Mohtashami: Cities Aren’t Dying – Demography & Rates Drive Housing

Published on
August 31st, 2020
Duration
49 minutes


Mohtashami: Cities Aren’t Dying – Demography & Rates Drive Housing

The Interview ·
Featuring Logan Mohtashami

Published on: August 31st, 2020 • Duration: 49 minutes

If you haven’t been living under a rock, you’ve probably heard the narrative that cities are dead and that white collar workers, now unburdened by the ability to work from home, are fleeing to the suburbs as fast as they can. Logan Mohtashami, lead analyst at Housing Wire, explains to Real Vision’s Ash Bennington why it is nothing more than an interesting narrative. He goes on to add that, aside from a few pockets in New York and San Francisco, the relative strength in the suburban housing market is being driven by the only factors that matter -- demographics and mortgage rates. Bennington and Mohtashami also drill down on the relationship between bond yields and mortgage rates and the knock-on effects into housing demand that you could see depending on different scenarios for those rates. Filmed on August 26, 2020.

Comments

Transcript

  • JP
    John P.
    1 September 2020 @ 10:08
    It seems like too much of Logan's points are black and white thinking. "Housing is going up, the crash bears are wrong." What if housing is flat to negative yoy for 3-4 years with an overall decline of 15-25%? How about a decade of nominal price increases not keeping pace of inflation? These are not crashes but are things that happened multiple time throughout history and could easily happen again. Seems like he is much more focused on transaction volume than price. I live in socal as well and it is not as rosy as it is presented. True the prices have not changed much at the lower end of the range, townhomes have been particularly strong, but the upper end of the market is down and may have even peaked pre-covid. I work on the commercial side, so I don't have a good awareness of who the typical buyer is right now but it has puzzled me for the last 3 year how the actual millennial couple is buying anything in the CA market. Sure, there's family help and buyers with equity built from 2010-2014 but besides that? Personally, I don't know a single home owner under 34 that simply went out and bought a single family house in Orange County with a 5-10% down payment and no external help. I have a hard time understanding how this trend simply continues in a recession.
    • LB
      Lukas B.
      1 September 2020 @ 10:55
      100% agree. He's giving a sales pitch on buying because that's what he does for a living. I'd be interested to see how he continues that sales pitch 6 to 12 months from now.
    • JK
      Jon K.
      7 September 2020 @ 01:12
      In March the mortgage bond market died and Treasuries were trading like penny stocks. Then loan servicers got hung out to dry as they were still obligated to pay the bond holders even though congress gave the whole country a free pass with a moratorium on payments, i.e. forbearance. The whole mortgage market was non-functioning for nearly two-months. Then the Fed came in with a trillion dollar bazooka and is still buying billions of MBS on a schedule, bailing out the mortgage bond market. It would still probably cease to function today, and still doesn't have a non-conforming market. Currently, if the loan doesn't meet conforming guidelines, specifically county loan limits, then good luck finding a lender because they can't offload the debt to the GSE's (Fannie, Freddie, or Ginnie). Nothing like taking a victory lap after having your theory "bailed out". Mortgage rates will be sub-1% at some point, so he'll get to pretend it's just demographics and rates for a while longer.
  • DT
    David T.
    6 September 2020 @ 00:02
    Logan Mohtashami has been correct YTD. Guy knows what he is talking about.
  • PS
    Peter S.
    1 September 2020 @ 07:26
    Compared ot markets I have been overly pessimistic, and he believe he has a point - people that have a job, they buy what they can afford in the moment, and given zero-rates, they can afford a lot... I, as many Real-Vision viewers I guess, are more perma-bears that struggle understanding how all of the credit-based economy continues to function
    • RM
      Robert M.
      2 September 2020 @ 15:37
      Agree on the point of credit based economy. I too wonder how long it can run. But saw recently that mortgages were eating up 37% of income. So getting close to maximum buying capacity.
  • TP
    Timothy P.
    1 September 2020 @ 16:38
    Mr. Mohtashami is exuberant and full of charisma. I'm sure it helps his business deals, but I couldn't help but think of the real estate broker in "The Big Short" where she says "Oh, its just a gully in prices..." in a half-hopeful tone. I agree that people move from urban areas to suburbs regularly due to different stages and needs in their lives, but he conveniently danced around the fact that this time, the hollowing-out of cities is happening in many markets. I'd suggest he take a look at UHaul rental rates - to escape an urban center they are disproportionately higher than ingress -- and that number is much higher than "normal" cycles of outflow. The "Detroitification" of many cities is ongoing. Their local economies are shut down, and in instances where they are open, its at a fraction of normal volume. In tourist-heavy cities like DC, hotel occupancy is hovering around 10%, when it is usually much higher. Combine this trend with second-order effects of an eroding tax base, both citizens and businesses, and you have a slow-motion implosion wave that hasn't even hit the shore. Deferred rents are expiring, and even with the Fannie Mae and Freddie Mac extension through December of this year for foreclosure, you're looking at pent-up disaster ready to strike. I take great umbrage at Mr. M's assertion that "Well, they qualified for those loans, so they can take care of it". It belies a rather simplistic view of the employment landscape (massive temp furloughs turn into permanently laid off workers) and the simple equation of demand fleeing the urban centers, so certain job sectors are hit -- hard. We're starting to even see the white collar jobs get hit after the massive bloodletting in the service/hospitality industry. If they don't have income, they're not going to make good on their loan. Without forbearance, they'll not bother to stay. If a homeowner had the choice, they'd take whatever remaining equity in the house -- try to re-fi to get the cash, and then flee to the least expensive area -- or buy an RV and try to rough it out. (Coincidentally the RV industry has been BOOMING, proving out this theory) This is the "Great Migration". It isn't temporary, it isn't just people getting sick of small apartments, its a fundamental shift in where people live, and why. The economy is not a light switch. Its more like a big, heavy dynamo. It takes a lot of effort to get it going again, and the second-order effects of this will make that more apparent.
    • RM
      Robert M.
      2 September 2020 @ 15:35
      Anecdotally, have 2 millennial daughters. Both were urban dwellers and wanted to be close to things to do in the city. Now my oldest is buying her first house in the suburbs in Atlanta after realizing that her and her friends' lives are changing with marriage and children and hoping on the beltline on a Saturday holds less interest than owning a home with a yard at a reasonable price. My youngest is now talking about buying a home as well. So the secular trend for millennials is starting in home ownership, well timed to boomers downsizing. But do see a trend away from living in the city similar to the one I experienced in my 20s.
  • DR
    David R.
    2 September 2020 @ 11:46
    « [...] think about all the workers who still work [...] » It is true that we often hear about the ones who lost their jobs.
  • mB
    marc B.
    2 September 2020 @ 00:43
    Real estate is a good inflation hedge. Leave sf buy home in suburb makes sense. 1 bedroom in sf is 5k to rent.
    • mB
      marc B.
      2 September 2020 @ 00:46
      Why wasn’t he on in April?
  • TJ
    Terry J.
    1 September 2020 @ 17:24
    Logan is a serious breath of optimism for the US housing market. Thanks RV for bringing me up to speed on the exciting and reassuring truth about the property market!
  • DT
    Daniel T.
    31 August 2020 @ 06:59
    Finally a view that contradicts the core RV thesis! Pls continue to invite people with different views and try to eliminate confirmation bias.
    • KB
      Kurt B.
      31 August 2020 @ 13:40
      Outside of BTC, you’re as likely to see a unicorn on RV as you are a bull. That said, I love RV and find the bearish cases made by incredibly accomplished guests to be informative and persuasive. I learn every day. And I think about things in new and different ways. I find the RV Koolaid to be refreshingly delicious despite the bearish leanings.
    • JK
      John K.
      31 August 2020 @ 17:38
      Yea I mean you have to remember none of these guys are permanent bears or anything. I think most guests that come on have said 2021/2022 will be a great year to invest. I just think these guys have seen their fair share of recessions and are far more cautious than a lot of people who are seeing their first one from a market standpoint. Also every hedge fund manager I’ve talked to since 2017 or so have been pretty consistent that they believe this extreme debt that governments are taking on will have to crumble at some point but their all forced to participate because you gotta make your money somehow. It would be a pretty boring channel if they told you to dca stocks no matter the valuations. If you want that viewpoint then why are you even here.
    • GJ
      Gino J.
      31 August 2020 @ 18:06
      Mohtashami is well known for being too optimistic on his economic views. Even when his own threshold data points go below his expectations, he desperately seeks alternative data points that will support his optimistic views. I am all for being optimistic in life, but when it comes to investing, I don't want to hear from someone that tells me everything is fine and ignore the risks. Everyone knows, failure to accurately assess the economic landscape - both the easily seen, and the yet to be seen beyond the hills; will get you killed. Perhaps RV should invite people like Larry Kudlow to satisfy the needs of our member community or if you are not happy with the bias on this platform you can cancel your subscription.
    • DT
      Daniel T.
      1 September 2020 @ 14:10
      The reason I mentioned this is because I do think RV suffers from a confirmation bias irrespective of the thesis being right or wrong and personally I always try to understand people who have an opposing view to me, that’s how I can challenge mine and evolve as an investor. So it is not that I want to hear perma bulls here all the time, but they do have a rationale and in certain markets they are doing well currently so understanding their viewpoints is valuable even for a contrarian or more bearish investor as well.
  • lf
    liam f.
    1 September 2020 @ 05:05
    This guy's opinion is that of every person working in the real estate industry. The confidence machine is hard at work. I don't think it is real estate Armageddon but to imagine the long standing relationship between unemployment and house prices is not going to hold is ridiculous. Say the impact is even half of what the usual relationship is due to the low income nature of people hit the hardest by the fallout of the pandemic. Based on the total sustained unemployment number for this year, that is still pretty bad.
  • AE
    Averi E.
    1 September 2020 @ 05:04
    I've lived in South OC my entire life. This guy is clearly an "Irvinite." I'm not savvy enough to clap-back with a technical analysis, but it's definitely not all rainbows here in California for both renters and owners. Will be interesting to see if his thesis plays out...
  • SS
    Sunny S.
    1 September 2020 @ 04:50
    Look at this constructively. I like the story but not the interview. This is a disappointing interview…Although it opened up an interesting alternative discussion point, It raised more questions that could have been clarified during the interview. It could have tied up loose ends with the rest of the macro story from RV. The interview lacked prep research and the audience wants to relate to the bear case RV has been promoting by really owning it. The “Let me make the bear case” statements exemplify this. Ash missed an opportunity to synthesize this with other stories to test the rigour of Mohtashami’s thesis. e.g. Peter Van Metre suggests on RV and shows FED data on some of his podcasts that mortgage approvals are going down for both the commercial and residential real estate. Maybe Mohtashami’s has better data sets from banks. Would be nice to understand that. Some pre-interview prep could have drawn out some supporting data. For example, when Mohtashami came up with a counter-story to the COVID causing a shift to housing he countered with demographics narrative, not facts. It's best not to allow the interviewee to counter a key narrative with another narrative without graphs or convincing quantitative figures to support the counter-argument. Plus this 2020-2024 positive housing demographic goes against the RV thesis. Harry Dent and Raoul Pal have strongly been arguing the demographic cliff negatively affecting the housing market as of this year. “Dyers aren’t buyers”, is a contradictory thesis so how do we synthesize these two stories. We need comparative data. The housing story is an important cog in the macro story yet seems a poorly understood part of the puzzle which appears to be a blind spot in the real vision narrative. This is probably because it tends to be the last sector to fall over. But is that narrative itself a blind spot? We are at an inflection point and the housing market supports the middle-income economy that everyone needs not to collapse. If you want an idea on what type of prep for this kind material looks like it helps to look at some of Martin North’s detailed housing survey research, real estate, government policy and financial sector videos for Australia. He would actually question Mohtashami’s thesis in a deeply insightful way to draw out the supporting data or not. There is so much more that could be unpacked in the housing story like the price of lumber and copper going up and why. There is no mention of a big missing discussion piece (can I draw an elephant emoji here?) which is the end game. For example, the government supporting forbearance and how that could manifest in the financial sector into a credit squeeze? The government paying for the problem doesn’t make it go away forever, it just moves it somewhere else in the economy. (But then we didn't get any graphs on forbearance either as it was not an issue.) Just provoking some thought or other episodes.
  • JS
    John S.
    1 September 2020 @ 04:05
    Great job by Ash keeping the topic outline crisp!
  • SS
    Stephen S.
    1 September 2020 @ 01:05
    I think for those of us who remember that housing bust of 2008 it was easy to be wary of housing tanking again, but historically housing rarely does that. I think 2008 was really a unique event and that many of us will never see again and housing might just keep rising.
  • JT
    John T.
    31 August 2020 @ 22:35
    Interesting case on housing. I had my doubts it would drop significantly because that would take forced sales, and the government would work with the banks to stem the tide again. That being said, its interesting to hear that this trend could have 2-4 years to go. Doesn't affect me I guess, I doubt I'll ever own a home, but I'll be wary of calls for a top in homebuilders.
  • DS
    David S.
    31 August 2020 @ 22:08
    Excellent interview. I agree with Mr. Mohtashami on the home ownership market, although I am never quite so positive. Even mortgage deferrals can be handled by adding payments to the end of the mortgage. Selling, downsizing, and lower prices will take care of reduced income problems. The high-end market in the major cities like New York may take a bath, but most of them can probably afford it. In addition, Uncle Sam, who cannot afford it, will take some of the pain in lower taxes. An investment in the home is one of the few places people can use leverage to their advantage. Home ownership will continue to work as long as people have jobs. More importantly, I would like to see one or two in depth interviews on commercial and residential rental markets. I do not see any light at the end of that tunnel. This will be a major hit to the GDP and tax collections. DLS
  • GK
    Gautam K.
    31 August 2020 @ 21:37
    Yeah it’s all sunshine and rainbows! Is this guy out of his mind?
    • RC
      Rafael C.
      31 August 2020 @ 21:58
      just selling his book....hahaha
    • RC
      Rafael C.
      31 August 2020 @ 22:00
      I would add that his base case is contingent on finding an effective vaccine/treatment. Well done Ash for presenting the bear case...
  • gc
    guillaume c.
    31 August 2020 @ 21:37
    I understand his view and I understand also the critics in the commentaries. That's short term forecast. Real estate moves with demography and interest rates. Ultimately the unfolding is going to be when rates will go up.
  • RI
    R I.
    31 August 2020 @ 21:14
    Lumber is up ~300%. Housing bull market or death of cities?
  • DP
    Duane P.
    31 August 2020 @ 17:47
    This is disappointing in so many ways.
    • LS
      Lemony S.
      31 August 2020 @ 20:42
      Give us your top 2-3.
  • CG
    Chinmay G.
    31 August 2020 @ 18:55
    Logan, excellent insight into the housing market. How about investment properties like multi family? Based on your thesis, that might struggle as those are renters & they will struggle until unemployment goes down right?
  • HH
    HODL H.
    31 August 2020 @ 15:23
    He fails to mention remittances in mortgages have been steadily declining MoM by those on forbearance and 60-90 days and 90 day + delinquencies continue to increase. 120 Fannie and Non-QM data from WFc, JPm and BAML all say the same thing. Black Knights open source data is stuck at 4mm+ in forbearance. The Non-QM sector is in mid-teens delinquencies, HUD 769k+ loans are in the teens-20% range
    • JK
      John K.
      31 August 2020 @ 15:38
      Yea I came here to say the same thing lol. I think real estate has out performed for a few reasons. The first being real estate is a slow moving sector and supply has fallen drastically because of Covid. 2. Eviction and foreclosure moratoriums were put in place and are now lifting. If we continue to see strength in these next 3 to 4 months then I say real estate is in the clear but I don’t wanna put my eggs in that basket with delinquencies being where they are
    • RM
      Robert M.
      31 August 2020 @ 16:18
      Two different markets. Home improvement took off unexpectedly (CEO of Home Depot says they were totally surprised) as people were at home and looking for something to do. But that pulled demand forward for projects that last a decade. Harvard Joint Center for Housing sees this market turning negative through 2021. If you own HD, LOW, SHW, or TREX, may make sense to sell at some point in the near future. Then you have homes. There will be a secular cycle demand for housing as millennials start to buy homes. But you can't totally discount student loans, people being unemployed, high home prices with low inventory, high lumber prices for new construction and boomers downsizing. Just to say "what about the rest of the market" is shortsighted. Housing is still far below its peak in 2007 and there are reasons for that Mohtashami doesn't appear to analyze. Home builders will be a good buy, but with their current run-up, may make sense to get past the expected choppiness of the 4th quarter before making your buy.
  • AA
    Aymman A.
    31 August 2020 @ 16:16
    Wow!!
  • KP
    Kaushal P.
    31 August 2020 @ 14:35
    Hindsight is 20/20. I think because lot of people got stuck at home for so long, many decided to pull the trigger on housing upgrades or new purchases. Lot of disposable income going to travel and leisure went into housing. I can’t argue with results but don’t understand the argument that when it comes to mortgage rates the margins buyer matters but when it comes to unemployment marginal buyers are irrelevant.
    • RM
      Robert M.
      31 August 2020 @ 16:08
      Or that all unemployed are renters and not homeowners facing delinquent payments. To write that group off and just focus on the rest underestimates the unemployed impact on consumer spending which flows through the whole economy.
  • HH
    HODL H.
    31 August 2020 @ 15:26
    He says he is data and model driven but providing hypothetical scenarios on forbearance, can he disclose data he is using? Is it MBS loan level data? Is he looking at that data?
  • LJ
    Lynn J.
    31 August 2020 @ 15:06
    Marked! Let's see 6 months to 1 year later.
  • WM
    W M.
    31 August 2020 @ 14:00
    Although he disparages politics, it seems that (like most of us) his thesis is strongly driven by his political views and the underlying assumptions that inform them.
    • RM
      Robert M.
      31 August 2020 @ 14:55
      Agree. Quit following him on twitter as he comes across more as a cheerleader than an analyst. Sense is that he is talking his book or his paid client list.
  • PM
    Parth M.
    31 August 2020 @ 12:30
    So long term lockdowns can do a systematic crash in housing. In Melbourne Australia we are in a total lockdown again. Is the Melbourne/Victoria housing about to crash or will it follow US housing, and see a new high? RBA is expecting up to 40% crash that Seems like doom case scenario.
  • ED
    Eric D.
    31 August 2020 @ 07:44
    Mohtashami, any thoughts on Canadian housing market?
    • ED
      Eric D.
      31 August 2020 @ 07:58
      (Specifically in the inflated markets of Vancouver/Toronto)