Logan Mohtashami talks jobs report, mortgage forbearance

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

HousingWire: Hello, HousingWire listeners. Today, I’m joined by HousingWire’s Lead Analyst Logan Mohtashami. Logan, welcome back to HousingWire Daily.

Logan Mohtashami: It’s great to be here.

HousingWire: Good to have you. Well, let’s get started by discussing your recent article titled, “We’ve got rising home prices but no housing crash in sight.” So in your article, you take a closer look at the recent Jobs Report from the U.S. Labor Department, which states non-farm payroll employment rose by 256,000 in April and the unemployment rate with little change at 6.1%. So what does this data tell us about the state of the economy at this time and what impact do these unemployment numbers have on the housing market?

Logan Mohtashami: Well, starting from last year, one of the things I wanted to show people during this recovery is that we’re gonna get all the jobs back that we lost to COVID-19 by September of 2022 or earlier. The jobs data, the labor market just like the housing market, is much different this time around than it was in 2008. Even today, job openings hit an all-time high at 8.1 million. And I’ve been tweeting out, #joltsjobopening10million for many months now because the labor market’s much different this time than it was in 2008 when the prime-age labor force was declining.

Now, we’re a much older country. Boomers are leaving, demand is fine. You know, we’re running into a better area but again, we’re still dealing with the aftermath of COVID and we can’t still walk the earth freely. And until that happens, you know, we just can’t run anywhere near full capacity. But, in time, all the jobs that we lost to COVID will be regained and the forbearance data, as I termed the housing bubble to the forbearance crash, they’re gonna be wrong and I wanted to showcase to people why, you know. Forbearance was near 5 million last year. In about one year, it’s been cut more than half. It’s about 2.2 million. And over time, and this is why I’ve always stressed this, if data’s gonna lag, this data line should get better, especially there’s people that probably didn’t need to take forbearance but they took it right away. Jobs have been coming back. We’ve about a little bit over 8 million jobs left that we lost to COVID-19, I think about 8.2, and we have 8.1 million job openings. So the labor market is gonna get all these people back and a lot of people that are in forbearance should be taken off over the next 18 months.

HousingWire: Yeah, that’s interesting. Well, let’s talk about mortgage forbearance some more because according to the Mortgage Bankers Association, there’s estimated to be 2.2 million homeowners and some form of forbearance plan. In your article, you say that the growth of the job market will continue to decrease the number of homeowners participating in the forbearance programs. So as more homeowners exit forbearance, in your perspective, how will this impact the housing market?

Logan Mohtashami: Well, the negative side is that home price growth is unhealthy, you know. This was my biggest concern about housing in the years 2020 to 2024. We had the best housing demographic patch ever recorded in history and the lowest mortgage rates ever recorded in history. You have a backdrop of unhealthy price growth. We’re seeing it out right now. So supply is not gonna be as fluid as it would have been pre-COVID but the notion that you’re gonna get an escalation supply increase where prices are gonna fall 30%, 40%, 50%, 60% in one year. A lot of these housing-bearish people, who I believe are simply not trained to talk about housing economics, thought that forbearance was gonna go to 10 million, 15 million, 20 million as unemployment rates in the Depression. And it was the biggest whip in my mind in U.S. economic history. And what this data will do, it means more people are gonna be able to stay in their homes. It is a very successful program. But I think over time, there’s gonna have to be an exit for forbearance, just like, you know, in time, by the end of September, you know, unemployment benefits are going to go away. So we need to find some kind of closure but we’re also doing it in a way that Americans who can stay in their homes, who want to stay in their homes, are gonna be able to stay in their homes. And this forbearance crash that people talked about last year will go down in infamy as one of the worst economic calls ever.

HousingWire: All right. Well, for the past year, we’ve continued to see an incredibly hot housing market in the U.S., with an increase in homebuyer demand and historically, low mortgage rates. Well, you mentioned in your article that home prices are rising too fast, so can you drive a little deeper on your thoughts behind this and in your perspective, what needs to happen in order to cool down the market?

Logan Mohtashami: Well, you know, during this period, I thought, you know, home prices are pretty on average per year. Growth, at least 4.6% or under or even a peak 5-year period of 23%, that’s manageable. You know, adjusting to inflation, the equivalent that isn’t too bad. Of course, that’s not happening. We’re doing double digits, year over year growth. What that does, it eats into the buying power of Americans, especially when rates… Eventually, when they do, when they rise, that is something going down the line.

Now, what cools us down is basically just supply. So we don’t have a credit boom this year. If you actually look at existing home sales, it will probably end up being a little bit higher this year than last year but it’s not like a credit boom. But we have these price gains that would warrant, you know, these massive big credit booms like we saw in 2002 to 2005. We’re just not that kind of housing market. So that’s why I think it’s very unhealthy because we have these price gains, just because of the inventory crash.

Now, I’m hoping that we’re toward the end of the extreme low inventory and inventory slightly rises over time, and that will be the most positive thing for the U.S. housing market, for more supply to cool down the rate of growth of prices because, you know, this is my big fear during this five-year period. And so far, 2020 and 2021 are showing double-digit home price growth, not healthy. So we just need more supply and we’re probably not going to get it from forbearance. It’s just the natural movement of people selling their homes for whatever reason they’re doing it. And, hopefully, that just cools down the housing market or the other variable. The mortgage rates rise, something I talked about last summer,

3.75% or higher should do the trick, considering how hot home prices have been growing. Any of those two would actually be very beneficial for me to start thinking, “Okay, we’re getting back to a more normal housing market. This is just simply unhealthy and unsustainable.”

HousingWire: So as we talked about demand, you know, let’s focus on the housing construction sector. According to the U.S. Labor Department’s recent Jobs Report, employment and construction was unchanged over the last month. So what does this data tell us about builder confidence at this time?

Logan Mohtashami: You know, the builders, unfortunately for them, are dealing with lumber prices, and eventually, there’s gonna be a fight for labor, right. We have more construction workers now than what we had in the ’70s, ’80s, and ’90s, and we had more housing starts back then. So there are workers out there. I am just not convinced the builders are really ready to start a fight for labor, pushing wage growth extremely high because they’re paying so much for lumber and they’re not sure about in the future, if rates rise, do they need this kind of demand so, for now, and I stress this to everybody, if you really want to know what’s going on with the new home sale market and housing construction, you just keep an eye on monthly supply for the new home sale market. As long as it’s below 4.3 months, life is fine with them. They’ll be able to build. But when supply rises above 4.3 months, that means you really have to get your home sales to grow.

The last few home sales reports were the best report in the last 12 years. The monthly supply was down. Sales were up. Revisions were up. Housing starts were up. So, for now, it’s okay as the builders’ confidence is near an all-time high, but in the future, you have to be mindful. When rates rise, things are different. So for now, even with lumber prices, you know, going from 500 to over 1,500, it’s manageable for them. But, again, they’re mindful of what the future is, and I just think that’s just part of how the builders are over the last 20 years. In 2018, there was a supply spike because 4.75% to 5% mortgage rates created enough hit on demand to where they kind of halted the rate of growth of production, so they’re being kind of mindful of this. And I just think, especially next year, we have to keep an eye on mortgage rates, monthly supply for new homes, and housing construction because they’re dealing with a lot of input, input cost that they haven’t had to deal with in a long time.

HousingWire: All right. Well, looking ahead into 2021, how do you think the market will behave?

Logan Mohtashami: Well, I’m not a big housing sales boom person. I specifically use the term replacement buyers to give people the sense that this is not a credit boom, we just have a lot of Americans needing homes to live in. And that total home sales, new and existing homes, should be about 6.2 million every year during the years 2020 to 2024. So hopefully, next year, supply grows, sales does fine, but the rate of growth of pricing comes down. And that’s a very boring way to talk about housing but that’s kind of what I believe. What I’ve consistently talked about is that you no longer can have a big credit boom or construction boom in America but what you can have, it’s very solid, stable housing demand, and Americans just needing a place to live every single year. That’s the built-in demographic demand in years 2020 to 2024 with, again, mortgage rates being pretty much at all-time lows.

HousingWire: Okay. Well, before we go, Logan, is there anything else that you’d like to add today or anything else our listeners should know?

Logan Mohtashami: I just realized that the U.S. economy, even though it’s outperforming all the other economies in the world, it’s still dealing with an economy that cannot walk the earth freely. And I stress to people that if you look at 2008 data, if you look at the job opening data with roughly near 2 million, we have 8.1 million job opening data. If you look at new home sales, housing construction, how load was, not the case now. Believe that each cycle is gonna be unique but modern demographics win at the end. And the prime-age labor force peaked in 2007. It declined. It’s been rising ever since. That’s the strength of America’s economy. Its muscle is gonna flex over the next three decades against countries like Japan, China, and Europe. We have the young replacement workforce. They don’t.

HousingWire: All right. Logan, we appreciate your time and thank you for joining us for HousingWire Daily.

Logan Mohtashami: My pleasure.