On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the new construction data and why we haven’t seen large-scale layoffs of construction workers. The two also discuss the Fed.
Related to this episode:
What’s keeping homebuilders from large-scale layoffs? | HousingWire
https://www.housingwire.com/articles/whats-keeping-homebuilders-from-large-scale-layoffs/
Enjoy the episode!
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 produced by the HousingWire Content Studio.
Related to this episode:
What’s keeping homebuilders from large-scale layoffs? | HousingWire
https://www.housingwire.com/articles/whats-keeping-homebuilders-from-large-scale-layoffs/
Enjoy the episode!
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 produced by the HousingWire Content Studio.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst, Logan Motoshami, to talk about the
00:10new construction data and the Fed. First, I want to thank our sponsor, Optimal Blue,
00:16for making this episode possible. Logan, welcome back to the podcast.
00:20It is wonderful to be here. I know it's Fed Day, and I remember I made my hair all crazy
00:28and go, hey, listen, the Fed's Q&A might make the market as crazy as my hair. And then that
00:33was the day where the bond market went nuts. And I was like, I am never doing that again.
00:37Okay, so let's just let's hope for a calm, calm Fed Day.
00:42It's like somebody's, you know, if they wear their jersey and their team loses,
00:45they're like, okay, I'm never wearing the jersey again, or I can't wash it or whatever. It's like
00:49your hair has to be stable. Yeah, yeah, that's never going to happen. I got totally yelled
00:54at for that one. Understandably. Okay, so let's talk about the new construction home builders,
01:02what we're seeing there. Yeah, the builder survey came out wasn't good.
01:07Right. The only glimmer of hope that I saw in that report is that the forward six months looking
01:14stopped going down as rates have fallen a little bit. But, you know, this has been probably one
01:22of the more frustrating things I see for a lot of recession callers is that they were always
01:27taught and trained that housing leads you into recession. It's technically true, right? When
01:32housing permits fall, starts fall, new home sales fall, residential construction workers lose their
01:38jobs. And then all of a sudden, there we are, the recession happens. This is why we highlight
01:43that chart in a lot of our work. But here we are. You know, it's 2025. Permits have gone nowhere for
01:53years, right? Housing completion is starting to roll over. And yet the residential construction
02:00workers haven't, you know, had their jobs laid off, even though there's actually more of them now
02:06than when housing starts were much higher. And I always like to remind people that remodeling
02:12is a big portion of that workforce as well. But why? And the reason I feel bad is this is
02:18the most complicated housing cycle ever. Right. And if you're not like following it religiously,
02:25you you could get lost so much so easily, so fast that you you don't kind of know what's going on
02:32here. So let's talk about that. Traditionally, the reason that housing leads in and out of
02:37a recession is because people wouldn't potential homebuyers wouldn't have the ability to buy houses
02:44that would go down as you're heading into a recession, correct? Usually, Fed raises rates
02:49to cool the economy down. When that happens, every economic cycle that we see in rates,
02:54they elevated to too long. Housing contracts, new home sales fall, housing permits fall,
03:01housing starts fall. Then residential construction workers come down with it. And then in the future,
03:07the total recession typically starts here. That has not happened. Residential construction workers,
03:13they didn't have any growth in the last report, but it hasn't fallen is the one variable. This
03:18is why it's part of my recession labor triggers. It is not broken yet. And because of that,
03:26we're still here in twenty twenty five. And this goes all the way back in the previous
03:30decade where a lot of people were trying to make a name for themselves by calling for a recession
03:35instead. You know, covid twenty twenty one, twenty twenty two. Everybody keeps on talking,
03:39but the labor triggers have not happened yet. Residential construction workers and manufacturing
03:45are really tied to the economic cycle. But the question is why? Like, how is this possible?
03:50Like so many of my smart people like, dude, like explain it to me. So when we wrote that article,
03:56was trying to highlight what's going on here. And the number one thing is new home sales
04:03crashed in twenty twenty two. And then it stopped. It's kind of like the whole November
04:099th thing, right? The forward looking indicators for housing got better, but for the new home
04:14sales sector, when rates went lower, they could push rates lower. Sales grew. Then all of a sudden
04:19rates go back up higher. Sales fell down. But it's been back and forth, back and forth for years.
04:25Housing permits back and forth, very low levels, no growth here whatsoever. So that's one factor.
04:32Another factor is that for the first time in many decades, when single family permits were
04:38crashing, multifamily permits were increasing. So you need labor for those apartment workers.
04:44And it took double the normal time to finish an apartment project. So because productivity
04:51is terrible and it took long, long time to finish, those people stayed employed longer
04:56than they would have normally had. That's another key variable that's so different
04:59than other economic cycles, the backlog and the long term times. And then number three,
05:05also, we have to remember that the builders in this cycle, their advantage was that the active
05:12inventory was so low. In 2007, we had four million active inventory units. If you look at the NAR data
05:21going into this cycle, when we broke to all time lows, that data line went under a million.
05:26So disadvantage for the builders in the previous decade, there was a lot more cheaper supply for
05:32them to compete against and their product is naturally more expensive. Rates were low back
05:36then. Mortgage rates were three and a quarter, 5% for a full decade. But they did not have the
05:41advantage back then to really grow new home sales as fast as they wanted. We were working from such
05:48a low bar. You can grow sales, but nothing too great. Here, it's like, hey, we have a brand new
05:55home, but we can give you a four and a half to five and a half percent mortgage. Sarah Wheeler
06:00got a good mortgage rate on her new home. They took that advantage and milked it because corporate
06:06profits were elevated. Now, not all the builders, smaller builders don't have the ability like the
06:12big publicly shareholder builders, but they took advantage of that. And it's just kept things at
06:17bay. And because of that, residential construction workers haven't been laid off. They made an
06:23adjustment with single family workers in 2022. Apartments are still pushing through. They're
06:28closing those units. That is more of a risk of the labor market going out in the future that
06:34they would be hit first. But it is confusing to everyone because housing starts came out,
06:41starts rose month to month, 11% of the weather was bad the previous month. But it's basically
06:47at the recession levels of early COVID and housing permits have basically, it's like the
06:52walking dead. It's gone nowhere for years now. Okay. So when you looked at this report, did
06:57anything surprise you or were you like, yeah, that's about what I expected?
07:01It looks pretty much the same. There's this, there's no traction to the upside for new home
07:07sales to really push permits higher. And the apartment sector is in trouble. There's a lot
07:13of loans in the five unit sector that's going to go bust soon. So the ability to really push permits
07:21in that sector is very limited. In the single family permits, it's just basically hovering
07:26right now. There's still a backlog for the builders right now in terms of, there's a lot
07:30of homes for them historically that haven't even dug dirt yet. They're there, but it's just not
07:37viable to grow permits here. So it's confusing because people think why we, people should be,
07:44construction workers should be losing their jobs and also the remodeling sector. So many people
07:49are living in their homes longer and longer. They're putting a lot of money into the remodeling
07:53as your home ages throughout time, you need a lot of work as well. So there's a lot of things,
08:00but I, my advice is for those that are looking for this, if new home sales break toward 2022
08:06levels, if they break under that level, if the builder's confidence goes below the lows of 20,
08:12you are going to get layoffs, right? Because we are so elevated on the labor side
08:16that it's not really designed to break underneath that level. And then you're going to see people
08:21get laid off at that point. But hopefully that the article, all those charts, everything kind
08:26of explains this because people are just like scratching their heads. They're like, what's,
08:30why hasn't it happened yet? And there's so many variables in the cycle that we've never seen,
08:36you know, going back multiple decades and we just kind of take it from there.
08:41What, what impact do you think the tariffs are having on, as far as permits, things like that?
08:47Do you think the home builders are being cautious? This is, this is the concern that the builders,
08:55once they got a whiff that they're going to be tariffs, because look at it in this cost,
09:00it's not just lumber, everything that you put into the house, it's going to get,
09:03and it has gotten as expensive for certain builders. They've already shown how their
09:08costs have gone up. The builders don't really have the pricing power like they used to when
09:13mortgage rates were at 3% and new home sales were growing and everything. Oh, they could push those
09:18costs on the consumers and everything. You know, this was part of the team higher rates thing in
09:222021. I mean, you guys got to remember, I was like the home builders, they have to be put on
09:27there because they are pushing the cost and everything. They, they, they had the ability to
09:32do this, but with mortgage rates here with inventory growing, completed units, growing the
09:40South inventory, they don't have that pricing power. So it just makes it much harder to issue
09:48permits or, you know, really go into, uh, saving those profit margins, which we wrote about in
09:54December of 2024, that this is the wild card sector. And this was before the tariffs even
10:01got on. So you could see why the builders are not happy. And if anybody read the builder survey,
10:06you could see that, that, Hey, there it's great. That regulation was going to cut costs, but right
10:11now the tariffs are the things that are hitting them at this moment. So this is a shock. This is
10:16a, this is a shock that we are doing. This is our policy. So when people say, could there be a policy
10:23error for the builders? They look at it as, Hey, listen, we're not doing that great. If mortgage
10:28rates were at 5%, that's a different story, but it isn't. And this is one of the reasons why even
10:32before, uh, beset and everybody talked about, they want lower mortgage rates. This is the one sector
10:37that was flagging, Hey, this can get bad. If, especially if mortgage rates seven and a half
10:42percent and higher, the builders can't do this down now, the tariffs are just another variable
10:47into that margin pressure out there. So, uh, uh, it's complicated. It's unique. I mean, for me, I,
10:54I I'm ecstatic because it's such a unique cycle. That means you really have to do it,
10:59delve into the work here. You just can't be a one trick pony and just everything is doomed all the
11:04time. And we're sitting here with, we haven't had the layoffs yet, but, uh, it's not a positive for
11:10the builders. That's why they wrote that letter to Trump that Friday night. I think, Hey, listen,
11:14help, uh, give us a home building, uh, materials, right? If you just carve out what we need, you
11:20know, the, the different parts that go into home, which actually feels like that would,
11:24would play into Trump's larger picture of what he wants, which is, um, increasing inventory,
11:31having more choices for people. He, uh, he just, we wrote up yesterday that he is, um, going to
11:36be doing affordable, uh, housing or trying to on federal land. So it feels like that's a carve
11:41out that would make sense for other things, his other objectives. So none of that's going to help
11:48anything right now. That's something years and years away. I mean, building on federal lands.
11:53Yeah. First of all, the, the federal land thing, I mean, for me, I'm a, I'm a, I'm a very pro
11:57supplier. Supply is the best way to deal with inflation. So anything you have to help supply
12:04positive thumbs up here, the federal land thing is going to be a little bit tricky because you're
12:08going to have to build an areas. Do people want to live there? Like if I got like a,
12:13a plot of land in the middle of Los Angeles that nobody was doing on, right. The infrastructure
12:19is already there, right? There's a McDonald's there. There's a Walmart, there's a Costco,
12:23there's movie theaters. You know, I can build something here. And I know people want to come
12:27here. If I'm building on federal land, I need to know that, Hey, listen, people want to move here.
12:32And and it's going to take time, right? We're talking two, three years, you know,
12:38before you start the process, review it and everything and get it, get it going. So that's,
12:44that's a positive in the long run because again, supply is good. But for right now, it's, it's,
12:49it's iffy. The reason I, I mean, my first initial thought is why the white house wanted lower rates
12:55is to make sure that the residential construction workers don't go into recession. But now we're
13:00like, okay, so we're firing government workers this sec, you know, so it becomes a, it becomes
13:06a tricky year because this is us. We're, we're doing this and the builders are telling you,
13:11we have problems here. Right. And you could see it. Like if mortgage rates were literally mortgage
13:17rates were at 3%, I don't think the builders would be like putting too much, but it's not
13:21right. We're near seven and the builders of course can still pay down rates, but not all
13:25the builders are in that category. So I always encourage people when we do our charts for the
13:30builders survey data, we put all the components in there and you could kind of see we're heading
13:35down toward the 2022 level. New home sales is moving down there. It doesn't crash it. But if
13:41we go down to those levels and we break on the sectors done finished, right. We've been able to,
13:47we've been able to keep things at bay because there's periods of times where rates head down
13:51to 6% and we grow sales and then rates go up, but we do not have policy in America by the monetary
14:00side for housing to grow. It's basically, it's, it's all in the data for years. And if you ask
14:06the federal reserve, they'll say, Oh, well, people have to get used to 8% mortgages or whatever,
14:12you know, high rates, or we believe this is the Neil Koshkar, another great Neil Koshkar statement.
14:18We believe the clearance rate is up here. Builders permits are telling you, right? So this is now
14:24going into year three of this. How many years do you want to have permits?
14:30Stay flat, right? And this is why we wrote that article in 2021. You guys are all kidding
14:36yourselves. As soon as rates go up, the builders are. And that was, that was in June. We wrote
14:42that in June in 2021, when everybody was like, we're about to have a construction boom. And I
14:46was like, was I, Sarah, you're so adorable. You people have never run a business in your life.
14:52That's not how it works when rates rise. Cause we were team higher rates in February of 2021.
14:57And we're like, guys, when it happens, just don't, don't say I didn't tell you. So,
15:01right. And what happened to rates finally went up and the builders permits, you know,
15:06got hit and here we are 2025. And it's probably more confusing for everyone right now.
15:14You know, the discussion on the federal lands always reminds me of, you and I were at a
15:18conference in Vegas. This was a couple of years ago and a gentleman stopped us and I was familiar
15:23with you and wanted to talk to you about the fact that you never talk about inventory,
15:28like the old home inventory that's in like these small towns. And there's tons of inventory out
15:32there and it's actually, actually could crash the market. And we had an interesting conversation,
15:37but the whole point is like, yes, that guy was totally wrong. I mean, it's just,
15:44it was the whole point was that there are places you could go and build a house for really cheap.
15:51The reason is because a lot of people don't want to live there. Maybe they don't have
15:55good schools. Maybe there's no job there. Maybe the weather's terrible, maybe whatever it is.
15:59It's like, and, and the federal lands to me is another indication that a lot of federal
16:04line lanes are in the middle of nowhere. Yeah. I mean, that's part of the,
16:09part of the, part of why I think that's more of a longer term thing, but first you gotta,
16:14it's gotta make sense. I think president Trump talked, I don't know if this is true or not,
16:19but he talked about building like Republican cities, like cities that, you know, would be,
16:26you know and you know, again, anything to build supply is good. But again, let's, let's, let's,
16:36let's make sure what, what happened here, our data, all those data, active inventory fell to
16:42240,000 single family homes, the lowest levels ever in 2022, March of 2022, we got down to 240,000.
16:51Okay. The homes that come on the market to sell is all that matters. All this other Mickey
16:58mouse stuff that people have talked about for you does not matter. It is the active listings.
17:02And we got to a very, I mean, this is why we talked about unhealthy housing market at the end
17:07of 2020, very unhealthy housing market in 2021 team high rates, savagely unhealthy housing market
17:14in 2022 early. And I threw the flag up. I said, Oh, we just, this thing has to blow up or else
17:20we're going to get worse. So inventories growing, active inventories grow. We're not back to 2019
17:25levels as a nation, but we're working our way back. This is why I'm happier. I know sales are
17:31depressed. And I know a lot of people look at why are you happy? I said, I look at housing
17:34different than all of you. I look at it as the supply and demand equilibrium. And that if
17:38affordability, like it does no one, any good for home prices to rise 10% one year and 20% the other
17:43year, all you're doing is taking away forward demand. And there has to be an equilibrium and
17:49we're working our way back to something kind of like in the 1980s, where we can, we can do something
17:55going out in the future. Cause this is going to be here for decades and decades. We'll all be dead,
17:59but the housing market will still be here. So the healing process is, is, is getting into,
18:04I love the tracker this week, by the way, I'm like, Oh my God, I'm going to get my 80,000 this
18:09year. Last year I was so high. I was like, there's no way I can't get 80,000 in 2024.
18:13And we're so close to getting back to 80,000 on the new listings, which, you know, normal
18:20pre COVID-19, the peak months or weeks were 80 to 110,000. And it's just, we're working our way
18:28back to normal price growth is cooling down positive. Okay. I didn't get my price forecast
18:34last year. I was too low, but this year, you know, it's still looking as good as you could hope for,
18:38but yeah, it'll, it'll be interesting to later when the fed talks, I I'll be I'll be really
18:48interested to see if the, if anybody asks a housing question, because clearly the white house has made
18:54it part of their agenda, even with beset saying you could unfreeze the housing market in weeks.
19:01Now, I think that's really interesting. You know, from your remarks today, this is something I've
19:06thought before too, is like, when, when it's boring for you, when the housing market is
19:11boring for you, when you're like, Oh, same old, same old, it's probably a pretty healthy housing
19:14market. When you say, Oh, I'm ecstatic, probably not good news for anybody in housing, because that
19:19just means things are complicated and you get to do fun economic work.
19:23Well, I mean, the previous decade was fine. I mean, millions of people bought homes every
19:27single year, price growth, wasn't anything out of, out of, out of hand. And, you know,
19:33home new home sales, even though it was the weakest recovery, we're still growing enough to
19:37grow starts, you know, that was perfectly fine. And, but a lot of people weren't happy with it
19:43because they had, they had way too high of expectations. So the last decade was perfectly
19:48fine for something like me. It's just, when prices escalate out of control, it's never a
19:52good thing. And we don't have like credit things to shut down because it's a 30 year fix, right?
19:57We can't just say, okay, let's shut off the 30 year fix. Look, no, uh, rates were the only thing.
20:02And it was unfortunate because it wasn't like home sales were booming. Like they were in 2002
20:07to do that. It's literally, we have too many people chasing too few homes. And that's the
20:12painful thing about shortages. You know, there's just not much you can do about them in a very
20:17quick amount of time. Uh, and you just have to kind of work. I like egg prices, egg prices. Oh
20:22my God. Egg prices look like CPI inflation, bird flu, egg prices escalate out of control. Oh my
20:29God. We're laying more eggs again. Oh, disinflation falls back down again. It's nothing to do with the
20:34fed or anything like that. Stuff like this happens more for commodities, but for housing, um, boy,
20:40it was just, it was painful to watch, but good. Now price growth. Very cool. Right? Look at
20:46the whole point of team higher rates in 2021. It's like, don't worry about this is not the
20:50housing bubble years. You know, rates go up just a little bit. We'll be okay. And what happened
20:56is it took too long to get rates high enough to, to, to, to get the market cool off again.
21:01But sales are down, but it's not like home prices are crashing and massive delinquencies
21:07and inventory. And you know, that marketplace is gone. It's dead. It's over by the way,
21:13all of you with your FHF FHA, like Mickey mouse garbage takes about how that's so proud. Oh my,
21:20you people are literally so adorable. I am. All I'm hearing is that, oh my God, Logan,
21:26this FHA. I say, does anybody here know there's like 51 million loans? And then they're like,
21:32everyone's face is like, what? Yeah. There's 51 million loans in America.
21:37And this is this, this little tiny, this little tiny thing you think is going to do the job.
21:44You think this is going to satisfy the housing bubble 2.0 people. You, you think that,
21:50that thing's so small, really? I'm sorry. It doesn't work that way. So give us some,
21:56give us some stats here. Okay. 51 million total. It's very simple. 51 million loans out there.
22:03FHA F F FHA. Of course, those who know me, I haven't been a big fan of FHA the past decade.
22:10I don't believe lending is tight. I believe lending is very liberal. FHA is always going
22:13to be the late cycle risk, but this isn't housing bubble 2.0. It's very small. There was
22:18like 12 to 15 million loans that were delinquent during the housing bubble crash years. Okay.
22:24The loan to value data was running at 85% back then we had 23% of homes underwater loan to
22:30value is at 46.6. The median down payment is like 18% now, right? And the underwater
22:37mortgages are near all time lows. You don't have the math on your side. Now people could say,
22:43Logan, they're just trolling. They need attention. I don't care what they need.
22:49I've dealt with the Russian trolls in the last decade. You know how you deal with the Russian
22:52trolls? You challenge them to live debates and they can't get out of their little,
22:57little troll farm camps behind their computers. Cause they're not real people here. This is
23:02Americans. We can do this. They got some of them names of faces. Let me, let me go to work. But
23:08these are two different periods of times. And, and it is interesting how not a lot of people
23:14knew that there's like 51 million mortgages out there, right? And most of them are with 82% of
23:19them are like a mortgage rates at 6% or under a lot of the stock, right? A lot of the stock of the
23:25of the load loans are either with no mortgage or very low total housing costs. It's the new
23:31homes that are coming onto the market from sellers that are buyers or first time home buyers that
23:36have the elevated rate. So you're, you're dealing with a different kind of scope here. So I love it.
23:42God bless you. The FHA is the housing bubble too. No, no. And hopefully by now all this training,
23:49all this teaching, you could realize why the history of human civilization has taught us
23:55always that those that read will always have an advantage over those who don't read. And this is
24:00why we do the charts and when data, when they do the nurture or so everyone has a understanding
24:04because this is a business model. These people are not serious. I'm pretty sure 99% of them
24:09don't even believe it, but the desire to create fear and panic and do, and they will all go to
24:15the graves with it. And they're making a lot of grandchildren will walk over the graves and go,
24:22grandpa was crazy, man. Grandpa was just one of these Doomer people. And this is who they are.
24:27And this is who I am. And when we all pass off to the other life, I will see you all down there.
24:33And it's going to be so much fun battling you all in health.
24:39Logan, no one can say you don't have a flair for the dramatic. It's one of the reasons we
24:43all love listening to you, right? Just you have a way with words. Okay. So any comments about the
24:49Fed? They're going to be meeting here in a little bit. We're talking on this day. If something
24:54happens with the Fed, I know you'll write up something for us. We of course will cover it
24:57with our journalists. Any last words about the Fed? We don't want the hair to look like this.
25:02Okay. Or the Fed meetings. The Q and A's are going to be very interesting. This is one of
25:08these toss-up ones, because I think the Fed can go any way they want and they have validity on
25:14this. They can say, listen, we're going to be hawkish because we don't like the trade war.
25:18Or listen, we're going to be a little bit more dovish because we don't know. We think the trade
25:22war is going to impact jobs. We're going to be waiting for the unemployment rate because
25:28we're firing government workers. There's so many places that the Fed can go because
25:33it's different now, right? This isn't like the last time we met. A lot has happened since the
25:37last Fed meeting. We're firing people. We're doing trade war tap dances. There's business
25:44uncertainty. Retail sales don't look like. I mean, there's all these things that they can go
25:50any direction they want and they have a case for everyone. This is why this Fed Q and A is going
25:56to be interesting. I just hope they find it like a medium to calm everything down out there and not
26:02create a market store because there have been times where the Fed just just says something that
26:08they don't need to say and all hell breaks loose. And it's just like, you know, so this is a tight
26:14rope. Right. I kind of feel for Powell right here because you can go a lot of ways and they have a
26:19case to go any direction they want now. All right. Well, we will be checking back in with you,
26:25Logan. Thank you as always. Appreciate you being on. Pleasure, Sarah. And always remember, yes,
26:30a bit of the theatrics always. Always.