Logan Mohtashami – Bear Crusher
Major Topics: Housing and Macro
Logan Mohtashami is a housing data analyst, financial writer, and blogger covering the U.S. economy specializing in the housing market. Mohtashami’s work is frequently quoted in BankRate.com and Bloomberg financial. Logan is also a Lead Analyst for HousingWire. Mohtashami has been an invited speaker at the Americatlyst, California Association Of Realtors and the National Association Of Women In Real Estate Business, and other economic conferences. He is a recurring guest on Bloomberg Financial, where he discusses the health of the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.
In this episode Logan stops by to describe his data driven process, why the US housing market is "unhealthy," why demographics are a tailwind through 2024, and how Logan pulled off a one of a kind trading year in 2020. Logan brings the heat with this one. Hope y'all enjoy!
This episode is brought you by Koyfin, one of the fastest-growing platforms for financial data and analytics to research stocks and understand market trends. Check out Koyfin.com to see what a Bloomberg-lite, with tons of high-quality fundamental data and a powerful graph engine looks like.
This episode is brought to you by Koyfin, one of the fastest-growing platforms for financial data and analytics to research stocks and understand market trends. Check out Koyfin.com to see what a Bloomberg-lite, with tons of high-quality fundamental data and a powerful graph engine looks like.
Album art photo taken by Mike Ando.
Thank you to Mathew Passy for the podcast production. You can find Mathew at @MathewPassy on Twitter or at thepodcastconsultant.com
+ Transcript
Bill: Ladies and gentlemen, welcome to The Business Brew. I'm your host, Bill Brewster. This episode is brought to you by Koyfin. Koyfin displays financial information simply and elegantly. Koyfin’s one of the fastest growing platforms for financial data and analytics to research stocks and understand market trends. I discovered them thanks to their very passionate users, many of which are my friends. Imagine a Bloomberg-lite with tons of high-quality fundamental data, a powerful graph engine that can show it all clearly in a user interface that doesn't look like it was built in the 1990s. If you're an individual investor, research analyst, portfolio manager, or financial advisor, do yourself a favor and check them out. You won't regret it. Sign up for free at koyfin.com. That's K-O-Y-F-I-N dotcom.
This episode's a fun one. Logan Mohtashami is a one-of-a-kind individual. He really brings the flair in his personality in this one. Known by some as the Crusher of Bears. He's a data driven analyst. They call 2020 almost perfectly. You'll hear moments in the conversation where it may sound like I agree with him and was as confident as he was in April of 2020. I assure you that is hindsight bias and conversational agreement. I was scurred like the rest of you or at least like many of you. Logan, however, documented his calls in real time was right for the right reasons, and he came on here to share how he sees the world. This conversation was super fun for me. I'm thankful he said yes to coming on the show, and I think that it's going to be pretty interesting to a lot of you. As always, none of this is financial advice. All of the information contained in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions and do your own due diligence. Thrilled to be joined by Logan, also known as Crusher of Bears. How you doing today, Logan?
Logan: I'm doing excellent. Thank you for asking.
Bill: Good. I appreciate you being here, man. Thank you. I become a real fan of yours. I was tipped off-- Naufal Sanaullah is the one that told me that I should be following you.
Logan: Yes. He [crosstalk] work for some time.
Bill: Yeah, and then I started watching your fleets which they killed, which is very unfortunate.
Logan: Fleets. Fleets was great, because I was doing that for many years on Instagram stories. When fleets came out, I was just like, “Oh, I'm just going to do with them here and then transfer the actually video to Instagram.” It was really easy for me, but nobody did fleets on Twitter.
Bill: Yeah.
Logan: I know some people are shy, some people contract, like, I don't think they can do it. But fleets was fun.
Bill: I used to love it. For those that aren't on Twitter and don't follow Logan, Logan used to go through before Twitter killed fleets. It's like, what like six or seven charts, right, and you'd go through the economic data.
Logan: Everything, all economic data each day wasn't just primarily housing and just go over it and give historical context, and what does it mean each day. I've been doing that for years and fleets was the first time Twitter allowed me to do it there. I think, the Twitter crowd enjoys it more than the Instagram crowd, because no matter what we all think of each other on Twitter, we're still part of the financial family. So, it means a little bit more to them. Where Instagram, there could be just people there that getting a spell economics.
Bill: Yeah, it's your economic takes and someone's beautiful buttocks and the buttock seems to win.
Logan: Yeah, Instagram’s different.
Bill: [laughs] Yeah, it's not exactly a battle of ideas necessarily. For those that don't know you, I guess, the reason that-- Here's the hook. You pulled off one of the greatest trades in history, and people can figure out how by listening. But more importantly, I really like how data driven you are, and how you're not one to get caught up in narratives. If you wouldn't mind going through your background a little bit and then we can get into to the story and how you see things.
Logan: I started trading stocks in 1996, and then I also got into the mortgage business as well. Our families had our own mortgage company here in Southern California since 1987. In general, my family has been in banking since the late 1950s. So, come around to 2010, my whole writing thing actually started because of Jason Resnick on Benzinga. He saw me debating Michelle Cabrera on CNBC on some Facebook posts, and he actually asked me, “Do you want to be our political economic writer?” I go, “Oh, no. That's not my thing.”
Bill: [laughs]
Logan: But you know what? I really could talk about real estate. I think I could give a different take on it. One thing led to another, I created my own financial blog, and then throughout time, everything developed into more of becoming an analyst. I think around 2015, I decided to, you know what, let's just not make this about housing. Let's talk about the entire economic sphere and really focus on economic and business cycles. I think that's where I saw a lot of the misinformation, and give people the belief that economic models work. In this day and age with ideological takes, and stock trader takes, and political takes, you could lose perspective. It was really, really data driven, and it also happened in the longest economic and job expansion ever recorded history. So, what I wanted to do is just primarily, a lot of people know me for housing, but really to focus on economic cycles and things that matter to give it just a different view for people if they like that stuff. But I always say like, there's two things I would say. Economics done right is terribly boring. I'm not the most exciting person.
Bill: [laughs]
Logan: All right.
Bill: I don't know, man. I think you make it exciting.
Logan: I try, and you really want to be the detective, not the troll. Once you learn, then you start to realize that a lot of takes on the internet or on TV might not be correct or more driven for other purposes. And that's really the goal that all and having the longest economic and job expansion in history and always telling people, there's no recessionary data, no recessionary data. Even going up to February of 2020, ISM manufacturers up, retail sales were up, housing authentically broke out in February 2008. We got the data margin, we're dealing with other things. But it felt like I did it the right way, and then obviously, when COVID happened, it offered probably the once in a lifetime chance for everybody to show their real economic game here. But for me, it was always about showing a recovery model and going with that until the recovery.
Of course, everybody's stuck in 2008 mode and every single decline in any data lines, a recession and everything. But this way, I thought, you know what, this is it. This is my once in a lifetime chance to do it right, and you better hit it out of the ballpark. I think that's what a lot of people know me more now. For the Americas back recovery model, April 7th, the housing isn't going to crash. But explaining why this is isn't the case.
Bill: Yeah, I think what's amazing is, you are the person that did it right, waited for the pitch, and then swung hard when the pitch came. A lot of people don't have the guts to swing hard when the pitch comes.
Logan: Yeah, in March and April, there was a lot of-- When you're an economic expansion bowl like I was for you, you get a target I had. that's part of the-- When you're in this business, that's fair. That's what you take. But I really, really, really believed that we were going to recover in 2020 like everything. But for me, it's the show why, and a lot of people are like, “You're crazy. You're just these permabulls, you don't believe in models, even though, I do have a recession model and check things off from time to time.” But I thought this is it. This is going to work, but we have to show people data lines to follow. I think one of the more important things was to give people dates. We actually in their recovery, we gave people dates to work off of to checkpoint where the progress is coming. Then for me personally, the last thing for 2020 is getting that 10-year yield basically toward 1%. By that time, if anybody was a bearish person, because we had a lot of WLs, Ks all this talk. We are gone. April was the bottom and we just taken off from there.
Now, historically, because hopefully this is a once in a lifetime event. People want to go back in history hundred years from now, they go, “Okay, well, these people all bearish all the way until December of 2020,” but the people that call it right, Neil Duda did it, Connor Shaw did. In explaining why this was the case was more important than the final result for me.
Bill: Yeah, the thing that, I pieced it back together. I wish that I was following you, then I would have made a lot more money, but I did fine. So, whatever. But why was the world stopping not a reason to sort of like--? How did that not break your models?
Logan: COVID happened right in a period of time that I've been talking about for a very long time, years 2020 to 2024. With the Great Recession, you had a credit bubble prime age, labor force peaked in 2007. It declined something that didn't really happen from 1979 to 2007. I'm a demographics guy. So, prime age labor force growing, employment to population those are really big thing. So, I've always said that housing is a year's 2020 to 2024 story and I've always said, America's muscle is it's actually demographics. We have a lot of replacement workers and consumers that's different than other countries. So, when COVID happened, it happened right in 2020. I think what a lot of people missed, especially, a lot of stock traders is that, they saw the inverted yield curve and that they naturally go off of other times, I think, “Okay, well, the recession is here, and in 2018, it's going to be a while.” What happened was economic data was getting better toward the end of 2019, and in 2020, the first two months were really good.
In fact, when I think about this entire period, February 2020 housing data was the most prolific month in the last 12 years. Housing authentically broke out big time everywhere starts existing home sales, new home sales, median prices were up 8% already. That was the bad part of it. But that just doesn't go away because of a virus causing it pause. I've always said, the financial balance sheets of American households have never looked better, and it's the same line I use years and years. It's fixed low debt cost versus rising wages. So, what happened is, consumer debt is primarily mortgage debt. Mortgage debt really didn't have any expansion. Inflation adjusted, it's actually negative still from the housing bubble years. That's why the 2002 to 2005 period was so unique. So, they have fixed low debt costs rising wage-- [crosstalk]
Bill: Wait, I'm sorry. Just to close that circle. Why was the 2002 to 2005 period so unique?
Logan: Because debt adjusted to inflation took off, purchase application data took off, home sales took off. Debt itself, not only did it take off the debt structures, and that's another part of my work over the years. Debt structures were very unhealthy. I think that's the internal work of looking at credit profiles and debt profiles. You had a lot of loans that were created for not long-term fixed low debt caused backdrops. So, you went from an extremely unhealthy four-year period to now boy from 2012 to 2020, you had this very long economic expansion, you had fixed low debt cost more-- Every time everybody refinance, their debt payments went lower, their wages kept on going higher. You couldn't get to more opposite periods in probably economic history going back hundreds of years than what you saw from 2002 to 2011 housing in 2012 to 2020. The backdrop was there, and you always have to assume, majority of people are always working. Even here, majority of the people--
For housing, when COVID happen, you had a lot of people that were in the renter financial profile. A lot of service sector jobs being lost. But if you take what happened in Italy and in China, the first key date was May 18th. By May 18th, things will stabilize. The country just went into a freefall, it froze. Basically, everybody just stopped. But on April 7th, there are two things I needed to see to write the recovery model is the 10-year yield was above 62 basis points. Before COVID hit, I thought recessionary yields, and yield ranges are really crucial in my work. Negative 21 basis points on a 10-year, and 62 basis points. If the 10-year yield is ranging in that we're still in a recession. That's recessionary day. April 7th, it was 73 basis points, the St. Louis financial Stress Index, which is one of the most hated, but one of the most critical and efficient data lines we have was already recovering, and you got to go with it.
Bill: Why is it so hated, if it's so efficient?
Logan: Because it's the Fed created it and-
Bill: Wow.
Logan: -all the Fed haters hate it, and that they just troll the internet with it.
Bill: [laughs]
Logan: Really, if you just [unintelligible 00:13:42] it out, you would have been okay. That index was covering, bond yields were up, we're good to go. But getting people to believe this was not going to be easy. We set data lines to follow to track week after week, month after month, and then what happened is that, the job started coming back, purchase application data had a waterfall die, but then made the sharpest V shape recovery, and we were on our way, and still people were frozen. Why? Because they're stuck in 2008 mode. When you're stuck in 2008 mode, you don't think that recovery is going to be fast. When I wrote down, “Hey, listen, Q3 and Q4 are going to be fine.” By September 1st, we're really going to be in a good spot, I think by August 31th, the markets are you got to all-time highs then. So, that is going to be difficult. So, you give people data lines to follow, and track, and then you see that sharp recovery back because the most important thing we weren't going in recession 2020.
There's a lot of people that thought we were because of the inverted yield curve, but the data lines were positive. You just have to be able to read them. Literally ISM, PMI, retail sales, housing, job openings are still high. Job growth itself was actually much better than I thought the first two months. You just go with that, and then of course, the disaster relief plugged the holes for people that weren't getting their income, and you're often going. Because the contraction was so deep, the recovery was so sharp. April 20, that was it. It was over, and now, we're into 2021, which is a much different situation. But that was the American recovery model, and it worked time after time, month after month tracking it, showing people and again, the last thing I needed to see in 2020 was the 10-year yield get up to about 1%.
But overall, the main thing of the recovery models at the 10-year yield had to get into a range between 1.33 to 1.60. Back in April 7th, I said, that's the final goal that won't happen in 2020, but in 2021, that'll be the case, and every time the 10-year yield started going up, I push the American flag flexing the muscle, and then once we got to 160, we're good to go. Expansion is on different discussion from now on until the next recession.
Bill: But 160, you just get the well, rates are going up, so everything is going to collapse. Isn't that the next argument that’s bound to come?
Logan: It's a perspective of what people think the bond market means. In the previous expansion, when I started incorporating it in my yearly forecasts, I've said the same thing every year. We're going to it's going to be in a range between 160 in 3%. Sometimes, we broke underneath 160, and people go, “Okay, that's a recession. It had happened a few times, it wasn't the case.” Obviously, in 2018, we got to about three and a quarter. Trying to convince people in 2018, that bond yields were going to go down and that we could possibly have a one handle was hard, but I stuck to that, and then growth slowdown in manufacturing data, everything slowed down, and we got the 10-year, and we basically, for the most part stayed in that range. So, I understand the bond market might mean something different, and it should mean something different to anybody, everybody else. But it worked. That 133 to 160 range was connected for 2021. I can't go above 1.94%. So, really, unless I see the 10-year yields get above 1.94% which is a key level for me for some time now or 62 basis points, it's the bond market really isn't saying too much. It's just the movement out here.
The economic expansion is early, the bears whipped in the biggest fashion ever in history, and most of them are long stock still. So, they all make money. Don't let them trick you that they're not long, and we're going into the expansion and now the conversation takes to another level and where we talk about what to look for the expansion, don't freak out when this happens or don't get overly bullish when this happens. We take it as we go. Remember, every day one day at a time, when economic report of the time, believe in economic models. They're historically they work. They're not exciting. But if you just track them gives you a pathway.
Bill: When you say we, just so people know, they can find you at housing wire, correct?
Logan: Yeah, my blog loganmohtashami.com, and I've stopped writing about housing there. I do give economic updates once a month. But for housing wire, a lot of my work, especially, during COVID was there. Almost in a data analytical work. So, a lot of the work is there, and I'm still writing there for the foreseeable future. Yes.
Bill: You said 1.94 is the level. Why is that a level in your mind that you're watching?
Logan: This was critical for me because oddly enough, at the end of 2017, my forecast for 2018 was for yields to invert. I thought we get an inverted yield curve, but when it happens, it also be the longest time between the inverted yield curve and the recession. There's a lot of things that work in the previous expansion that were unique. Even though, some people might not agree that the only the two fives inverted or something to that nature, I believe we inverted the yield curve in 2018. I even checked it off my recession model. But when we got the inverted yield curve in 2019, I said, do not believe in the higher rate growth story until the 10-year yield can close above 1.94% and get follow through selling. I even made it a part of my 2020 forecast that this hasn't happened yet. So, don't go into it until this occurs. The bond market is pretty good on this stuff. So, it never did actually close right at 1.94% and didn't break through. So, this is the reason why, I, for now, I've not ever forecasted anything about 1.94% until other things have to happen.
But we have to realize that every single new cycle that that 10-year yield falls doesn't really retrace back to the previous highs. So, is this the case here? The rate of growth of everything's going to slow down. That shouldn't be a surprise. We're not a fast-growing economy. We just have this. The rebound effect from COVID and the fiscal stimulus and everything. So, growth will sell out. The question is, do we continue the long-term downtrend of lower yields? We don't get above 2% on the 10-year yield, and we just stay in this range like what we stayed in the range of the previous expansion. That to me is a very interesting dynamic that I'll be looking for in this new economic expansion.
Bill: One of the reasons that we may break out if I understand your whole model correctly is, potentially demographics and household formation create a little bit of a push in the economy through-- [crosstalk]
Logan: Well, yeah. Here in the US, it's very unique. We have a massive young replacement workforce. We get that demographic push, obviously, you see it and housing data. But again, population growth is slowing. So, it's not like we're going to get a boom in population growth. The boomers are leaving the workforce, they're dying. We can replace them for now, but population growth like here and a lot of other places is falling. We don't have that kind of labor force, the rate of growth of population is going to accelerate higher, but we just have really solid replacement workers and consumers, and that really matters. The housing data showed you this in 2020. For me, for all these years, I've always said two things with housing. You're never going to get 1.5 million housing starts until the year 2020 to 2024 or start a year. That's been a big theme of mines. Everyone disagreed with me on that. They said, there's no way, because we had an 82% crash in new home sales, we’re working from such a low. So, everybody kept on thinking we’d have escaped velocity in housing data. Because I know that demographics aren't there, we don't have that housing market. You have to wait until years 2020 to 2024.
We still actually haven't started a year at 1.5 million, but also the purchase application index, which is levels 100, 200, 300, 500 kind of that level was the peak during the housing bubble years. We're not going to get to that 300 level until the years 2020 to 2024. We actually got there in the first few weeks of 2020, and then COVID-19 is really messed up all data lines. You have two major COVID adjustments. So, housing remarkably looks like where it should be, but it's because of the demographic force that we had, the biggest housing demographic patch ever recorded in history. It's a once in a lifetime event. It's a five-year period from 2020 to 2024. Then add to that, move up buyers move down buyers, cash buyers, investors, then the lowest mortgage rates ever, you have stable replacement buyer demand. That's the difference between me and other people. I don't call housing like a sales boom or boom in that fashion. In fact, probably on sales growth, I'm probably the least bullish. But you have unbelievable replacement demand in the time where you have the lowest mortgage rates ever. So, the concern should always be about home prices escalating in an unhealthy way. Not crashing, and then, this is why I pick on the housing bubble boys. It's a marketing gimmick. These are some of the worst talented grifting housing people, real estate investor, and gold bugs, whatever they are.
These people were serious, which I actually don't believe them. Nobody would read the census data, and look at how soft that recovery was running into the best demographic patch and think that home prices were going to go down to 2012 levels, which right now would be an 89.7% decline in home prices. That's how wrong this crew was. So, naturally 2020 came, COVID came, it was supposed to bail out a lot of bad stock traders and housing crash people, they thought they were all in, everything was in. So, people don't pay for housing. It was like, “Okay, housing is not going to crash, do not go into your crash mode, wait until July 15.” That was the date I gave them. When the June data comes, you're going to see, it's not going to happen. We already had the V shape recovery, and then they pushed it again like all housing crash people due to 2021. So, this is why I created the term forbearance crash bros. A bunch of guys on YouTube running around saying, “Hey, forbearance, forbearance. Demand is stable, but that still doesn't matter forbearance. Forbearance was never bigger than the shadow inventory was in 2012. So, they're already lost this discussion back in that peak of the forbearance data, but they had thought that forbearance would go to 10, 15, possibly 20 million where I talked about, “Hey, listen. It's like the one-year anniversary of the forbearance crash bros nickname.” I said, this data line is going to come down. All these homeowners were good before this. When the job data comes back, they're going to stay there. This is their home. They're not investors.
Housing is the cost of shelter to your own capacity, they own the debt. They're living here. They're having sex with their spouse or kids are going to school. They're not just going to go, “Oh, well, I'm just going to sell and we're just going to move.” No. They have a vested interest of living in their homes. This is much different than 2002 to 2005. So, forbearance will fall, and it just give it time and what happened over the year, forbearance data crashed. If there was one housing crash in the last year was forbearance, there are nearly 3 million. You would need 3 million sales in declines to actually warrant any housing collapse. Not only were they so wrong, the only thing that really declined in a meaningful way was the forbearance data.
Bill: But isn't this all just Fed and government steamy, and isn't they're all just waiting to crash, Logan?
Logan: Yeah, economics is demographics and productivity. The rest is stamp collecting. When you focus on the Federal Reserve, and this is actually, last year in August, I wrote an article, demographics crushed the housing bears. In that article, I said, the housing bears don't talk about demographics coherently. A lot of this is because people made this assumption that millennials don't buy homes. They do these 18 to 34 age charts, everybody's living at home or student loan debt crisis of the people who know me that you just despise the student loan debt crisis. But the notion that millennials don't buy homes even though, they started buying in 2013, so, the one over the last seven years, whenever I speak at a conference, I say, people, they rent, they date, they mate, they get married, three and a half years after marriage, they have kids, housings a 20 to 22 to 24 store, if you look at when people get married, this time, everything's done a little bit later. So, when this comes, you just got a nice little push from this group, and that's it. There's your replacement buyer demand, and there you got move up, move down cash, investors, everything. Housing will be fine. But if the notion that millennials were poor broke student loan debt crisis living in their basement, of course, you're going to be wrong.
In that article, I said, home sales are going to be positive. That was like in the summer. People like now you're really crazy. No, home sales are going to be positive, because the front-loaded purchase application data was running at 25% to 33%, never really does that very often. It was just makeup demand. We had this surge of housing data in the second half, which is really remarkable but it was just make up demand. In fact, I still argue to this day. We never got back to the home sales we should have had in 2020, we ended that year at 5.64 million, that is only 130,000 more homes bought in 2017 levels. So, this is not like a credit bubble boom, and people are-- But no. People buy homes to live in. They do that every year. Millions and millions of Americans buy homes since 1996, even when interest rates were mortgages rates 8%, 7%, 6%, 5%, 4%. It's really rare in America to have sales under 4 million. I would say authentically, it only happened one period in 2008, the tail end of the housing, bubble crash, and what had happened then was also that was the demographic weak point where primary labor force declined, then you just worked your way up. It was going to be a very slow-- Housing was as boring as it got past 2012. The only interesting time was 2018 for the housing market, which if people actually go into the real detailed work of 2018, you can see what was happening in 2020.
You just work your way up, and then here it is. And also, a lot of housing bears are also anti-central bank people. They think the bond markets a bubble. For four or five decades, the bond market is a bubble and something's going to happen or the MBS-- If you really want a bad housing conversation, go into any discussion where they talk about MBS. That is like a black hole. I rarely talk about MBS, because it's like the worst take of housing economics ever. I finally had to write an article for housing. I was like, “What are you guys doing here? What is this? You're not talking about demographics.” People look at home prices like the nominal home price growth and base everything off that without using per capita wages. They're just not very good at this. So, historically, this was it. They all went in 2020, biggest weapon history. Then they went into 2021, because forbearance for some reason was going to crash, not demographics rates, there's forbearance, whipped again. So, you got back-to-back the biggest whips ever in history from one of the biggest internet crash cult groups we've ever had in history.
Bill: Well, I would like to maybe put a little finer point on something that you said. You said people just aren't very good at this. I would argue they're very good at garnering attention, which may be their actual game.
Logan: Yes, that's why I say they're fake bears. In fact, I talked about the slop. I don't believe these people are that bad, because anybody like, if this was the 1500s and you had to dispatch horses to go get information about some incoming demographic groups like two years later, okay, then I get it. But we have something called the internet. If you have above a second-grade education, and you can visually see there is no excuse. You can't read the census data. It's there. It was forecasted to be there. There are millions and millions and millions of people coming into there-- So, how? No, it's grifting. These are professional and after the housing crash a lot of these bubble boy websites and real estate YouTube people, they all-- It's a model. It's a business model. Hence, be the detective not the troll. But I thought after failing from 2012 to 2019 and these two years, boy, we could just lock them down. Because it's like all these stock traders running around, “Oh, this is going to happen.” They're all net long. There's none of these people. These are all net long people. They think like, this is something, oh, we're going to go shorter, we're going to go cash. No, most people don't do that.
But none of these people like missed the rally. They all made money, and that's why I show my stock returns. So, I go, “Ask all these people for the returns. I promise you, they're all net long and recovery. They all made money.” They just love trolling the Federal reserve for attention. If they don't show you their returns, that also proves it. They all made money, they're all net long, they're mostly net long all the time. It's like most Americans are always working. So, there is no magnanimous group of people that are in cash waiting to buy or stuff like that. So, it's part of the post 2008 trolling of these internet sites, Facebook, Twitter, and everything, and everyone went baby boomer crazy bearish and longest economic expansion in history, longest job expansion in history. COVID, they missed the recovery, but they didn't. They're all net long stocks. They just talk a lot.
Bill: When you were looking, I mean in March, I would be lying to say that I wasn't concerned about some sort of deflationary bust, because I was just worried if you stop the whole world, what actually happens. I never had seen anything like that my life. How long did it take you to process? Okay, this is what life is. This is what were like-- Was the government coming out and stabilizing the bond market? Was that really big for you, or did you never really lose conviction?
Logan: I think it was March 23rd when the Federal Reserve went all in.
Bill: Yeah.
Logan: I think I tweeted out kind of me bald head doing a hulk pose, and I said, “Oh, here it is, we're on. Game is on.” For me, it was like, so. March 12th was the last good jobless claims data. March 18th was the last good purchase application data. So, for me, it's like, “Okay, I got to find a timeframe that I can actually write the model, and I need the 10-year yield above 60 without the margin bond selling. That with some crazy action as well. Then the St. Louis Financial Credit Index, that's falling. Then we go with it right there. But this environment has been is the best trading environment I'll ever see in my life. For me, personally, because I don't write about stocks. Once in a while I might tweet something on housing or something about it. It's not something I do, but I was like, “Oh, my God, I'm going to retire.”
Bill: [laughs]
Logan: I've been waiting for situations like this for so, I am going to retire literally by June 5th of 2020. I said, I'm done. Retired from the mortgage business. Goodbye. See you [crosstalk]
Bill: Yeah, that's awesome.
Logan: Yeah, that's like, I knew this was going to be 2020, and especially, in 2020 and 2021, you're never going to get an environment like this. There's a lot of other things going on stock trading wise that we're different. But it was a crazy time, and I totally understand people thinking, at first, we were going into a depression or what's going to happen. Small businesses are all, everyone's going to you know-- But if you just fall in a few data lines, and then you saw the data recovery, people were shocked that first big job number and everything and nobody really wanted to believe it. Even though, the data lines were getting good, it was really hard people like, “Oh, this is an L shape. This is a W. That's something I've read.” Do not talk about economic shapes of recovery. It was one of my rules in these updates I do with. If you're talking about economic recovery shapes, you're missing the point. The recovery is happening, and you're trying to make a story narrative. No, it was actually one of the better recoveries for low wage workers. People are getting paid. Everything was happening so fast, and literally, people froze, even though, the data was good. By the time even in December, people were just there were still bearish. Everything and, oh, this can't last once the stimulus--
Literally, everyone discounts the people that are working. Even the worst levels of COVID, you had 133 million people working, and then you gave everyone money. You want to plug any hole in any recession, there you go. So, the backdrop was there for this to happen. And just the whole 2008 mentality, I think a lot of people just could not come to grips that we were having this unbelievable V shape recovery, and the US economic data was outperforming the world and especially the housing data had already front loaded and took off well ahead of everyone because it broke out in February. Hopefully, now, people are saying, if you just track a few things, and if those things aren't recovering, trust me, nothing else will. But they were recovering early. It's just the lack of faith in what you believe in. If you do not have faith in your models or anything, then you're waiting, you're frozen. You're frozen. You just have to wait to see what happens. Get ahead of that and the data gets better, you just got to believe it. I think that was one of the key points I tried to talk about last year. When continuing claims are falling, go with it. You can't just sit there and think that the economic-- It was such a deep contraction, you have so much headway to-- so much ground to makeup in this fast time that, I think it just shocked so many people in 2020.
Bill: Yeah, I think that's right. I do want to put something out there that is important, and then I'm going to pin something for our minds. The pin thing is, in the circles that I run in, a lot of people are like, “Ignore macro, and macro led you to retirement.” So, I'm going to change that, and I'm going to say, maybe incorporate some macro occasionally. But importantly, because it does sound like you're super happy, and you made all this money and whatever, I think it's really, really important to highlight that you haven't charged rent since March of 2020, right?
Logan: Oh, yeah. When the end of March came, I have a tenant, single mom. She has a kid. I just said, “Hey, listen, I'm not going to collect rent until COVID’s over.” That's what I said. One thing I asked people like, I'm not one of these people, “Hey, listen. You shouldn't collect rent. There's a lot of people who have mortgages they have to pay.” I said, if you are doing well, this is the time where you should help-- The hate, I got back for that was this like hysterical. I had people, I believe that so, so celebrities come on my Facebook page and tell me, “What do you doing?” What do you mean? People have to pay rent if they have money and stuff. So, people took that the wrong way. One of the things on that pin tweet wasn't so much about just not collecting rent. It's about donating to multiple different causes throughout the year. Even today not collecting rent in 2021 until 2022. My tenant never lost job or anything like that. But it was just like, this is one time where if you could help out, if it doesn't impact your financial aid.
I took a $50,000 hit on that taking all the expenses and everything you got to put into the house. But some of us have done really, really well. If you could just help out a little, it won't hurt you. If it hurts you, then okay. A lot of real estate investors, well, what I said, “Listen, you're not a millionaire. So, you can't do it.” Then they get mad. Oh, but I have-- I said, “No, no. You're not. You wouldn't get upset at me for asking this. I'm not even asking you and you're already mad about it.” Trust me, you can't do this. You don't have that cash flow. That's how you get guys who talk a lot about us back. You just throw it back, I'm not asking you to do it. You can't do it. You got to feed your family. They get so mad.
Bill: [laughs]
Logan: You don't know me. I said, “Well, you're not going to do it. It's a matter of pressing. I don't care. I'm not talking to you.” I've got some really wealthy friends. Trust me. I can make a lot more money than you. I'm more talking about that. You go back and just relax. It's all going to be good.
Bill: Yeah, well, I think it's a really cool example that you set when you did that, and I think leaving that as a pin tweet is very cool.
Logan: The ability to see how it changes someone's life like that was to me, that's a reward. If you ever have that ability to give that a reward to someone you know what that is? A lot of the stock percentage returns was to troll back on stock traders who--
Bill: I do think that's really funny when you do that. Because your returns are as good as they come.
Logan: That’s just like, I literally do it, because I'm just like begging. I'm saying, just people, please show me your returns. Show me that you made money. You didn't make enough money, you didn't have a 300% plus 2020 or 180% year today in 2020. But I know you made money, and it's just like, I know they won't do it. Because I like break it down to the dollar amount to the cent amount. I just like and a lot of these people, some of them have 20 fake names and running around this and I was just like, “They won't do it.” It's just my way to choke because I never done that before. But it was just like, “Okay, I'm going to make a lot of money trading stocks. I'm just going to throw it back,” because everyone needs to say, “Well, if you're so smart and this is going to recover in 2020, you should make a lot of money in the stock market, right?” Yeah. I go, “You know what? You're right.”
Bill: [laughs] That is a fantastic point. I think I’m going to do that.
Logan: You are absolutely [crosstalk] everybody says, like, Kyle Bass comes on CNBC. If I knew where stocks are going, I'd be retiring to beach. You don't retire on a beach. You could retire in your condo in Irvine, California with your socks on, with your sweat pants on.
Bill: [laughs]
Logan: [crosstalk] You don't retire on a beach. So, it was a little bit more playful for a bunch of people who just troll around trying to say, they're great stock traders and they're basically net long 3% to 5% positions. It's just like, “come on. Really?” So, even to this day, I got a few people that might show some, I don't know if they're real or not, but to show your name, and face, and exactly the trade amounts and everything, I knew nobody would do that. It's just like my fun way to troll back on them because the hate mail, and messages, and everything in March, and April, oh, America’s are going to crash, it's like these people are rooting for this crisis. I just like, “Uh-ho, you're not getting all free.” When we get this recover, we’re just going to throw it out back at you, and I guarantee you, none of you will say anything. So far, silence, right?
Bill: Yeah, I got to tell you. It stinks. Well, it doesn't stink. I shouldn't say that. I'm very fortunate, and I did pretty well in 2020, and that feels bad to even say out loud, but it's also true. But there was a part of me that wanted to trade the back half of 2020, and I have had, I think this is right, long-term, but it does hurt looking back like professionally. I thought there was an opportunity to trade into some of the really beaten-up stuff, but I couldn't get myself to do it. Because I was trying to get myself to really think like an investor. But it really was a great market to trade, and I probably shouldn’t trade it.
Logan: You know what? It was-- Probably, the mistake I made, and I'm never going to do this again. When you're up 300% in 2020, and I found a way to get off the Facebook algorithm. Facebook is just like one of these terrible websites. But I got it to where people don't talk to me. But people were asking me about that, and I made the mistake of telling people like my two biggest positions in 2021 were AMC and Tilray. I'm not a Wall Street bets person. I have a Reddit account. I never go in there, but there are different reasons for me. GameStop, it was actually the biggest position I had in 2020 just because I was playing the console, the Q4 console play, and then I didn't realize that Warren Kitty actually follows me on Twitter, and then we had--
Bill: Yeah. That guy tagged me once.
Logan: Yeah, and then we had a conversation a few times. So, I actually went back out, we did talk. I'm not part of that trading group. When the Q4 play happened, I was completely happy with the GameStop position. But I think I sold my last share at 60 and then it just took off. I'm not part of that, but I learned from that on AMC, which AMC was reopening play. I was a big commodities person in this rebound. Energy and steel were like big for me, but AMC, after the news came out that streaming, the stock went from five to two, I was like, "This has the potential to take off." When it did, I didn't give up on it like I did with GameStop, because of the environment. Sometimes, when you trade the environment, actually leads you, and so, it worked out really well just that stock and Tilray as well. But I'm never doing that again, because then everybody asks you about stock, and I'm just like, “No, that's not what I do. Just go away. I’m economics person.”
Bill: Yeah. Well, I have a bit of that. I say that I don't want people to listen to me. I don't mean to be disingenuous when I say that I have a podcast, I obviously want people to listen to. But what I really don't want people to do is listen to the conclusions. When we were doing the background, you said, “What was it like going from law to finance?” I had to figure out how to invest my own capital. This podcast is partly me learning how to invest my own capital on the fly. I've been doing it for five years. So, it's not as if I'm just an amateur. But I almost view myself more as a financial entertainer now, then I mean, I am an investor. But that's a totally different part and I just hope that people separate that. Much in the same way that you're like, “I don't want to be giving you stock tips.” That's how I feel. If I'm exploring an idea, it's an idea. Just like, do your own shit. [laughs]
Logan: Yeah. In fact, that's why I don't do podcasts. I do podcast interviews, I don't do podcasts for myself. I don't feel like I'm that person. I can even be that person. I could run these models and give people ideas. I don't think I'm that entertaining. I think the people I might engage with, make some of the entertainment fact. The way I write, if people read the HousingWire articles, there's a little snarkiness in there. But outside of us, I don't believe I can be a good podcast person, because like in all those fleets, I'm just basically showing the charts and doing that stuff. So, it's just, it goes into the economics done right should be terribly boring. So, I just don't feel I can be entertained. That's why I don't do podcasts. I do interviews. I think that that is very useful in the context. But man, economics really shouldn't really be this exciting. [crosstalk] trend datas. We just had the mother of all historic, crazy events. So, it was one of these times where, “Wow, boy. This is an opportunity to show the economic game that actually matters, that economic models do matter.” The nerdy people are going to be right here if they just stick to their principles and it end up working out and hopefully, we'll never be in a situation to be shocked like that. I think that's one thing that, surge two and surge three and even delta.
The fear of the virus working from the longest economic and job expansion ever in history was the real downdraft. Even with the second or third surge, economic data did not get hit like it did in March. Even with delta, behavior is changed so much. I live in Irvine, California. Delta is out here, I go to the mall. It looks normal. We actually, and this is something I've talked about a lot. In some ways, it's difficult to say, but it's the truth. We've actually learned to consume goods and services as a country with an active virus infecting and killing us. That's what surge two and three and delta has shown. Now, of course, there's things that do get impacted, but in terms of the consumption aspect, that was the big rebound. It's like, we all like, “Oh, we’re all alive. May 18th, things have stabilized. Okay, we can consume goods again. We're going to buy homes again.” I think that was one of the bigger takeaways that I take back during this event.
Bill: Yeah, I think never underestimate the American ability to consume, even with the virus around. We’ll figure it out.
Logan: Yeah, and I always tell people, don't think Americans are soft. We are not a soft country. We are pretty much, we're badass people. Even my biggest detractors, they get out they work, raise our kids--
Bill: Yeah. We are part to be in a bear is exploiting capitalism in a way. I mean, not all bears. I don't mean to talk about all bears that way, but these guys that are just like playing a click game.
Logan: Yeah, that's the thing.
Bill: It’s a hustle.
Logan: That's [crosstalk]. That's why I say, hashtag fake bears. Like south, north men trader. That guy's net long all the time. It's just like, every second, it's like he's hauling a toaster in the bathtub. He isn't. Trust me, he is net long all the time.
Bill: [laughs]
Logan: He's making money. The Federal Reserve is created these spawning clickbait people that is, they are entertaining to be, but the way they write the sentence structures of speech patterns, body language when they talk, you can see that, they're all net long people.
Bill: Well, you know what I think is so difficult about the Fed, and not believing the recovery, and not believing the data, I'm reading Mauboussin’s Think Twice, and I think that, it is all consumed in the same thing. Once you get something that touches politics, I don't know that people can be rational anymore.
Logan: It's a main talking point. For me, I say political economic theory is the worst. I refuse to even engage, and I try to avoid that like the plague. Once you get into that atmosphere, that discussion, rationality is all gone. Where a single individual is almost like an omnipotent, all-powerful person in the entire scope of economic discussion is supposed to change on a dime, not demographics, productivity, not what's happening in the business cycle. So, political economic theory, that's why I hated Facebook, and I had to find a way to get off their algorithm, and now, it's like peaceful, hardly anyone says anything. But Twitter, I can control that because I don't follow a lot of people. Instagram, don't follow a lot of people.
But it's just that once you get into the political economic theory, it's just like, that's not going to work. Then we have that in economics. We have the gold bugs, we have the MMT people. They both clash all the time. A lot of them were bearish people in the longest expansion, because they're pushing their ideological takes on this and some of them has value, some of them don't. So, if you want to do it right, you almost have to not be human. You have to get your emotional thing out of it, and one of the things that I did, that's actually I never have CNBC audio on. Ever. I don't listen. I don't read people's work.
Bill: I don't really want to look at them without the audio and I don't like the audio. So, I never have it on anymore. [laughs]
Logan: I don't read a lot of people's work and I don't listen to audio. I just focus on it, and it's just like, if you can do that which I think is really hard to do. You're out a peace with yourself. I think part of the thing is that, the emotional response that people are having during COVID, I'm a social distance person. I don't hang around with people much anyway. So, I was perfectly emotionally fine. In fact, the one thing I used to do every day that I didn't like to do it was, I had to go to the gym, and I just have to put my sunglasses there like, I don't want to talk to me. But I was perfectly emotionally fine being at home and just working and doing the economic stuff. I think there's a lot of people that COVID emotionally impacted, and they couldn't think right. You get that. If you're a happy, emotional, people loving person, and I got to see that with my eyes, how emotionally people got hurt, because staying at home all the time not what they're used to. So, some of the economic takes that weren't-- I could just see that people were dealing with stuff. Of course, in recent history, it's our first global pandemic. We’re going to have over 700,000 Americans are going to be dead. People got sick. This is the one time where, “Yeah, you have to emotionally check yourself and make sure you're okay,” because a lot of people, it wasn't working well for them. It makes sense. We're not used to this. We're used to
getting up, going to work, doing stuff, hanging out on the weekends. We interact. We took that away from us. So, the psychological impacts of COVID are still long lasting. Until we get it out of the system, and we can just go back to life again, it's going to take some time for some people to recover.
Bill: Yeah, well, I'm just getting over it. I think now, I have a higher probability of changing my life going forward than before we got it, because I mess my wife up and like, we got shots, and it's still messed her up. Whatever, we'll see. I'm happy. I'm in a warm climate now, and I can be outside more often. I don't care if I never have to go inside. I prefer not going inside. So, I just won't. I feel bad for my people that are back in Chicago.
Logan: The whole work from home model, man, I tell you that, that to me is the most exciting thing ever, because that is a brand-new variable that changes the entire landscape of what housing or economics is that, you can actually work not near your house. So many people's residential--
Bill: Not near work. I mean, work from your home.
Logan: Yeah, not near work out. I waiting to see how that turns out. My bias is, I want this to be something that grows and becomes something, but in my mind, I'm always thinking, what happens in a crisis typically stays in a crisis, things revert back to normal. So, I need a little bit more time to believe it. But I do think-- [crosstalk]
Bill: I think, we're close to making this hybrid thing permanent.
Logan: Yeah. That could work. That definitely could work. We saw a growing trend before this happened. So, there's going to be a change, regardless, it's the amount of change. Is it just going to be 15% of the workforce? Is it going to be 22% of the workforce? That in itself would be huge. You have to have 15% to 22% of the workforce, that would be like epically big. That is the really exciting thing to see how that shapes up. Because if you can actually move in, somebody lives in San Francisco with a condo and works in a tech company, and they said, “Okay, you can move wherever you want and you can still work here.” That person is going to buy a bigger home. 30 miles East, or 50 miles East, or whatever. It doesn't even have to leave the state of California. But that changes a lot of things. Here in America, we have seven areas where it's 50% of the population, 50% of the GDP growth, everything, and then all this land and cheap homes everywhere else.
People, I always thought even before COVID came, people were going to move anyway. The whole rent, date, mate, marriage, model, people don't live in apartments when they have kids. They'll move to single family homes. Americans traditionally like single family homes. So, that was going to happen regardless, but this work from home model can facilitate even faster growth on that.
Bill: What do you think of the idea that housings the economy and that a lot of jobs like the multiplier effect from investment in housing is large?
Logan: Well, here's the thing. When we think of housing, to me, it's always like new home sales and housing starts. Those are the things I get incorporated into GDP.
Bill: But then you got repair and remodel, which is huge.
Logan: Yeah. Then there's the existing home sale market, which is a lot of it is just a transfer of commissions, moving trucks, and then the buying of maybe new--
Bill: That's a very good way to put it. I think he just articulated my biggest problem with the housing market in general as a transfer of commissions and moving.
Logan: Yeah, as a transfer existing home sales, transfer commissions, and then you have to get a moving truck, and then moving people, that is usually the case, and then, if you want to buy a new refrigerator or stuff like that, that works out. But that's the existing home sales. The real multiplier is really when new home sales grow, housing starts grow, construction, jobs grow big ticket items, you need a refrigerator, you need a washer and dryer for those new homes. Those things, to me is where housing gets its impact. The existing home sale markets a little bit different. Of course, there's always the remodel, and fix up in that aspect, but I've always thought of that as more of a transfer of commission.
Bill: Yeah, I guess [crosstalk] the reason that I'm asking you on the back of the conversation that we're having is if people are spending more time in their home, I think the idea that, I don't believe that COVID was a onetime investment in the house. I think now that we're on the back end of it. People are looking around their office and they're saying, “Hey, maybe I want to do some work here.” I think the existing housing stock is pretty shitty.
Logan: Well, that's the thing is that, we have a lot of old homes. We have homes that are 40s, 50s, 60s, and they need to be remodeled. We spend a lot of money on our homes anyway. It’s like, we have TV shows to tell us how good [crosstalk] remodel the house to be.
Bill: Yeah, that's fair.
Logan: So, we kind of had this, and I tell people that one of the big housing stories, housing tenure, the amount of people saying the house from 1985 to 2007 was five years. Post 2008, 2008 to 2021, it's probably going to be 11 years now after this year. People are staying in their homes longer. We've been building bigger and bigger homes for many decades. I think in 1975, the median square foot home was 1500, the peak in 2014 was 2700 square foot. Family sizes have also been getting smaller and smaller during that period. So, the house that you get necessarily, it could be the house for a very long time, unless you get a new job, or you have more kids, or you have kids, divorce, stuff like that. People are just more invested in their house anyway, and then COVID happened, and then you're sitting around, and you're bored, and you're thinking, “Okay, let's say, I want a new gym. I need a new office or stuff like that.” So, I know, I was like, “I got to get a gym.” [crosstalk] done. I bought a bunch of gym equipment that I never have to go to the gym ever again. I'm completely happy about that.
Bill: Are you a Peloton user? What's your gym equipment choice?
Logan: Kettlebells.
Bill: Oh, nice.
Logan: I need something more heavy. I'm not so much of a cardio person. But yeah, I was thinking I never have to go to the gym ever again. I'm so happy guy. [crosstalk]
Bill: This is like your dream scenario. This created the change. [laughs]
Logan: [crosstalk] Literally, I hate to even say it because COVID was such a horrific event and people die. So much happened personally in my life that, it's like, I was able to retire, I don't have to go-- Everything is I've set, I'm good. This event facilitated environment for that. The economic work went good. So, I just count my blessings because I can't have anything personally better. It's just such a horrific-- I've always was worried about global pandemics. I used to joke with my golf friends. I said, “Listen, you guys need like a pandemic. Pandemic is like the worst-case scenario. Airborne transmission in this global economy where people are flying around,” and this is actually not the virus x that I'm worried about. This was something that infected a certain age, certain group of people, and I'm worried about something that is ruthless and kills hundreds of thousands of people a day.
Bill: And if it went after kids, forget about it.
Logan: Yeah, in some ways, hopefully, we learn because I always worried about that virus that does not show any mercy, and it's quick. This one wasn't that. So, hopefully, next time, because remembering the history of pandemics, this is not going to be the last one, and hopefully, we're better suited for this. But thankfully, it wasn't that ravishing killing one that just shows no mercy to anyone at any age.
Bill: Yeah, it's weird to see the dichotomy between-- People that did fine and people that didn't, and I think to reiterate your point, if you're somebody and I'm talking to myself right now, that is okay. It makes sense to get back at this stage and has for a while. So, let's get back to housing if that's okay with you.
Logan: Absolutely.
Bill: I think it's interesting that you're bullish-- I know why, but if I was reading you, you're bullish on the economic expansion right now, and yet you say, it's the unhealthiest housing market that you've ever seen. So, do you mind defining unhealthy--?
Logan: Yeah. It’s really--
Bill: Because I put that on Twitter, and I knew that people would bite at it. [laughs]
Logan: Yeah. It's weird because for me, people think of me like this raging, housing bull person. I have to explain this on why I was because when I went on Bloomberg in January, I said, “Listen, we have to worry about home prices taken off.” These people worried about this 30, 40 home price crashing is not going to work. So, what had happened was by the end of summer last year, I thought to myself, “Oh, boy. The number one thing I was worried about for housing in years 2020 to 2012, it looks like it's about to happen.” So, I wrote an article say, “Hey, real home prices are about to take off. It's going to get harder.” The way I explain this is that, if you look at, I think this is a real critical housing discussion that I don't see anybody else having. If you look at total inventory levels in 2014, they've been falling pretty much every year. What else happened in 2014 purchase application data adjusting to population hit an all-time low, and we were working from there levels were going up. So, you have falling inventory with rising purchase application to a no credit boom, nothing like that. But inventory kept on falling. So, then here comes 2008.
The housing marketing gimmick is that, I'm here on YouTube, I'm going to talk about a crash or I'm going to be like David Rosenberg, and rates are going to go up higher, and housing is going to crash. 2008 had about 5% mortgage rates. Real home prices went negative briefly in 2019. But it didn't really send nominal home prices negative. Inventory levels didn't move too much a little bit higher. People are more settled in financial profiles are really good. It impacted the new home sales market a lot. If you look at 2018, the builder stocks are down 30% plus. On paper, it looks like housing is peak. The competence index was falling, monthly supply broke above six and a half months, and then all of a sudden, new home sales weren't growing, but I argued back then this is not a peak, rates are going to fall down, housing will recover, but we're running into this really big demographic patch. So, when 2020 came, housing broke out. I cannot stress that February data before COVID had was the biggest most prolific month and housing was-- whole prices were already up 8% medium back then. We were about to take off in a fashion nobody was ready for. The problem was that happened and we got that data in March. Literally, the middle and end of March, so, nobody cared about it.
What occurs is that, inventory falls even more because demand picks up a little bit more than what it is. It's just a continuation of that trend, then you get forced bidding. In the previous expansion and recession, you had forced selling, you have forced bidding, which to me is when you get days on market to be a teenager, 13 to 17 days, that is not a healthy outcome because this is shelter. This has nothing to do with demand, or it's overheating, or anything like that. This is why I always stressed. If you look at existing home sales, it's not that much higher than the peak that we had in the previous expansion. But when you get forced to bidding, you get these escalated home price levels, and you can see. It's gone vertical. That is not a healthy market in any fashion. People just want to buy homes to live in. This is not an investment thesis, or home prices are going to crash or anything like that. This aspect is not helpful because it's a raw shortage of homes, and that's the unhealthiest aspect. We did not have this issue in the previous expansion. Demand is good, demands better. Of course, it's been a big theme of our work for so long. But we have to get off of this low inventory because it's facilitating higher price growth.
One of the mistakes I see housing bears make this year is that, they see this Fannie Mae Confidence Index and it's like the worst Confidence Index ever to buy a home. I totally agree with it. If you're a buyer of a home, you're not losing your bid to one or two people. You're losing your bid to 15 to 20 people. Think about that as your home buyer. You're qualified, you have 20% down, you're ready to go, you're ready to move in with the family. You're just getting outbid.
Bill: Yeah, your confidence is actually that you're not going to be able to acquire at the house. It's not that the housing market will crash.
Logan: Yeah, it's a completely different aspect. So, in that context, that's why I've always in every interview I talked about the most unhealthiest, because there's just not enough inventory. Now, inventory has been picking up since February. I'm writing these-- home price growth will cool down starting in April, and there's multiple articles. I've got to explain, why. So, what we want to see in America is that we don't want inventory to fade down like we usually do in fall and winter. All this inventory, it's still historically low, but we want to stick and have it go higher. Then once people have choices, the bidding wars go down, and then we're okay. Whatever happens in the housing market, it's okay, but this is the forced bidding action, and also, another thing that people don't talk about much if you're a seller, are you going to sell in this house? If you can't get maybe a three-month extension or anything living in the home, are you going to sell this house and be able to find a home? [crosstalk]
Bill: Yeah, no. I had a realtor call me. She was trying to create a transaction on this piece of land that we just bought. I said, “Look, here's the problem. You've got to find me something to move into.” I was like, I understand why this is good for you. You're going to make commissions on the sale and potentially the buy. I have no idea why this is good for me. Until you can answer that question, I can't do this.
Logan: That's the other aspect of the unhealthy side is that there are sellers out there who go, “What am I going to do?” This never happened from 2008 to 2019. Now, there's all this thing about there's no homes to buy, we had more homes. There were plenty of homes to buy for 2008 to 2019. That low inventory myth has been a big theme of my work for many years that we never had that housing market to where people didn't have choices. This is not it. This is the unhealthy aspect. If you don't have choices, you're forced to bid and then it just eats up into the affordability. So, the faster we get off of this, the better because there is no crash coming. It didn't happen. One way to convince people is that, now, I ask people, okay, so, you're talking about a 50% or 60% home price crash. You're telling me, educated high income earners with positive cash flow are going to sell you their house at a 56% to 86% discount to rent at higher cost. That's where we're at right now in housing with the crash people.
Bill: Yeah.
Logan: They're in. These people stay much longer. Historically, they're going to be fine. They're not going to go, “Oh, well, somebody in YouTube says, it's going to crash.” Nobody does this. My joke is that, there's no person talking to their wife, “Oh, honey, we're going to sell our house, and when the Case-Shiller index goes down to the 200-day moving average, then we're going to buy our house back.” That conversation is never happening. Your wife will slap you and say, “Go back to bed.” It's not the stock market. If you look at the stock market, margin debt goes up and down with stocks. Housing debt is different. The whole transaction, it doesn't have that velocity. In fact, on April 10th, for my own blog, I wrote, “What would it take for housing to crash?” It was a very condescending article.
Bill: April 10th, this year?
Logan: Last year.
Bill: Last year, okay.
Logan: Last year. Yeah. It was just like, all these things have to happen, it's not going to happen. Just wait until July 15th and then you'll see the [unintelligible [01:06:24] You'll be fine. But a lot of is what we call forced selling, people sell my house at 20%, 30% off when they don't need to. And that's the beauty of realizing credit. Understanding credit from 2010 and on fixed low debt cost because pretty much majority of the country has 30-year fixed products. The debt structure of a 30-year fixed product is different than, let's say, an option arm, or interest-only loan, or 100% financing. They get it, that payment is fixed. Every year, your wages increase. You refinance, you're really in a good spot. I These homeowners in America right now are in the best spot ever. You cannot find sexier data than homeowners financials right now. They've the best. Household debt service payments is our all-time lows, mortgage payment debt service at all-time lows, nested equity.
This is the complete opposite of what you saw from 2002 to 2005 with a credit boom. They're in to win it, and that also creates a problem that people just don't sell the move as much. So, inventory levels can go down. That's why I say, this is the unhealthiest housing markets, not because demand is bad, or crash, or anything. It is because the days on market are so low that people are in a forced bidding action, and we should route and we want inventory levels to go up.
I had a five-year cumulative growth of 23%. I said, “If home prices could just go 23% in these five years, that'd be great.” People say, “Well, there's no way home prices could go up 23%," they have no idea what's coming.” You can see what's happening here. But part of this is that the shortage of homes is facilitating. This is why I say, replacement buyer demand. If it's a hot housing market, you have a credit boom. We don't have a credit boom. We just have millions and millions of people looking for shelter, and just keep it at that. That's why I always use the term ‘demographic replacement buyer demand’ built-in demographic. Look at rent inflation now. How's that happening? If people were so poor and couldn't afford rent, rent inflation would take off though. We have a lot of people that need shelter and rent as well. So, you get these escalation costs. So, this is why I say, it's the unhealthiest market for the exact opposite reasons that were the case in the previous housing bubble, the peak and the crash.
Bill: Yeah, you set up the tweet a little bit too easy for me. But I had to use the clickbait. I couldn't help it.
Logan: Yeah. Trust me. I see it that way. It's funny-- [crosstalk]
Bill: As soon as I said it, I was like, you're not going to understand what I’m saying here. [laughs]
Logan: Yeah. I get that whole time. People were, “Oh, you always talk about the unhealthiest markets.” It has to be explained. A lot of my work, people have to read the work because there's a lot of details in there and it's not so headline driven. You have to read, and there's lots of charts, and it explains. But this one is something I've tried to do for a long time. Look at 2014 inventory levels, look at purchase application data. That inventory levels falling, 5% mortgage rates didn't even budge that. When people thought, “Oh, existing home sales are about to crash.” No, it didn't even budge the inventory level much. So, when rates go lower and that demographic kicks in, it draws that inventory down.
Now, let's say, COVID wasn't here. Let's say, I'm thinking about this in 2018. I thought this would happen in 2022 to 2023. The next two years are the sweet spot years in US history. Age, I think, 29 is the biggest this year. First-time median homebuyer age is 33. So, we get into those two sweet spot years. So, I am just rooting for inventory to just go up in days on market grow and then I stop saying that, because then it's choices. Because I've already lost my five-year cumulative price growth in 18 months. So, I'm done. I've already ran out of that. It's just inventory choices, healthier market, less bidding. That's what that unhealthy housing market is all about.
Bill: I've read the Homebuilders, their forecasts, they're all forecasting double digit growth is, well, I shouldn't say all. I’m certain, D.R. Horton is and I'm pretty sure at least two others are. Is that how inventory solves itself? Are you looking for people--?
Logan: It's interesting. You're never going to get a construction boom in America.
Bill: Why is that?
Logan: Just because the builders learn and I think this is where my housing work is different than everyone else's, we overbuilt homes in the previous expansion in terms of the housing crash, nobody believes this. Everybody keeps on saying, we never built enough homes. Builders only build off their demand curve. They do not care about economists, they don't care about the people, they only build what they can sell. So, in 2002 to 2005, we had a really, really, really high growth in new home sales, and in housing starts. What happened was an 82% crash, and then we had the weakest housing recovery ever. People kept on saying, “Well, the builders have to build more homes," they're not going to. You're never going to get 1.5 million starts because you're never going to get above 737,000 new homes until 2020 to 2024. So, 2013, missed estimates for the sector, 2014, missed estimates for the sector, 2015, missed estimates of the sector. 2018, 5% mortgage rates, their stocks are down 30%. One of the builder CEO says, That's the worst fourth quarter since the Great Depression” while everyone says, “They have to build more homes.” They have a disadvantage because they have a product that is more expensive than this massive existing home sales market.
When rates rise, the builders are in a sense always cheap. But when rates rise, they get looked at differently. They are mindful of this. What we saw here, new home sales really broke out, housing starts broke out right on cue. That's fine. Lumber prices took off. It didn't matter to them. They had pricing power, they made you pay up for it. So, now what happened is that, the builders are like, “Whoa, whoa, whoa, whoa.” They don't want to push this. So, inventory is already above six months now for the new home sales. We're at 6.22. People are like, “What's going on here?” The builders know what they're doing. They are always going to protect their margins at all costs. People think, oh, lumber prices are down, home prices are going to go down 10 or 15-- No, they're not. Builders are just going to make more of the margin. That's how it works, guys. When they see this increase in inventory, demand is fine. It's just a lot of housing data got disjointed, because it was like a parabolic move in the second half of 2020. So, they're going to work it, they're going to manage it. When rates go up though, that sector gets impacted more than the existing home sales. These are almost like two different planets, the new home sales market versus the existing home sales market. They're competing against this massive existing home sales market that is cheaper as a geographical advantage, then what the new home sale market wants to do.
But for the first time, I could say this with confidence, where I didn't think it was the case in the previous expansion, the builders really benefited from the existing home sale inventory being at all-time lows, because you want to get into a knife fight with 30 other buyers, put 100,000 more than the asking price or build a new home, which is already more expensive. But, hey, it’s new, I got it. I just have to wait. So, I'm mindful that the builders are working from a very low bar and it's not very high-level sales. But they've lived off of that low bar in housing starts and new home sales for the previous expansion. They have legs to move up. Sales are higher now, housing starts are higher now. So, they lost that low bar backdrop. So, as monthly supply rises, people go, “What's going on, people?” I said, "Listen, the builders are just doing what they do best. Protect their margins, manage it, that's what businesses do" because they have to make money. That's why I say, unless you get the government involved and start paying for the stuff, the builders are just going to go slow and steady. Then I always say with rates, watch the housing market if this happens, if the 10-year yield gets about 1.94%, mortgage rates get above 3.75%, not something that was going to happen in 2021. But take a look and see how the builders act to that because when you have all this price inflation, because if you look at 2020 median sales price, boy, the builders did some really, really good business model work-- [crosstalk]
Bill: Dr. Horton said, we can't raise prices enough. They said, prices are not the impediment to buying.
Logan: Yeah, they milk the margins. It’s just unbelievable. Even with lumber prices, people are like, “Oh, lumber price, People are going to eat it.” They had pricing power. They authentically had pricing power, and the reason they're holding back is because they're not 100% sure of that yet. But mortgage rates are still low. So, when rates rise up, and I know 3.75 and higher doesn't seem like a lot, but I said the same thing in 2013. I said when rates go above 4%, housing is going to slow down. No, mortgage payment is not-- and that's not how it works. It's the marginal homebuyer that gets hit. But the new home sales sector is different than the existing home sales market. Their competition is so much bigger and cheaper than them that they have to be more mindful than, let's say, an existing home seller. So, there are two different marketplaces, two different dynamics. That's why I look at them in a much different light.
Bill: That's interesting. So, the people that currently own their house, it's intuitively, it makes sense. If you're going to sell your home, you sell your home, but the builders have a cost structure and whatnot that it makes it more risky when the rates go higher relative to the existing stock.
Logan: Yeah. Because they do not want to lower prices. [crosstalk] but then they don't want to do that. I think 2018 was a really good year in terms of, on paper, it looked like housing peaked because builders' confidence was down big, monthly supply spiked over six and a half months is my key line. If you get above six and a half months on a three-month average, constructions on hold. That's too much supply for them. We're at 6.2 months right now on the headline, three-month average, not there yet. So, builders manage everything, because they need to make money. An existing home seller who is already sitting on equity, they might have some seller, “I could sell at this price, I'll be okay.” Builders have all this cost structure, everything, material costs, land costs, everything that they're dealing with. So, if people are confused about why they are slow and steady-- it's actually wrote that article for HousingWire recently. I tried to explain why things are just not booming. I just fundamentally don't believe mature economies have construction booms, because they built in so much stuff already, and part of the population is dying off. So, look at the builders in that light and it makes sense. Some of the things they've done in the previous expansion in 2018, and now, currently.
Bill: How does the inventory problem solve itself? What would cause-- you would have to have existing home sellers sell their houses, but then they got to have somewhere to go?
Logan: Well, that's part of the problem. That's why I really focus on the 2014 inventory levels to now. Now, naturally, since you don't have a credit boom and the existing home sales or housing market inventory should rise, I gave targets, 1.52 million to 1.92 million total inventories. If we get there, it's a manageable market, there's no more bidding. But I think people have relied on the housing crashed, what happened for 2002 to 2005 to be like a future model. It's just not the case. Forced selling into a declining housing market off a credit bubble is different than what we have here. So, you have to worry about home prices getting to a certain level. Now, in the future, what can happen is that, days on market gets longer, sellers, because they have so much equity, they don't really need to sell at the peak or anything. If demand weakens a little bit, they could sell even a little bit less. That's something down the line, that is more plausible. But if you're looking for housing starts to really save this, it's just there-- People write about the word 3 to 5 million housing starts short. We're never catching up to that ever once the government comes in and starts paying and building.
First of all, construction productivity is terrible. It's always been terrible. If anybody looked at the data for many decades, it's the worst sector we have. Land costs, regulation costs, everything costs too much for the builder. Unless the government steps in, I even wrote that this year. We're never going to see a construction boom unless the government steps in and pays people. I don't know if you have enough workers even to even have the construction when people want. People are going to say this, they said it from 2008 to 2019, we have to build more houses. I was like, “Not going to happen. New home sales have to grow.” Take a new home sales chart and take a housing starts chart from 1996. They are perfect. It is a perfect symmetry. Because they only build off the demand curve. In the previous expansion, monthly supply was always higher from 2008 to 2019 than it was from any period from 1996 to 2005. That's why I always say, life for the building--
I have this rule for the new wholesale market. When you get 4.3 months and below, life's great for the builders. They can do whatever they want. 4.4 months to 6.4 months, it's okay. As long as new home sales are growing, it's okay. They'll do house restarts. 6.5 months and above, no, that's it. They're not going to do anything. I've always talked about that to give people a reason why I've always talked. I'm the guy who said we’re going to have the weakest housing recovery ever. We're not going to have 1.5 million starts. There's your reason. Your monthly supply was too high because demand was never that good. But it 2020, we got there, we held it for a few months and now, monthly supply is rising, builders are managing. They're doing what any businessperson would do, and that explains some of the lack of growth in housing starts.
Bill: Hmm. How much of anything has to do with-- or I shouldn't say, how much of anything. I need to be more precise. How much of the inventory issue has to do with private equity buying these houses? I've gotten that question before. I don't think that's the issue but I might be wrong.
Logan: It's interesting. I put up a stat, because this is not the first time, we had this talk. For 2011 to 2017, private equity and Wall Street bought 200,000 homes. There were over 40 million homes bought.
Bill: So, that's not the reason.
Logan: It's just like, God, there's so many bad housings takes and that's one of them. There's a lot of real estate investors, there's a lot of rental properties. There's a lot of properties where people rent. One question I get a lot is, why aren't investors selling their homes? Well, in a low interest rate environment, what gets you yield--
Bill: Yeah, what's your alternative?
Logan: Right. I haven't raised rent for my tenant for eight years, and then I just recently did some numbers what it would be if I was a normal person. I'm thinking, “Wow, that cash flow is really good. No wonder these people aren't selling.” So, I've always talked about that, that these people, they don't look at it as the capital gains. They might use their equity as leverage to buy maybe more real estate, but that rental yield is just good. For USA Today and The Washington Post a few months ago, everything I'm saying, guys, rent inflation is about to take off too. Don't think it's just home prices. We have a lot of people that need homes and it's going to go off. Now, we see it on the rental side as well. Mother Demographics, man, she does not play around. You cannot mess with her. When she brings her legions of armies, and you're not ready, she'll run you over, and that's what happened with housing, is just simply too many Americans need shelter, and there's not enough supply. That in a sense, it's the inflation story here, it's not too much money or anything. There's just too many people.
Bill: That's interesting.
Logan: That's your inflationary cause, that's your home price cause. Mother Demographics, she's the one. Blame her. I always say, you guys blaming the Fed? No. There it is. That's a lot of people. That's why I always do those demographic charts over and over again, and people go, “Wow, you're right. That's a lot of people." Really, you think? This has been here for decades, and now you're like, “Ah, no, these people are going to be homeless.” People make $100,000, $200,000, they're just going to be homeless, because some guy in YouTube said housing is going to crash. By the way, this is a marketing gimmick that they do every year. They call it the house trap. Why would you want to buy your home when your home prices are going to drop down 5% or 10%? They do this every year. It’s such a marketing gimmick. Americans don't care. Americans buy homes, they buy shelter. They're not sitting there thinking, “Honey, I can't do this, because so and so said, I'm just going to wait.” Your wife left you with another guy right now, right?
Bill: [laughs] Now, you're in that bigger house and you're single.
Logan: Yeah. Just like, come on.
Bill: That other guy paid more for his house. [laughs]
Logan: Yeah. A lot of it is just marketing grifting things. I don't know if people just don't realize these people are faking it. Normal people don't act this way. In fact, at a recent event, I talked about this. If there was one time in history, where shelter was not going to be looked at because people were afraid of prices were going to crash, it would have been COVID 2020 and 2021. Here's COVID, everyone says home prices are a bubble. They're going to crash back to 2012 levels. Pause, red light, green light, V shape recovery. More Americans bought homes with mortgages. Mortgages, in 2020 and 2021 than any period from 2008 to 2019 makes perfect sense. If you just adjust it to demographics age, everything looks normal. It's not a credit boom, it's not a sales boom, just got a little bit more people because people demand inflation. That's the term I use a lot. Demand inflation. We can create inflation because unlike Japan or Europe, even China, primage labor force are all in decline. We don't. We got the young kids. They’re coming in. Millennials are people too. They buy homes, they have kids. Nothing to worry about them.
Bill: I thought that they were all in student debt and destitute, Logan. I don't know.
Logan: There are so many bad takes in the last expansion. So, it should shock everyone. Everybody said, “Millennials are poor, they're broke, they can't do anything.” Now, what? Now, they're part of the K shape recovery. They went from being broke and living in the basements to part the K shape recovery. They are not the problem.
Bill: Well, I'll tell you what. You're not making me very enthuse-- I'm not optimistic on our ability to solve the inventory problem after all this. That's a concern.
Logan: Inventory should rise. The first wave of numbers I think about is, wait till we get to 1.52 to 1.92, and then there'll be a balanced market in the sense that there'll be less bidding wars. Take it slow and steady. Don't think of inventory as a velocity issue. Now, of course, forbearance when it ends, the evictions, moratoriums, they're going to be landlords who are going to sell their real estate investment properties, like, “I'm sick of it. I don't want to deal with this.” That should help a little bit. But again, forbearance was never going to be the massive inventory spike that people had forecasted. The way they look at housing economics more applies to a stock rather than the housing industry.
Bill: Yeah. Well, that's what I was listening to Jeremy Grantham’s bubble thesis this past weekend, and I was thinking to myself, “Okay, well, let's say that everything implodes.” Unless everybody loses their job, really, the risk in homeownership is that you lose liquidity or something, because debt service coverage is very, very good right now. So, I just don't [crosstalk] to get my head around.
Logan: When we think of recessions, unemployment rates getting to, let's say, 10%-- Of course, the COVID was different. But you have to remember, 90% of the country's working. I think we lose perspective about that, because everybody wants to put their ideological takes on it. I remember last year, when people say, smart people, some of my economic friends are, “Why are people buying homes? There's 20 to 30 million people unemployed.” You forgot the 133 million people working. The US housing market in a sense just needs 4 million mortgage buyers a year. That's it. So, out of 133, the demographics where rates are, why wouldn't it? So, I think sometimes people lose perspective of the people working, and they think the smaller portion of the unemployed is going to create some type of Titanic event where you can marginalize any sector if it has leverage or credit growth. Housing never had any of that in the last expansion.
What's another sector that has imploded twice? The oil sector. We've had two crashes in oil since 2016. We see that in rig counts. Rig counts had an explosion from 2010 to 2015. Then, we saw a crash once. Then, we saw a crash again. The oil industry is probably going to be very mindful of their supply situation. They don't want to crash another time. So, if you don't have leverage, credit expansion, you have to be mindful. The easiest way to say it, if there's no boom, it's hard to have a bubble bust. So, that's how you have to look at it. Remember, demographic profiles matter. So, if you have a demographic fall off, one of the things that I've been talking about for a very long time. JOLTS 10 million. I was tweeting JOLTS 10 million many months ago. I say, we're job openings are going to get over 10 million. If you look at that trend and job openings and then you think, the baby boomers are leaving, they're dying off, there's parts of the US that have no primage labor force growth. Job openings are going to get to 10 million. I think, we could get up to 14.79 million at some point. That makes sense. Telling people that job openings, we're going to be 10 million, I got a twilight zone. Look like, “What? No way.” There's no way and the same thing happened in the previous expansion when I wrote, everything, it's 6.21 million job openings.” It was like, “No, there's 96 million people out of work.” It's like, “That's a lie.” There are 6.2 million job openings. When it happens, don't be shocked.
Bill: Well. I think it's very cool to talk to you, and to follow you, and see data driven in a world where the bearish takes really do get the clicks. It's much easier to be a bear and get attention, I think.
Logan: Luckily, I never needed the money to do that. So, I’m very fortunate.
Bill: [laughs] Well, it's nice to find you.
Logan: I was like, “I'm not going to do it.” Why my blog was free for that very reason for all these years. There's no advertising, there's nothing in that. HousingWire, it's for broader audience that are mortgage and real estate. So, that just grew the readership millions of people, but the blog being free, and everything being open to the public was critical, because I never wanted to be one of those that did it for the need of subscription, or attention, or marketing. I think that was the key. I'm fortunate enough to be in that position that I could do that. So, it was never about that. It was about economic models, and being nerdy, and boring, and having to work in this day and age, you have to make it somewhat exciting, but I understand why they do it because it's a business model. I don't think people understand that Harry Dent in theory would be the worst economic forecaster in the last 15 years. But he sells books. He tells people, Dallas is going to go to 6,000 all the time. He does it every year. It's a marketing tactic. He doesn't really believe that. But it is what it is. This is the world we live in. Even if we don't recognize it, we can understand parts of it.
Bill: Yeah, no doubt. I do have a couple of listener questions for you. I don't even know how you're going to argue this after this conversation, but one of them is, I'd like to hear Logan argue a compelling and well-reasoned possible bear case for housing.
Logan: Well, bearish in the sense of two things that are different. Prices, the rate of growth of prices should fall. That's what I'm actually rooting for. I think the housing discussion gets into two forms. People care about price, not the economics of it. Right now, one of the reasons I say it's unhealthiest, home price market, I've lost my five-year cumulative growth. So, what can happen, let's say, if mortgage rates rise to four and a quarter percent. Housing will slow. That is in a theory, a bearish case, but it's not a crash case. Everyone's revolved their lives around where prices go and not the economics. This is why we spawned some of the worst housing people in history the last 10 years, because they only care about price, not the economics of it. I'm the guy who said, we're going to have the weakest housing recovery ever, but prices were kept on rising. People were like, “How is it--?” I said, that's a whole different thing. Rate of growth of pricing should fall. I've written many reasons why this should be the case going back from April and some of the stuff in HousingWire but it explains why and that to me is bullish in 2019 when real home prices were negative. Not a lot of people know this, but real home prices just as the equivalents were negative. I was like, “This is healthy. This is a good thing for the housing market.” People are like, “Oh, no, home prices are about to crash,” and I say, “No.” It's like these people are on drugs before they talk every time. Not everything is going to be a crash. You can have ebbs and flows. It's okay. This is why, I say, some of these people are the most fragile people in the world. Pending home sales fell 2%. Oh, housing's crashing. Get off of this. Get off of that.
So, there's many articles that I wrote on when housing data gets bad, it's really evident. But the scale of what you're talking about, what you're looking for are two different things. Remember, you have built-in demographic demand, and this is why I've always talked about home sales under 4 million is where-- If you're a real housing crash person, you need home sales under 4 million. So, one of the things I thought about is the housing bubble boys are talking about a 70%, 80%, 90% price crash, they need home sales to go under 2 million for that to happen. That's never happened post-1996. A lot of my work is post-1996. I don't even care about what happened-
Bill: Why is that?
Logan: -[crosstalk] anything pre-19-- Just because the civilian labor force grew, and mortgage rates took another level down. You go look at post-1996 data, and you can see the deviation in prices because demand picked up, because that's mortgage rates. So, in theory, if mortgage rates got above, I would say, 5.875. If mortgage rates got above 5.875, a lot of my affordability index get all messed up. How can you get there? No, if you look at that downtrend from 1981 down, I think that was like in 2018 at the economics conference I was in, all Wall Street economists, 50 of them said, rates are going higher. The economists that were with me said higher, I said, no. Rates are going to go lower next year. Why? Forget about all the reasons you think rates go higher? 1981, look at that chart. I just literally want [unintelligible 01:33:55]. That downtrend is intact. It’s COVID--
Bill: Because of the Fed, man. It's the Fed.
Logan: I know. That's why the whole MBS. I tell people, I encourage people, do not get into a housing discussion with anybody who uses MBS first. That is a black hole that's going to lead you to bad places. 2014, that was a thing that people are talking about. Housing is going to crash because the Fed is tapering, okay. Bond yields are going down, mortgage rates are going up. QE is going to end-- QE-3 is going to end up. Okay, mortgage rates still went lower. QE-1 ended, yields went lower. QE-2 ended, yields went lower. Don't get caught into this MBS, QE discussion. Think of housing as demographics and mortgage rates. Long-term downtrend, 5% mortgage rates didn't move the inventory channel. So, if you're thinking about pricing, be careful of going overboard. Now, of course, home prices have gone well above that I'm comfortable with. I'm rooting for a cooldown. A rate of growth cooldown would be the best thing for housing. In my perfect world, we'd have negative pricing to flat for three years for the wages to catch up. Is that going to happen? No. But rate of growth cooling down is a positive-- I know what's going to happen. They're going to see the rate of growth cooling down, they're going to go, “Oh, housing's crashing.” Because that's who they are. They can't operate in any other way.
Bill: Yeah, almost it becomes religious in a way.
Logan: It is. I've always said this. The housing crash people are very common with historical cult groups, and it's gone for so long that it's impossible for them to go back to their original point. But higher rates do matter. It's the scale that matters. The new home sales sector gets impacted more than the existing home sales market. So, when I say the unhealthiest housing market, it's really because prices went up so much, cost for the builders, home prices, that vertical pricing cannot be sustained, and the rate of growth should cool down. Now, if I'm wrong, which I don't think I would be wrong, but if I am wrong, that means that years 2022 and 2023, the two sweet spot years ever recorded in US history, there's just too many buyers to prevent the inventory levels to go up. That's why I was saying, people go back 2014. It's always written in a lot of my articles. Look at that inventory channel. You now enter the best demographic patch in history right now. So, be careful with some of your bearish takes, and know that these people are going to be living in their homes, completely fine, the top of the economic food chain in that sense, but the rate of growth should cool down. That is a bullish thing for me.
The bearish aspects for me is that inventory falls in the fall and winter, and we go back to starting from near all-time lows again. That is not a healthy thing. I'll deal with that in 2021. But from now to the end of the year, that's all I'm focusing on inventory level sticking and going up higher. That'll be the most positive thing for the housing market.
Bill: Interesting. Do you have thoughts on Zillow, Redfin, and iBuyers and what they're doing to the broader real estate landscape?
Logan: Zillow is an interesting question, because people ask me, “Why has Zillow’s stock price collapsed?” People look at Zillow said, when it actually looks like the 30-year chart and the 10-year yield going back to 1981. But they don't make money doing this.
Bill: That's not great.
Logan: Yeah. They don't make money doing this, but they like the market share. I understand what that sector does. You're going to have to give that about another seven to eight years to see how much it impacts. But for now, Wall Street's letting it slide. We'll see how much more they're going to be invested in doing that. But in a slowing rate of growth price market, I'm questionable to see how that works. Now, because Zillow has been buying and they've actually been flipping properties, they're not big enough yet to be a very big force, but they have the potential to grow. That whole sector has the potential to grow. So, we'll see. But it's probably seven to eight years away before becoming really meaningful in that regards. But for now, Wall Street is let it slide. I know Zillow’s price’s down, but that's often a very, very strong move recently.
Bill: In seven to eight years, the demographics is going to be a little bit worse, I would think.
Logan: Well, the after years 2024, I'll have a completely different conversation with housing. But the reason I kept it at 2020 to 2024 is because I was concerned about what does the price growth happen here to change anything that happens in 2021 or 2022. So, obviously, things are going to change at some point, the baby boomers are all going to die off. Gen Z is massive, bigger than Gen X. So, you'll have demand there or the need for shelter. It's just this five-year period is once-in-a-lifetime economic event. So, I show it the respect it deserves, and I'm not even thinking past 2024 yet until I see how much price damage is done, and everyone could see what's happened in 2020 and 2021 already.
Bill: Awesome. One more and then I'll let you get out of here. Any thoughts on blockchain and how it impacts? I don't know if it's title, or real estate, or any of that, or is that not really--?
Logan: There is a very good possibility that there are no more title companies 5, 10 years from now if it's ever utilized. Again, there's a lot of good ideas, and there's a lot of good technology. It's the execution that makes the real difference. So, we'll see how that impacts the title industry. I think that's where it would be really interesting that kind of technology going after an entire sector. Again, somebody has to be willing to put the time, and money, and the execution part into that. So, that is the interesting aspect of blockchain.
Bill: Agreed. I had a little quick debate with people on the Twitter machine over that and I said, I would worry about the terminal value risk. They pushed back and said there's so many disparate entities that have the data and very few people that have the incentive to take away or to really change the system. But it's something that I thought about.
Logan: Yeah. That’s the thing is like, who's going to do it? There's tons of great ideas, but people have got to execute on them, and that's a lot of time, and money, and humans have a certain lifespan.
Bill: Indeed. Well, you have given me a lot of time, and you also have a certain lifespan. So, I'm going to let you get back to it, lifting your kettlebells. And I've got to tell you, man, I really appreciate your time and I really appreciate what you get back to the community. Thank you.
Logan: My pleasure to be here.
