Logan Mohtashami's Bullish Housing Market Outlook Amidst High Rates and Policy Shifts

Housing market analyst Logan Mohtashami, in a conversation with HousingWire, paints a surprisingly optimistic picture of the US housing market. Despite elevated mortgage rates and recent policy announcements regarding Fannie Mae and Freddie Mac, Mohtashami argues that underlying market dynamics are improving, setting the stage for a healthier, more sustainable housing market in the years to come.

Key Insights

1. Housing Market Finding Equilibrium Despite High Rates

"Purchase application data is now up 16 straight weeks...with elevated rates. You cannot ask for anything better." - Logan Mohtashami

Mohtashami emphasizes the significance of rising purchase applications for 16 consecutive weeks, even with mortgage rates remaining high. This sustained growth, coupled with increasing new listings and active inventory, signals a return to a more balanced supply-demand dynamic. While acknowledging that rates near 6% would further stimulate demand, he argues that the current trend is a positive sign, particularly given the historically low sales volumes of recent years. This suggests a resilient underlying demand curve, setting the stage for potential growth when rates eventually decline.

The implications of this shift are substantial. A more balanced market reduces the risk of runaway price appreciation and the "hungry hungry hippo" dynamic of frenzied bidding wars that characterized the 2020-2022 period. This equilibrium, according to Mohtashami, creates a healthier foundation for long-term market stability.

2. Existing Home Sales Poised for Growth

"Existing home sales is going to have a very, very low bar...our pending sales data is actually showing growth." - Logan Mohtashami

Mohtashami predicts growth in existing home sales due to favorable year-over-year comparisons. With the next few months facing low benchmarks from the previous year, the current pending sales data, which shows growth, suggests upcoming positive reports. This growth, combined with the upward trend in purchase applications, reinforces his optimistic outlook. He notes that this growth is occurring despite historically high rates, a unique and encouraging development.

This anticipated growth in existing home sales further supports the narrative of a market returning to normalcy. Increased sales volume, alongside growing inventory, points to a more functional and sustainable market environment.

3. Bond Market Overreaction and the Myth of Debt-Driven High Rates

"We have way too many marshmallow men on social media sites...yields go up, oh my God. Inflation, yields go down, oh my God. Recession." - Logan Mohtashami

Mohtashami dismisses the recent panic surrounding a 20-year bond auction and subsequent rise in yields, attributing it to an overreaction by market participants. He challenges the narrative that high debt levels are the primary driver of rising rates, citing the 1990s as a precedent. During that period, debt-to-GDP ratios were lower, yet 10-year and 30-year yields were significantly higher. He argues that Fed policy, not debt levels, is the dominant force driving interest rates.

This contrarian perspective challenges conventional wisdom and highlights the importance of understanding historical context. By focusing on the Fed's role, Mohtashami offers a more nuanced understanding of rate dynamics, urging investors to look beyond simplistic explanations.

4. Labor Market Strength Underpinning Fed Policy

"The labor market isn't breaking...jobless claims still low." - Logan Mohtashami

Mohtashami highlights the continued strength of the labor market, citing consistently low jobless claims. This resilience, he argues, supports the Fed's current policy stance and justifies the current range for the 10-year yield. He emphasizes that as long as the labor market remains robust, the Fed is unlikely to deviate significantly from its current course.

The labor market's strength is a critical factor in Mohtashami's analysis. It provides the foundation for his rate predictions and reinforces the idea that the current market environment, while challenging, is not on the verge of collapse.

5. Fannie Mae and Freddie Mac: A Potential Shift in Strategy

"If they are moving into an area to where it's more about getting more money into the hands of the US as an asset class, that's a whole different thing." - Logan Mohtashami

Mohtashami addresses President Trump's tweet about releasing Fannie Mae and Freddie Mac from conservatorship. He expresses skepticism about the potential benefits of such a move, particularly if it involves simply making them publicly traded companies. However, he acknowledges a different possibility: the creation of a government-backed asset class using Fannie and Freddie. This, he notes, would represent a significant shift in strategy, potentially aimed at raising capital for the Treasury.

This analysis of the Fannie and Freddie situation reveals Mohtashami's nuanced understanding of the complexities involved. He avoids simplistic pronouncements and instead explores the potential motivations and implications of different policy approaches.

Expert Commentary

"If mortgage rates were down to 6% and we saw this data line, it wouldn’t have been that big of a deal. But every year wages grow. Every year households form." - Logan Mohtashami

"The easy answer for me is always if you could get sub 6% rates you could grow sales easily from here. That's a given." - Logan Mohtashami

"This isn't about the housing market. This is about, you need more money to go to the government to maybe get more money to the Treasury." - Logan Mohtashami

Market Implications

Mohtashami's analysis suggests a cautiously optimistic outlook for the housing market. While high rates remain a headwind, the underlying strength of the labor market, coupled with a return to supply-demand equilibrium, creates a foundation for future growth. Investors should focus on the interplay between Fed policy, labor market data, and inventory levels to anticipate market direction. The potential restructuring of Fannie Mae and Freddie Mac presents both risks and opportunities, warranting close attention to policy developments. Mohtashami's insights suggest that a focus on long-term fundamentals, rather than short-term market fluctuations, is key to navigating the current environment and identifying potential investment opportunities. Specifically, investors could consider:

• Mortgage REITs: As rates stabilize and the market finds equilibrium, mortgage REITs could offer attractive yields.
• Homebuilders: While Mohtashami suggests housing construction may have peaked for the decade, selective opportunities may arise in companies focused on affordable housing segments.
• Real Estate Private Equity: With market dynamics shifting, opportunities may emerge for acquiring undervalued properties or distressed debt.

By understanding the nuanced interplay of these factors, investors can position themselves to capitalize on the evolving housing market landscape.