes. But my job as an analyst is to show why these are the most untalented people because crash, doom, yellow journalism, these things sell, and there’s a business model out there. And we’re talking about a group of people for 10 years now.
And one of the things I like to highlight, the housing bubble 2.0 people, if you believe in the premise of a housing bubble, you have to go back to 2012 prices. Per the last Case-Shiller Index, this means it’s a 100% decline in one year back to 2012 levels. This is an economic death cult. They’ve times stamped themselves to the end of their lives. We’re not gonna get that right. And they can’t let it go because it’s a marketing model. My job is to show you why.
I already know they’re bad, just the way they talk, but economics is demographics and productivity. Housing economics is demographics and mortgage rates. The notion that people would think you would’ve to have the best housing demographics ever recorded history. You have the lowest mortgage rates ever recorded in history. And you have the best credit profiles in the previous decade with housing tenure at 10-years-plus. This was your backdrop for a collapse in housing. No. So they are professional grifters. These are not data people.
The whole notion of iBuyers. iBuyers aren’t even like 1% of total home sales. The notion that iBuyers were holding up this entire housing market is preposterous, and then the grift now has moved to panic selling. It’s like they all go to a summer camp. They all get the same lines. “Oh, positive cashflow Americans who are living in their homes in a very comfortable world, now sell their homes, not at market, but at a 25% to 30% discount just so they can get out of it at any cost.” These are the fanatics of our country. Now, they’re economic fanatics. And a lot of these are real estate investors with terrible YouTube accounts. I heard a lot of this in Clubhouse before I deleted that app.
Again, these are not economic data people. You have to have models. You have to have forecasts. You could tell these people are lying but now they’ve moved into the notion that, “Jane, we’re gonna sell our home at a 30% discount just to get out because somebody on YouTube said housing was gonna crash.” “No, Dan, we’re getting a divorce. You go away.” So it’s just not homeowners live in their house. They have sex. Their kids go to school. They go shopping. This is their home. This is not an investment. There’s the difference. The terrible housing people in this country are investors. They’re not data people. So they think like an investor. People buy their homes to live in. There’s the mistake. And it’s always gonna be this because housing is so financializing.
You know, we have TV shows and how to repair your homes or stuff like that. And unfortunately, it’s seeped down to the economics. It was the weakest housing recovery ever in history from 2008 to 2019. And all we have currently is replacement buyer demand with low mortgage rates. It is a very simply dull sector when you look at it at that, and that’s not good enough for people. People rather talk about prices going back to 2012 levels or bubbles or anything. It’s the lost decade. And these people have lost their privilege to ever talk about housing gain. You cannot be wrong all the way from 2012 to 2019, then go all-in in 2020, then move the goalpost to ’20 and have the exact opposite happen. And America won. These people lost.
Sarah Wheeler: Love that passion, always coming through. You know, you talked about how these people don’t have forecasts. They don’t have models. So you have a forecast. You have models. You unveiled your 2022 forecast right before the end of the year. You know, lead us into that. What are you looking for again for mortgage rates? What are you looking for demand? What does that look like?
Logan Mohtashami: Well, just, you know, the two key points, mortgage rates, but again, 10-year yield channels I think we’re at 159 today on the 10-year yield. You know, I believe in bond yield forecasting, it’s more efficient than targeting a mortgage rate. So, if the 10-year yield stays in my channel between 62 basis points and 1.94%, you’re looking at the lower end of 2.375% to 2.5% versus 3.375% to 3.625%. There’s a reason I do this because, in the summer of 2020, I said, “If you’re trying to make a bearish housing case, you need the 10-year yield to close above 1.94% and have it start going off with duration. And as long as we’re in this range, rates are gonna be below 4%. It’s really hard to have a really major bearish housing case with rates this low.
So rates in the same area but we can have rates go back down below 3% this year, which again, is problematic for me because I want the days on market to grow. Once stock market correction, money goes into bonds, mortgage rates will get better. So, just be mindful of that. For existing home sales, right now existing home sales are outperforming what I’m looking for. So, my sales ranges for 2022 are about %5.74 million to $6.16 million. So anything above $6.16 million, which we’re currently at, to me is a beat because I’m not a credit or housing boom person, I’m a replacement buyer, demand person.
That’s why I’ve used that term for many years, just to kind of express. I don’t believe we could have the credit boom that we saw from 2002 to 2005, but we just have stable demand because we’re gonna have over 150 million people working. We have the biggest housing demographic patch ever in history, ages 28 to 34 the biggest. When you add move-up, move-down buyers with the millennials, and Gen Z, and investors of cash, you should have stable demand. The only thing that breaks this is if home prices accelerated during this unique five-year period, which they have, and rates go up higher. So you just have to model up where you think there’s an inflection point for housing, and right now, it’s just stable.
So, in a sense, I actually do believe sales levels will come back down a little bit, and that’ll look perfectly normal to me. So again, demographics is set. That’s not gonna change. Mortgage rates, you know, if they can break above over 4%, the rate of growth of housing will cool down, nothing like a crash or anything in that sense. The new home sales market and the housing starts market is more beneficial to the economy. Currently, right now, we’re actually a little bit above that six-and-a-half month supply level but the builders’ confidence have been rising and new home sales have found a base.
I think the builders are confident now because monthly supply has stabilized for them. And, you know, even with all the arguments about, you know, labor costs, land costs, everything, trust me, the builders are happy because they can sell their homes. And that’s all it is, is that they care about profit margins, you know, and they’re happy because they believe they and pass the cost onto the consumer. I think they have benefited the most from total inventory leaving above that $1.52 million for the existing home sales market because again, they have a product that they can pass on. Remember, the new home buyer is much older, makes more money than the existing home sales buyers. So they’re happy in that context.
So again, rates, that’s the key. Demographics, that’s stuck and that’s not gonna change. Housing 2022, stable demand. If there is a credit boom, then I got that wrong but so far so good. We’re ending the year off in a very strong note. Purchase application data quietly had a double-digit percentage gain on a year-over-year level. Everybody literally missed that but it happened like 18 weeks ago. And there is a reason why pending home sales, existing home sales have been outperforming the last few months.
Sarah Wheeler: Great wrap-up of your 2022 forecast. Of course, the entire very deep dive that you did on that is available at housingwire.com. I think you started out with something like 5,000 words, and then you cut it down and then we cut it down. So now it’s succinct but it has a lot of detail about how you came to these things, which I think is important.
Logan Mohtashami: Believe in people who believe in economic models. That’s how the history of economics have worked. For centuries, professional grifting might be sexy to watch and might make you feel good. But again, some of our most untalented American citizens have been these housing crash addicts who have been wrong for a decade. The lost decade as I call them, they have lost their privilege to ever talk about housing again.
Sarah Wheeler: Well, Logan, you gained the privilege to talk to us. We’re so excited. Every Monday you’ll be on here, we’ll be talking about what the economic news of the past week has been and what you’re looking forward to. So what are you looking forward to this week? What’s happening this first week of the year?
Logan Mohtashami: Well, the jobs report is…and that’s something now I’m doing for HousingWire. I’m no longer writing in my blog. Again, my primary work is actually economic cycles work. Housing is actually a secondary. So the jobs report and what I’d like to do on these jobs Friday is to give the HousingWire readers kind of a doctor checklist of what the economic cycle is looking like. I have kind of like six recession red flags. One of them I raised recently. When the Fed starts raising rates, that’s gonna be the second one.
My job is to give you a pathway for the economic cycle to move in because that’s how economic models work. We forecast this. So when jobs come out, we’re gonna give a monthly checkup on all the economic data, leading economic indicators, stress, indexes, all these things. That’s the report that I’m looking for. And I could pass that information onto all the HousingWire readers.
Sarah Wheeler: Well, we are looking forward to that. Thank you so much for being on, and I will look forward to talking to you next Monday as well.
Logan Mohtashami: Yes. Thank you.
Sarah Wheeler: Thanks, Logan.