Logan Mohtashami on tariffs and housing inventory

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the latest on tariffs and inventory data.   Related to this episode:   ⁠Housing inventory growth is starting to stall | HousingWire⁠  https://www.housingwire.com/articles/housing-inventory-growth-is-starting-to-stall/  ⁠⁠⁠⁠⁠⁠⁠⁠⁠HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q   The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produc

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about Trump's tariffs and

00:12the latest inventory data. Logan, welcome back to the podcast. And the first thing I'm going to say

00:18is hilarious meme about kung fu fighting between Powell and Trump that you put on your social. I

00:25just have to call it out. I've got a new video AI app all hell's about to break loose on social media

00:32with the stuff that I could create now. So yeah, that was a... It's really interesting how, you know,

00:39because we have this conflict between two powerful people in America, but you could also make it funny,

00:46make a light joke of it that either side can laugh at. But welcome back to America.

00:53Thank you. Yes, I am back stateside and I'm in our office and I'm very excited to be back.

01:00Yes, yes. So while you were gone over the weekend or flying back, we have a quote, quote, deal with

01:09the EU. The 10-year yield hasn't done pretty much anything really. I mean, volatility has been so

01:19boring. Boring is a good thing with rates sometimes. You know, people can operate a little bit more

01:24efficiently. But, you know, we had talked about how Japan could be the first one announced. And because

01:31of the conflict with the BRICS nations and Trump now, that India might not happen as soon as some

01:37people thought. But the EU would be the next one. So that's there. It really does look like we're going to

01:44have, you know, 15 to 20 percent tariffs around the world. The interesting aspect was President Trump

01:54was talking about checks again, giving rebates to people. You know, the tariff money, a lot of people

02:00thought that that would go straight to the deficit. But President Trump talked about it's he can use his

02:07money to his own discretion, you know, because he's bringing the money in. So that'll be an interesting

02:13next stage when all the trade war stuff are done and the percentages are there and then everything

02:20flows with a higher tariff. It'll be interesting to see what he does with the revenue, because I'm

02:27pretty sure it's not going to pay down the deficit now if he was talking about checks, not all of it.

02:34So there'll be some to the in the back of their mind. I believe they know this, too.

02:43Once the tariffs are in, certain things are going to cost more. But if energy prices were lower and

02:49mortgage rates are lower, the president thought that can offset whatever tariffs are coming in

02:55in the general economy can consume. It will be more interesting. It'll probably be a 2026

03:01story because we're almost in August. And, you know, a lot of stuff is going to get shipped in

03:08before Christmas. We'll get to see what happens with the tariff revenue. Do they give a freedom

03:17dividend check or something like that out to people and not pay down the deficit with the money

03:25or just some of it? That's something for a later stage. But you wouldn't be talking about rebate

03:31checks to low income housing or low income earners if there isn't something in the back of your mind

03:38where you think, OK, we are taxing people. We're collecting revenue as a tax. The tax looks like

03:45almost one percent of what GDP is. So there are going to be some consequences to that. So I'm curious if

03:53we will start to see the shift of some of the money coming back to households to a degree.

04:01So what how does the Federal Reserve look at that tariff? So say we had just make it easy. Say we

04:06have 15 percent, every country, all of our trading partners, whoever. What does that mean for inflation

04:11or how do they view that? You know, Austin Goolsbee said it best. He said, you know, tariffs are a

04:20one time price adjustment. But if if they have a percentage they can work with and things start to

04:27flow right. The thing is that you got to get everyone to agree. Right. And I think that the trade

04:33wars are where people just start escalating off of each other. We do this tariffs. You know, once you

04:39get all everyone on the same page and everyone kind of agrees to a rate, then the Federal Reserve can

04:46model it out. But when they raise their inflation expectations, they're really raising it for personal

04:52consumption expenditures. This is where I think the conversation does get lost on the Internet. A lot of

04:57people focus on CPI inflation, but CPI inflation is really driven by service. Rents are the big driver. That

05:04doesn't really imply to goods, you know, pricing. So this is why the Federal Reserve, the more and more

05:12deals that are being made or percentages. It'd be interesting for their take on it, because they

05:18they've always said we are modestly restrictive right now with rates. You don't need the 10 year

05:25yield to go down much longer, much lower to get near six percent mortgage rates, because if you get

05:31normal mortgage spreads, there it is. You get six percent mortgage rates, basically, or right near there.

05:37So it will be interesting whenever when the Fed comes out, what they think of any of the recent

05:42news that came out. So that might be something that we hear this week with the Fed meeting, right?

05:48I would I would assume that that's one of the questions that he's going to address.

05:51Yeah, I mean, they can't just let this thing just go aside anymore, you know, because we're in the

05:58second half of the year. And, you know, as Powell said, if we did not have tariffs,

06:05we'd be cutting rates already, you know. So the Federal Reserve needs inflation to pick up

06:11on the PCE sides, on the good sides to actually, you know, warrant not cutting twice. And again,

06:17even if they didn't have tariffs, they would have only cut twice. So we're talking about basically

06:22market pricing. And there's a lot of rate cuts being priced in in 26 to 2027. That's a whole

06:28different story. We only focus really on what's happening current. But yeah, it'll be a very

06:34interesting Fed meeting. But of course, now with the EU done, you know, we need more clarity on

06:40Mexico, Canada, China was punted away for, you know, some other time. So it's not it doesn't

06:49look like we're going to get any kind of really good test since it's almost August. But who knows

06:55the next few days, some, you know, things might come out and more deals. We'll see as that August

07:011st deadline gets closer and closer. Yeah, I feel like the EU, at least that deal takes some of the

07:09pressure off because we had this August 1st and almost no deals. So at least now there's something

07:14they can point to and say, we know what's happening with this partner. Yeah, it just it just when the

07:19total picture is here, it really does look like a kind of a kind of a 1%, almost in a sense of sales

07:26tax. But I'm more curious now on what they do with the revenue. Because unless unless President

07:34Trump was, was not serious about giving checks to people, which there's a lot of things he said,

07:40you know, capital gains for houses, no income tax for up to 120,000 freedom checks, there's a lot of

07:47things he says that just weren't going to happen. So but we this is a little bit different as we are

07:52getting revenue in because we're taxing now, right? Where we have we have just incorporated the highest

07:58net tax in recent history, because we're taxing goods coming in now. Well, let's shift a little

08:07bit and talk about the housing market tracker, because we are about to be in August. So second

08:13half of the year, and we've we're starting to see a real shift, or at least I want to say a downturn,

08:20but it's not really a downturn. It's like a slowing growth of inventory, correct?

08:24You know, obviously, a lot of people don't. Mike Simonson is now the head economist for Compass.

08:31The monthly webinars that he used to do for Housing Wire, I'll be doing that. August 20th will be the

08:36first one. And and for me, it's more about teaching the economics of supply and demand equilibrium

08:43using our Altos data. And what we have seen in the past, of course, Mike and I were not mortgage rate

08:52lockdown people, but we're we're not mortgage rate lockdown for two different reasons. Like my thing

08:57is credit channels run inventory channels, the qualified mortgage law when that change was the

09:03biggest residential financing law change in to me in history. And it's created inventory data that looks

09:10much different than what it used to be in previous decades. But what happened recently, and for

09:16everybody listening to this, our data is different than the NAR and others. We don't count pending

09:24contracts in our inventory data at all. So we're kind of fresh, raw inventory as it is, right? It's what is

09:33available for sale, not what is available for sale, condos, pending contracts, everything. This is why

09:41the NAR data is higher than ours. But I think there were so many people were surprised that the NAR's

09:50inventory data was slightly negative month to month. But if you look at how they track data, June, July,

09:58August typically is the peak. So we might have a month or two where you get a little bit of increase,

10:03but we're probably we're probably at the upper end of the inventory channel. I think last year, we

10:10October had a had a late cycle, high inventory period, but that was basically the highs of the year anyway.

10:17But for us, we want to track raw data to see because we want to get ready to look out for the future.

10:22And inventory growth started to slow two weeks before July the 4th. You know, nothing spectacular,

10:31but it was it wasn't growing fast anymore. When you have a we had a very good year on inventory

10:36growth was the best thing about housing for 2025. But it started to slow down new listings data is

10:42very seasonal. But it looks like to me like May, the end of May is that was the peak of new listings

10:47data and it's doing its seasonal decline. However, rates have been stable, but they're higher.

10:52So this is the different variable in 2025 that we have not that we we in 2023 2024,

10:59we've had mortgage rates head down towards 6%. Both times demand grew, the supply demand equilibrium

11:07changed, especially on pricing. So I want to see going out for the rest of the year, even if the NAR

11:16total inventory data has peaked and will start its seasonal decline. What happens if rates go one

11:23way or the other now? Because we've been so stable with mortgage rates because the spreads are better.

11:28So even if the 10 year yield goes up, mortgage rates aren't going to have that accelerated

11:32kick up anymore. Like we're showcasing this over the weekend that 2023, we can't have 8%. Like a lot of

11:39people are saying, Oh my God, mortgage rates are going to go to 8%. You know, you need spreads to get worse.

11:45You have to have some kind of economic event to have the spreads. You can't get 8% rates anymore

11:50with a 5% 10 year. You need to be much higher. So now the spreads actually get better as yields go

11:57up, they get noticeably better. So now we have an interesting backdrop. What happens if the 200 day

12:05moving average of the 10 year yield breaks and we go lower on the 10 year yield mortgage pricing gets

12:11toward a six and a quarter or 6%, does that change the supply and demand equilibrium? Like I saw last

12:18year, like I knew my price forecast was wrong because mortgage rates are heading towards 6% and I was

12:24going to be too low, but now inventory is higher than it was last year. So it becomes more interesting.

12:29Now let's just say a hypothetical, let's say rates somehow reverse aggressively.

12:34You know, uh, uh, inflation takes off. The fed gets very hawkish, you know, the markets don't like

12:41it. Spreads get worse, something like that. You know, how, what, how bad does it get? Because in the

12:47past we've had our inventory data stay higher for longer toward the end of the year that doesn't get

12:54really picked up by the NAR and anyone else, but ours is the fresh rod and almost naked on the beach

13:01inventory, no contracts, nothing. Those are homes are just sitting there. So that's the curious part

13:06because the growth rate has been slowing down. If I take the July the 4th chaos out of it, uh, we have

13:11had a slowdown on the week to week. It's slowed down so much that the percentage, the year over year

13:16percentage growth has fallen a few percent and we'll take it from there going out, uh, for the rest of

13:22the year. So, I mean, I think what we've seen before is that if mortgage rates fall, then more people

13:28come in to buy. So then your inventory falls. I mean, that's, that's why you were team higher

13:32rates when, when things were so crazy in 2021. So inventory always rises in the spring and summer,

13:39and then it always has its seasonal fall. It's the growth rate of what happens. Take 2020 out of the

13:46equation. That was crazy, right? So, uh, in 2023, the early part, because rates went down to 6% toward

13:53the end of 2022, it took a very long time to get the seasonal bottom. And then we saw the seasonal

13:58increase. So we're almost at the time and period in, in, in traditional times, a few weeks out,

14:04we'll see the seasonal declines, but does little, does the lower rates slow down the growth even more?

14:10Does, do we actually see the seasonal decline faster than what we've seen before? Even though rates

14:17are elevated now, it's not having the kind of impact right now that we would, we would normally

14:23see. So this is why I love the tracker because we don't have any contracts tied to our work,

14:29right? We get to see it raw and then we get to see how these homes are available for sale,

14:33not in, in, in a pending form. So we get a good idea. And again, I, I love 2025 more than any of the

14:40years because it's balance, right? It's balance and the new listings data, uh, uh, it, it got to

14:49the low levels of what we were normal, but we, we do did not see stressed sellers. Again, this is year

14:54three. This is year three of the lowest home sales ever recorded history. Again, we always, we always

15:00like, we always like to show the difference between 2005 to 2008 and 2022 and 2025. These are two

15:06historical periods. You could even tie the, uh, early 1980s to this where we see home sales crash

15:13and stay low, but the inventory channels look different. Why? Because qualified mortgage changed

15:18the entire housing economic landscape forever. Uh, and we've had an unbelievable test run right now

15:25with the last three years, uh, what happened with home sales. So one of the data points that you always

15:31point out, um, is the low that we saw in 2022 for inventory, which was 240,000 houses for sale

15:38in this giant country. Right. And now we're over 800 and what? 60,000 or around 860,000. Now normal

15:47would be about a million, but, uh, I, as you could imagine, I was not a fan in 2020, 2021, 2020, early

15:55part of 2022, because when you have shortage inflation, it's, it's the worst, you know,

16:01I mean, it's one thing if sales were booming or something like that, where demand just completely

16:06outstripping. And I always refer people back to, you know, to 2002 to 2005 sales were booming,

16:12prices were boom, but inventory was growing, right? Inventory in, you know, in 2005, when sales

16:19was a million higher than the NARs inventory data today. Uh, so it's just a different type of period,

16:25but you could see what was happening to years, 2020 to 20 inventory was slowly moving lower every

16:31year. And you're like, boy, that period could be trouble that period. And guess what? We got into

16:37it right away. And then the issue is COVID COVID was such a smoke screen because people were so

16:43worried about a depression and everything. And nobody cares about housing inventory data at that

16:48point. And the whole thing was, I just remember going to Bloomberg every single week and early 2020

16:54guys. It's, we have to worry about home prices accelerating out of control, not a deflationary

16:59collapse, you know, and every month planning. And then it was too late by that point. Uh, we were team

17:05higher rates early 2021 to just, just did it. They don't, they don't make the existing home sales

17:11market, the foundation of monetary policy, which is kind of weird. Cause that's what, what they really

17:16couldn't control. But, uh, the unemployment rate was still over 6%. So, you know, they,

17:22they didn't want to go there yet, but now it's much, it's much better. It's much better. Wages

17:28could catch up. Households are forming, you know, uh, uh, a price growth and very similar to the 19,

17:34uh, uh, the early 1980s was, was interesting because we had a similar crash. Um, mortgage

17:40rates went from 18 to 13%. Home prices didn't fall during that period of time, but we had the fastest

17:46crash, but eventually after time mortgage rates fell, sales bottomed out and then sales started

17:52to grow again. Uh, and people back then were saying, Oh my God, sales can never grow. We're

17:57a renter nation. And then all of a sudden sales are growing and we go on. And this, this traditionally

18:01happens in a lot of, uh, housing cycles, but always kind of remember the hottest home price

18:06growth period was 1943 to 1947, 1974 to 1979 dwarfs the COVID, you know, period of time. You know,

18:14whenever I show people what prices did back then, they're like, what? And that was with elevated

18:19rates, you know, uh, COVID inflation, right. Housing moves with inflation to a degree. Uh, that was,

18:25you know, a very short amount of time where we had two years where it was unbelievable 10% and 19%,

18:31but then rates went up. Thankfully in 2022, the growth rate of, uh, pricing came down from 18% down

18:37to 6% for the year. So if we didn't have that, we'd be in more trouble now, but again, all these

18:42things are positive because it sets for the future, right? You know, we're, we have to think of housing

18:47in the, in the, in the short, medium and longterm as well. And, uh, it's a much healthier market this

18:52year than, than that period. So we've talked about, um, rates. We've talked about inventory. You

18:59talked about purchase apps last, last week, um, on the podcast and in an article, what else would

19:04you highlight from this tracker that you wanted to, uh, talk about? That even with elevated rates,

19:11our weekly pending sales data is slightly positive year over year, but I caution everyone.

19:18We have unbelievably low cops. So take that year over year growth with kind of a grain of salt that if we

19:26didn't have these historically low comps, then we wouldn't be talking about this, but to have the

19:32demand stay somewhat firm, even with another year of home prices rising, but it's rising much slowly

19:39now. Uh, it just, it just shows me that when rates can get to 6%, uh, that demand actually can pick up,

19:47uh, and every year that goes by, we're just missing that natural home buyer that's there. So those people

19:52are sitting there, they're just piling up now, right? Every year that goes every year that we're

19:56near 4 million total. And, and for those that have followed our work for, for a long time, even those

20:02that followed me in the past decade, 4 million is that key level for me always after 1996, it's really

20:08rare to go below 4 million. We can do it on the monthly sides, but we haven't even the last two

20:13years with total home sale or total existing home sales have never breached under 4 million, but we're

20:18just, uh, hanging around here. So even with elevated rates, everything's still somewhat intact,

20:23but mortgage rates just getting to six. It's very hard for me to go below 5.75 with monetary policy,

20:31where it is, where the spreads are at. You, we, we would need some, we would need more rate cuts in

20:36the spreads to get better, to get down, uh, uh, below those levels. But, you know, you have to think

20:41about it that, you know, six and a half to seven and a half percent, it was the high level range of rates

20:46here. Five and a half to six and a half percent mortgage rates can be the low level range. And

20:52though that is an ultra low mortgage rate policy or, uh, or, uh, federal reserve policy anymore,

20:58because we stayed at three and a quarter to 5% for a decade, right? Home prices weren't escalating

21:04out of control. Home sales weren't escalating out or anything like that. But that's kind of maybe

21:09the mindset down the line, uh, uh, out there, uh, uh, if we don't get inflation from tariffs,

21:16if, you know, the federal reserve and the spreads do get better, that's a more plausible scenario,

21:22six and a half to five and a half, you know, then to go sub 5% or four or three, you, you,

21:30so many things have to happen. You shouldn't even think about that, but we've got down to six twice

21:35and we've tested it and it reversed every single time, but, uh, just getting spreads back to normal.

21:41We, we always highlight the spreads every single weekend. And we said that if the spreads were

21:46normal, we're near 6% today with a 10 year yield at 4.41%. So, uh, there are two variables now that

21:56can help get to that level. And the only reason I talk about this is that 6.64 to 6% the data gets

22:02better. Okay. We've only had that happen twice, but the forward looking data gets better.

22:07And, uh, uh, that's a more workable rate variable than what we have, uh, dealt with, uh, than what

22:14other people are talking about. In comparison to what we've had over the past couple of years,

22:19you get to six people think that's a great deal. You get to 5.75 and our industry would feel like

22:25that's a real, um, tipping point because 5.75 would absolutely draw some people in.

22:31Um, I mean, when you're a vampire and you haven't taken, uh, uh, uh, drinking a glass

22:38of blood for like a thousand years, oh my God, that first trip is going to be, you know,

22:42so I, again, this is why I always highlight, this is the third calendar year of the lowest

22:48home sales. It's not like, you know, it's interesting because post the great financial

22:54crisis, we had more inventory and housing was more affordable, but my whole working model

22:58back then was that 2008 to 2019 would be the weakest housing recovery ever recorded in

23:03history. New home sales, housing starts, mortgage demand, purchase application data is never

23:08going to hit 300 until we get to years 2020 to 2024. You know, that's what happened right

23:13there. Housing starts are never going to get to 1.5 million until years 2020 up that happened

23:17as well. Um, but back then, you know, uh, we, we had so many underwater mortgages that was a

23:24mortgage rate lockdown rather than a real mortgage rate. Like, you know, if you can't sell and take

23:29the equity out, you know, you lose that buyer demographics were more for renting at that period

23:33of time. You work your household formation and demographics up to years 2020. And now we're here

23:39just, you know, it's, it's, it's a little bit of a, a, a, a, a, a better spot on the demographics.

23:44But however, a lot of equity, a lot of selling equity for mortgage owners, right? There's 40%

23:51of homes that don't have a mortgage, right? But, but everyone else, there's a lot of selling equity

23:55there, but sellers are stingy. You know, they just, people don't realize that, you know, people go,

24:03why don't you just cut your price? $12,000? I mean, that 12,000 hurts people, you know,

24:08so they, you know, so it's, it's, it's always been this case, right? And, you know, this was

24:13one of the things I was hoping, you know, with so much equity, we could have a more buyer friendly

24:18market. And when you see that with concessions now, and this is why I love the housing market now,

24:22because you're seeing buyers get, get, get an upper hand, but it's like, they are still very

24:28stingy. And part of that is the days on market, right? If you look at the NARs days on markets,

24:31like 27 days back in 2011, it was a hundred days took a hundred days back then. We're so far from

24:37those levels. So two different marketplaces out here, but some encouraging things on that side

24:45that you, we could have rates stay this elevated, not get into the range and have demand still stay

24:51somewhat firm at these record low levels. Logan, thank you so much for being on,

24:57walking us through all of those things that are happening. I will be talking to you again very soon

25:01because we have a big, yes, on the day when the fed meets. Yes. That's going to be a lot of fun.

25:07So if, if nobody saw the Kung Fu fighting video, come to my Instagram, you can see just go at it.

25:14All right. Well, thank you so much. Appreciate you.

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