Logan Mohtashami: Unpacking Seller Behavior and the Fragile Path to Housing Market Normalcy

Lead Analyst Logan Mohtashami expresses cautious optimism about the housing market's path to normalization but warns that a slowdown in new listings could signal sellers are "calling it quits," potentially derailing inventory recovery. While demand shows surprising resilience, the market remains significantly undersupplied, with the next seven months critical for inflation and Federal Reserve policy, which will heavily influence future housing trends.

Key Insights

1. The "Seller Capitulation" Watch: Are We Nearing a Critical Low in New Listings?

Attribution: Logan Mohtashami

Quote: "But this last week, the new listings data did not have a good rebound and the active inventory did not have a good growth... what I don't want to happen, like the number one thing I don't want housing to deal with is what we saw in the second half of 2022... the new listings data was not only having its seasonal decline, it was falling noticeably. And what I see is that sellers call it quits."

Logan Mohtashami highlights a critical concern: a potential repeat of the latter half of 2022, when sellers withdrew en masse, causing new listings to plummet beyond typical seasonal declines. This "seller capitulation" led to 2023 having the lowest new listings data ever recorded. He was encouraged earlier in the year when new listings briefly surpassed the 80,000 per week mark, a level he considers a minimum for healthy seasonal peaks. However, a recent dip in this data has reignited his concern.

The implications of sellers retreating are significant. Mohtashami notes that 70-80% of home sellers are also buyers. A decline in new listings, therefore, not only constricts inventory but also dampens purchase application data, as fewer sellers are re-entering the market as buyers. He emphasizes that while he hopes the recent slowdown is a temporary blip due to holiday data adjustments, a sustained downturn in new listings would be a major setback for the market's recovery, potentially keeping inventory historically tight and putting upward pressure on prices, similar to the dynamics that led to his 2023 price forecast being too low.

Actionable Takeaway: Investors and market watchers should closely monitor weekly new listings data. A sustained failure to rebound or a trend back towards the extremely low levels of 2023 could signal renewed inventory pressures and a less balanced market, potentially favoring sellers more than anticipated.

2. Beyond Total Inventory: Why a Surge in New Listings Could Signal Distress, Not Recovery

Attribution: Logan Mohtashami

Quote: "I'll get concerned about the housing market if I saw new listings data start to accelerate because that to me is not the traditional seller, that is buyer. We saw that during the housing bubble crash years. Our new, even though inventory wasn't really growing, the new listings data was running at 250 to 400,000 per week. Those were distressed sellers that were not going to be buyers."

Logan Mohtashami offers a crucial distinction between healthy inventory growth and a potentially problematic surge in new listings. While he advocates for a return to 2019 active inventory levels to restore market balance, he warns against misinterpreting the source of inventory changes. A gradual increase in active inventory, fed by a steady stream of "normal" new listings (around 80,000 to 110,000 per week during seasonal peaks), is desirable. This indicates traditional sellers moving for typical reasons, many of whom will also become buyers.

However, a rapid acceleration in new listings data itself, pushing numbers to levels like 250,000 to 400,000 per week (seen during the housing bubble crash), would be a red flag. This type of surge, according to Mohtashami, typically signals an influx of distressed sellers (e.g., short sales, foreclosures) who are forced to sell and are unlikely to re-enter the market as buyers. This scenario would fundamentally alter demand dynamics and could precede a market downturn, a situation not seen in the past five years.

Actionable Takeaway: Investors should look beyond headline active inventory numbers and analyze the velocity and composition of new listings. A sharp, sustained spike in new listings, far exceeding historical norms for non-distressed periods, could indicate underlying market stress rather than a healthy rebalancing.

3. Housing Demand's Silver Lining: Surprising Resilience Amidst High Rates Hints at Untapped Potential

Attribution: Logan Mohtashami

Quote: "it's not shocking to me that even with elevated rates, purchase application data is acting better. But my God, if rates were just down to six and just stay there, sales demand could grow."

Despite mortgage rates hovering between 6.8% and 7.10% for a majority of the recent period, Logan Mohtashami points out that mortgage purchase application data is up year-over-year. He attributes this resilience to factors like growing wages, ongoing household formation, and homeowners leveraging their existing equity to make a move. This underlying demand strength is occurring even as cash buyers are a slightly smaller portion of the market this year.

Mohtashami emphasizes that the current sales levels are working from a "very low bar." However, the positive trend in purchase applications, even with elevated rates, suggests a significant reservoir of pent-up demand. He speculates that if mortgage rates were to fall to and stabilize around 6%, the market could see a more substantial growth in sales demand. This underscores the market's sensitivity to mortgage rate fluctuations and the potential for a more robust recovery if financing conditions improve.

Actionable Takeaway: The current market demonstrates a floor for demand supported by fundamental economic factors. Any sustained decrease in mortgage rates could unlock significant pent-up demand, potentially leading to increased sales volume and competition, especially if inventory remains constrained.

4. The Next 7 Months: A Critical Gauntlet for Inflation, Tariffs, and the Fed's Tightrope Walk

Attribution: Logan Mohtashami

Quote: "So for the next seven months we're going to enter kind of a new phase of this economic cycle... over the next seven months, if the inflation is going to happen, you'll see it in the data... if inflation picks up and the labor data gets softer, look for the shadow Fed president to kind of get more into the discussion again."

Logan Mohtashami identifies the upcoming seven-month period as crucial for the inflation narrative and, consequently, Federal Reserve policy. He notes that the impact of tariffs, potentially more significant than those in 2018 (which saw falling inflation growth), will start appearing in economic data. While the last 12-month headline PCE inflation was near the Fed's target at 2.1%, Mohtashami highlights that some forecasts predict a rise to 3-4%.

This period presents a complex challenge for the Fed. If inflation re-accelerates while labor market data softens (as recent data has hinted), the Fed's decision-making becomes more intricate. Mohtashami also alludes to the potential influence of political figures (the "shadow Fed president," presumably referring to Donald Trump) if economic conditions become more volatile. Conversely, if trade deals are struck and tariff threats subside, the Fed might gain clarity and adopt a more dovish stance. The interplay between inflation data (particularly PCE, which the Fed favors over CPI where shelter inflation is a lagging factor), labor market health, and geopolitical/trade developments will define market sentiment and Fed action.

Actionable Takeaway: Investors should brace for increased market volatility tied to inflation reports and Fed communications over the next two quarters. Pay close attention to PCE data and labor market trends, as these will be key drivers of Fed policy and, by extension, interest rates and market liquidity.

5. Demographics vs. Market Dysfunction: The Case of the "Missing Buyers"

Attribution: Logan Mohtashami

Quote: "as long as sales trend around 4 million every single year, we're missing about 1.3 to 1.7 million home buyers in there... Every year that we're at these low levels, the normal demand curve has just been taken out."

Despite a strong demographic tailwind with five generations actively buying homes (Gen Z, Millennials, Gen X, Baby Boomers, and the Silent Generation), Logan Mohtashami argues that current home sales volumes are drastically underperforming their potential. With existing home sales trending around 4 million annually, he estimates the market is "missing" approximately 1.3 to 1.7 million homebuyers each year compared to what might be expected if sales were closer to the peak of the last decade (around 6 million total home sales).

This shortfall isn't due to a lack of willing buyers but rather a confluence of factors including escalated home prices and higher mortgage rates that have suppressed the "normal demand curve." Mohtashami had previously identified the 2020-2024 period as having the demographic potential for sales to exceed 6.2 million, a feat not achieved in the previous decade. However, market dysfunctions prevented this. Now, working from such a low base, even modest sales growth appears significant, but it's crucial to contextualize it against this backdrop of suppressed potential.

Actionable Takeaway: The significant gap between current sales and demographic potential suggests a long-term bullish undercurrent for housing demand. As affordability or supply constraints eventually ease, this pent-up demand could fuel a multi-year recovery in sales volume, though the timing remains dependent on broader economic and market conditions.

Insightful Quotes

Logan Mohtashami: "I authentically believe post 2020 we were not in a natural state of inventory. We've never been this low ever. And if you have normal new listings data and demand is somewhat suppressed, you should get back to 2019 inventory." (This quote encapsulates Mohtashami's core belief that the market is on a long journey back to a more balanced, pre-pandemic state of inventory, which he views as healthy.)

Logan Mohtashami: "If prices were up 6% this year, I'm not having this conversation. Why? Because that's what happened in 2023. New listings data hit the lowest levels ever. Inventory didn't really grow until toward the second half of the year." (This highlights the direct link Mohtashami sees between insufficient new listings, constrained inventory growth, and unsustainable price appreciation, underscoring his focus on the supply side.)

Logan Mohtashami: "Sales tend to fall down, stall for a few years, and then rise for many years. Even the 80s after the housing bubble crash, a lot of cycles like that because sales are so low and we have five generations... That whole buyer profile is still there, but we're just working from very low levels." (This provides historical context for the current low sales environment, suggesting a cyclical pattern that could eventually lead to a prolonged recovery, supported by broad demographic demand.)

Market Implications

Logan Mohtashami's analysis points to a housing market at a delicate juncture. The primary risk highlighted is a retreat by sellers, which would exacerbate already tight inventory conditions and potentially reignite stronger price growth, undermining the slow progress towards normalization. Investors should closely monitor weekly new listings data as a lead indicator for seller sentiment and future inventory trends.

The surprising resilience in purchase demand, even with rates near 7%, suggests a high degree of sensitivity to any potential easing in mortgage rates. A sustained drop in rates could unlock significant pent-up demand, but this would likely collide with low inventory, creating a competitive environment. Opportunities may arise for nimble investors if rates decline, but the supply side remains the critical bottleneck.

Over the medium term (the next seven months), macroeconomic factors, particularly inflation outcomes and the Federal Reserve's response, will be paramount. The potential impact of tariffs adds another layer of uncertainty. If inflation remains sticky or re-accelerates, the Fed may be forced to maintain a hawkish stance, further pressuring housing affordability and activity. Conversely, positive developments on inflation or trade could allow the Fed to pivot, offering relief to the interest-rate-sensitive housing sector.

Strategically, this environment calls for a nuanced approach:

• For those betting on appreciation: Continued low inventory, especially if sellers retreat, could support prices. However, affordability ceilings will cap runaway growth.
• For those seeking volume/transaction recovery: A material decline in mortgage rates is the key catalyst. The demographic underpinning is strong, but needs favorable financing conditions to translate into significantly higher sales.
• Risk Management: The "seller capitulation" scenario and adverse inflation/Fed outcomes represent key risks. Monitoring Mohtashami's "tracker" and similar high-frequency data can provide early warnings.

Ultimately, Mohtashami's perspective suggests that while the desire for housing is robust, the path to a balanced and healthy market is contingent on sellers remaining engaged and broader economic conditions (especially inflation and interest rates) evolving favorably.