Is the housing construction cycle breaking?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage rates and new home sales.  Related to this episode:  Is the housing construction cycle finally breaking?  https://www.housingwire.com/articles/is-the-housing-construction-cycle-finally-breaking/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  Buy one, get one FREE tickets to the Mortgage Banking Summit on October 1st https://events.housingwire.com/mortgage-banking-summit-2026  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  The Fed rate-hike cycle has started. What’s next? https://www.housingwire.com/articles/the-fed-rate-hike-cycle-has-started-whats-next/  UWM broadens condo financing, rolls out eligibility tool https://www.housingwire.com/articles/uwm-expands-non-warrantable-condo-financing-amid-fhfa-rule-changes/  Housing Market Spotlight: The housing market signal to watch as rates top 7% https://www.housingwire.com/articles/housing-market-data-mortgage-rates-above-7-percent/  What real estate professionals should know about the Fed rate hike https://www.housingwire.com/articles/what-real-estate-professionals-should-know-about-the-fed-rate-hike/  Why more builder discounts are not unlocking new-home demand https://www.housingwire.com/articles/why-more-builder-discounts-are-not-unlocking-new-home-demand/  Want more from Sarah? Don’t forget to subscribe! The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:11Welcome, everyone. I'm joined today by lead analyst Logan Motoshami to talk about rates

00:16and new home sales and whether the housing construction cycle is finally breaking.

00:20Before we dive in, here are the top five trending articles on HousingWire.com.

00:25First, we have the Fed rate cut cycle has started. What's next?

00:28Followed by UWM Broaden's Condo Financing Rolls Out Eligibility Tool.

00:34Then we have Housing Market Spotlight, the housing market signal to watch as rates top 7%.

00:40And what real estate professionals should know about the Fed rate hike.

00:45Finally, we have why more builder discounts aren't unlocking new home demand.

00:50Okay, we're ready to go. Logan, welcome back to the podcast.

00:53It is wonderful to be here post Fed rate hike day. We all survived this one. We survived the 5

01:00% 10-year yield again.

01:01Oh, I got to put that picture up again. But in any case, we're still here.

01:06Well, let's talk about where are mortgage rates, where are oil prices, what do we see today?

01:10You know, this morning, the 10-year yield is basically trading like it was yesterday.

01:14Oil prices were falling, the 10-year yield was falling.

01:17And then as Kevin Walsh started to talk, you know, whenever you've got traders around a Fed press meeting, you

01:24know, it can get pretty volatile.

01:2610-year yield spiked up after that. We're pretty much where it was.

01:29Oil prices had been falling throughout the day.

01:32Just the last, you know, last I checked, it was perking up just a little bit.

01:36Of course, you know, headlines all over the place. But for now, the mortgage rates are down just a tad.

01:43Again, we always talked about in the last few months, the worst case scenario above my peak forecast.

01:50I thought, you know, 5% 10-year with mortgage rates between 7.13 and 7.18.

01:55I think last time I checked, we're at 7.19.

01:58So kind of keep with the oil 10-year yield trade more than anything else.

02:03That's been the high-velocity move here. At some point, that does fade out.

02:07But for now, just go with that.

02:10So you and I were talking before this podcast over the last couple of days because my question is, like,

02:16why would we have done this?

02:18Seeing what this Iran conflict has done to 10-year yield, to the mortgage rates, to all sorts of things

02:27that I know Trump cares about.

02:28And I've asked you, like, you know, why would he do this in a year when we have the midterms

02:33and in the timing that he did?

02:34You had some interesting takes there. I would love to get you talking about that right now.

02:39Well, I think I understand there's a lot of conservatives who are puzzled by this because, you know, two-year

02:46political cycles.

02:47It's not like we didn't know the midterms were here, but I try to give a constructive response to this.

02:55And again, I'm not a political guy. You know this about me.

02:59I mean, I tell people, I had a friend who I went to their wedding, both Republican and Democrats.

03:04I never talked to them ever again.

03:05Even if they passed away, I wouldn't even go to their funeral because they talk politics.

03:09But in this regard, as an analyst, this affects the industry that we're in.

03:15So you've got to kind of model it out.

03:17But I think to me, I think a lot of people just go, well, this is the midterms.

03:23Why would you risk it?

03:24Let's just kind of take a step back and think maybe this has been planned for years.

03:30I mean, you and I have kind of talked about this.

03:31I mean, back in, I think, 2019, 2018, Trump took the Iran plan that was Iranian.

03:38There was no uranium being enriched.

03:40He took that plan away.

03:43When we went into this year, there really wasn't any talk about, you know, really making a big push on

03:50the nuclear talks,

03:54anything more than what we had already done because we bombed the site before.

03:59But if you look at the timing of this, President Trump went into this presidency, lower oil prices, lower rates.

04:10When did we actually started attacking Iran?

04:13It was when the 10-year yield was under 4% and oil prices were under 60.

04:18So if you think about it in this light, maybe this had been planned for years.

04:22And it's not so much about the midterms.

04:24I know a lot of people think Israel duped Trump.

04:26Maybe this is all just part of a bigger plan.

04:29And they really thought it would only be four to six weeks.

04:32Because if you really believe that your hypothesis was four to six weeks, as they talked about,

04:39then you want to do this when the 10-year yield is below 4% and oil prices are under

04:4460,

04:44because you know what's going to happen.

04:48Unfortunately, it didn't last four to six weeks.

04:50We're in September coming up to October.

04:54But if you look at it in that light, because I can't imagine President Trump doing this if oil was

05:00over 100 and mortgage rates are seven and a quarter.

05:04But it does a little bit make sense to me.

05:07So forget about the midterms.

05:08Just think of it as part of a bigger plan.

05:11And that's why it happened.

05:13And we're just here dealing with the aftermath.

05:17But that's how I make sense, because that's how I would have done it.

05:22And, you know, you've got to be strategic on your points.

05:26And it is what it is.

05:28We're just here.

05:29We just got to deal with it one day at a time.

05:33So I think that's interesting to me, because I had been like, you know, it seems like this is just

05:37something maybe off the cuff or wasn't well planned,

05:40because it hasn't been super well executed, right?

05:43We're still here.

05:43We're kind of mired down.

05:45So I thought that was really interesting that you're like, you know, it could have been a long term plan

05:48and just they they miscalculated on how long it you know, how how quickly they could take control.

05:54If you were going to go to war with Iran or attack them, knowing what it would do to oil

06:00prices and rates, you would do it when the 10 year yield is below 4 percent and oil prices are

06:05under 60.

06:06And, you know, Trump, at least in my my my take is that he made a deal with the Middle

06:11East.

06:11They flowed oil more.

06:12Oil prices came down lower.

06:13We broke through that 67 range and here we are.

06:17So you wouldn't do all that and just throw it away unless you thought really this would be four to

06:23six weeks and then you go ahead with it.

06:25So that's that's kind of how I explained it.

06:27But but that's that's that stuff.

06:30Let's get back to economics.

06:32I know.

06:32I mean, we don't we don't know, but I thought it was an interesting idea.

06:36OK, well, let's talk about economics and especially let's talk about new home construction, which we had, you know, permits

06:43and starts.

06:43It's come out today.

06:45Very interesting.

06:46You wrote an article that said, you know, is this home construction cycle breaking?

06:51You know, of course, now that mortgage rates are lower, I mean, higher and, you know, housing starts and permits

06:57have been falling for years.

06:58A lot of people are just trained to believe that housing is the economic cycle, that once rates go up

07:04high enough that, you know, eventually the housing market breaks and that leads you into a recession.

07:10This cycle, like everything else, is is so unique.

07:14We had a very, very aggressive Fed rate hike cycle.

07:17Mortgage rates went from three to seven percent.

07:19New home sales crashed.

07:22But around 2022, 2023 rates came down to six percent and then the builders started to pay down mortgage rates

07:30so they can get buyers.

07:31Remember, the new home sales sector is a very, very small marketplace compared to the existing home sales market.

07:37So in 2023, single family starts and permits were starting to rise again.

07:41But the problem is that total completed units of sales or units housing actually started to perk up.

07:49And in December 23rd, 2024, the builders now have a supply and demand problem here.

07:55You don't really build homes when the builders are over 120,000.

07:58But now that rates are back up again, you know, and profit margins are coming down, I know Lennar missed

08:05on its earning, it guided lower.

08:07I mean, it wasn't a terrible big miss, but, you know, a lot of people are seeing the builders confidence

08:12index going back to kind of cycle lows on multiple categories.

08:17Is it breaking?

08:18And my argument was like, this is something now you have to keep an eye on.

08:22Now, in the previous decades, what would happen is the residential employment would start to break hard and then the

08:28recession isn't too far from that.

08:30But that sector in itself has a lot of remodeling workers in there.

08:34So that that sector has held up well.

08:37So you haven't had the break in that that data line yet.

08:43But it's something to think about, because if you're building for Skynet and not for people and now residential employments

08:50are going down, you know, this goes back to Kevin Warsh's original premise.

08:57The Fed policy isn't restrictive for the U.S. economy, but it is for housing.

09:03So that is that is a labor trigger that we work our economic cycles.

09:07Now, of course, it's much different now because data centers are here and construction workers are going to where the

09:12demand is.

09:13And there it is. But it'll be it'll be fascinating to see over the next 12 months that does that

09:19employment data get worse?

09:21Does new home sales actually finally break under the 2022 lows?

09:26And how does that look?

09:27Because so many people are thinking we're going to have a construction boom and everything.

09:31And we're like, no, that's that's not how it works here in America.

09:34You know, the data center thing is so interesting.

09:37So here in North Texas, we are a hub for that kind of building, because obviously we've got lots of

09:42room and land and not a lot of regulatory.

09:44And so there are tons of data centers up, but there's also like tons more plants.

09:49So that that sector of construction, yeah, that they're going to work through those.

09:55But then they have probably that much more.

09:57However, when I looked in this area, I think there were 18 data centers just around me.

10:01And but the ones that are planned are like double that amount.

10:04So those construction workers are going to be busy for a while.

10:07They'll be busy for a while.

10:09And that will offset.

10:10I mean, what you never want to see in an economic cycle is residential construction workers losing jobs and manufacturing

10:16lose their jobs at the same time.

10:18Now, manufacturing jobs are starting to pick up again after some times being lost and the residential construction is starting

10:24to roll over slowly.

10:26But the data centers offset that, you know, because it's not like we're building commercial buildings anymore.

10:33You know, so that so that that's not there.

10:35And so much of construction spending is residential, whether it's commercial buildings, hotels, multifamily homes, single family homes, that that

10:45in itself is just so much bigger than data centers.

10:48Data centers, even though there's a lot of money being poured in, it's it's small compared to that.

10:52So it's again, it's a very unique cycle.

10:55But here we are again where rates are back higher.

10:58But the corporate profit margin, see, a lot a lot of people didn't, I think, understand how the builders work.

11:04They made a lot of money during COVID.

11:07Right. Inflation was taken off and they had pricing power and they used it.

11:11So their median sales price or whatever was was elevated and they had all that profit margin so they could

11:16use that.

11:17And they're there. They're keep using that.

11:19But it gets more and more difficult and it gets more costly as rates go up.

11:24So this is something that you want to keep an eye on essentially for the next 12 months.

11:28Because before then, it was just very we weren't going anywhere with new home sales.

11:32New home sales have been stuck in a range for 10 years.

11:35If you take the COVID burst in sales out of the equation, but it's not breaking either like the lows

11:42breaking under 2022.

11:44So housing starts and permits are roughly where they were pre-COVID.

11:48I mean, they're at the early recessionary levels, but it's not like you're seeing this Titanic fall yet.

11:53So the builders have done an admirable job of keeping things somewhat intact.

11:59I know a lot of people say, well, the mortgage rate buy downs that they do is not right.

12:05And they're as homies, they run their business.

12:07This is the private sector.

12:09Right.

12:09What you're saying is that you want less construction, less people working for some ideological thing that's in your head

12:16that's stuck in your brain that's never going to leave.

12:18No. Private sector does what it can to make money and it needs to produce something and sell it.

12:23Right. So for now, they've still kept it intact.

12:26But this is kind of where you want to keep your eye on to see what happens over the next

12:3112 months.

12:33The term, the metric that you're using a lot is 122,000 completed units for sale.

12:40And at that level, then you see builders start to pull back.

12:44Can you dig in there a little bit?

12:45Is that 122,000 units for sale, completed units for sale per builder?

12:50Those, that's the, yeah, that's the entire country, which a lot of people are shocked.

12:56They think.

12:56Right. That's why I'm asking because it's such a small number.

12:59Yeah. They think the builders make millions of homes.

13:01And I was like, guys, and, and one of the things I realized in the last few years is nobody's

13:07ever seen this chart.

13:09You know, I, I show it to people.

13:10They're like, what?

13:11I said, that's it because the builders build in stages, right?

13:15Homes that haven't even started then in their productions.

13:18A lot of those homes that are under construction are in contract already.

13:21So they already have a buyer ready, but the completed units of sale,

13:25this is why I like to do the long-term chart, which not a lot of people know anyway, or

13:29know where to find it.

13:30But when we get above like 120,000 or head toward there, the builders, no moss.

13:36And then you look at housing cycles, new home sales start to fall.

13:39Then they have productions, housing permits and starts.

13:41And this is the whole March of Dimes was based on this premise.

13:44That's why we wrote that article in June of 2021, that I had that much conviction that when rates started,

13:51when rates finally go up, there's going to be no construction boom.

13:54I mean, we've literally peaked for this decade in terms of production.

13:58So now we are just dealing with the aftermath, but they're kind of keeping things still intact.

14:03And that's why the residential employment data hasn't broken as much as it has.

14:07And also, you actually take a look at remodeling.

14:12That's done well.

14:14The U.S. housing, homeowner balance sheets are doing great.

14:17There's a lot of equity.

14:18So housing tenure has doubled, in some cases tripled.

14:21So you do have the ability for a lot of remodeling work.

14:25It's like with cars.

14:26Cars have normally 15 to 16 million car sales a year.

14:30But also, the people have been holding on to their cars longer and longer.

14:34And then it just gets more expensive to repair.

14:37Then you finally get a new car.

14:41I mean, that's what I did in COVID.

14:42I had my car for a very long time.

14:45It just kept on breaking.

14:46It was just too much.

14:47I went in one night and got a brand new car just because it's been had for a while.

14:53So there is some underneath demand for remodeling as people live in their homes longer and longer.

15:00So you've talked about mortgage rates between 6% and 6.64%.

15:06As long as we stay under 6.64%, and especially as we get closer to 6%, then we can see

15:13housing sales grow.

15:15That's when housing demand picks up.

15:18So that's on that basis.

15:20When you think about how the builders can buy down things, do they have a different calculus?

15:27Like, is it 7.5%?

15:28Because they're buying down a whole point.

15:30Or like, what is their level?

15:32So this is the thing I brought up to social media today.

15:37The builders have always worked with a sub-6% mortgage rate.

15:40This is why their home sales are so much higher than the existing home sales market.

15:44And even with all that, housing starts and permits are heading lower because they can't grow sales.

15:50They're just keeping things at bay.

15:52So to me, they're managing their supply and demand equilibrium out here.

15:56But the builders, if they went out and said, hey, listen, you could buy this new home for $7.25.

16:02It ain't working.

16:04You know, unless there's a really good discount versus an existing home, I mean, apples to apples, then yeah.

16:12But the builders, because they sell homes as a commodity, they'll use whatever profit margins they can and eat it

16:20just to get the home sold.

16:21Because they don't care.

16:22They have no relationship with that house.

16:23They're not living there or anything.

16:25It's a commodity to them.

16:27They have to sell because they have something in the back, right?

16:29They're efficient sellers.

16:31The existing home sales market is completely different where what we have always talked about for the last four years.

16:37I've only seen housing data get better when mortgage rates get below 6.64, down towards 6.

16:42The longer it can stay near 6, the more sales can grow.

16:45That doesn't necessarily work with the builders because the builders have always been sub-6% marketplace.

16:49And even with all that, housing starts and permits are at cycle lows and builders' confidence is near the lows

16:57that we've seen in this cycle.

17:00And this is the world they live in.

17:02They're managing.

17:03So when you look at efficient sellers that manage their supply and demand, rather the existing home sales market was

17:09this huge titanic marketplace.

17:11And then you have sellers and buyers and people got to move and all that stuff.

17:15This is why we had the Fight Club rules.

17:17What were the Fight Club rules, Sarah?

17:19You do not – wait.

17:20You don't mix existing home sales and new home sales.

17:23Yes.

17:24First, we never talk about Fight Club.

17:26And second, we never, ever mix the existing home sales market and new homes because you'll be completely confused.

17:31I couldn't remember if that was Fight Club rules or if that was crossing the streams from Ghostbusters.

17:38I get it.

17:38No, crossing the streams is something else.

17:40But Fight Club was – because you add these people that they see the monthly supply for the builders and

17:46they think it's the existing home sales market.

17:48And they were like, national home prices are crashing because – I was like, homies, that's the builders and that's

17:53not actual supply.

17:54See, this is when I realized we have a bunch of untalented people talking about housing.

17:58They didn't even know the difference and they think it's existing supplies.

18:02It's like, that's new home sales.

18:03That's the census data.

18:05That's not the NAR data.

18:08Read books instead of burning them.

18:11That's what happens.

18:12When you burn books instead of reading them, you just completely for 10 years didn't even realize what you were

18:17saying for all this time.

18:18It was wrong.

18:18All right.

18:19So we're, of course, talking on Thursday morning.

18:22This is going to go live on Friday morning.

18:24Any last thoughts before we head into the weekend on Kevin Warsh and mortgage rates?

18:30Speaking of which, jobless claims were like, I think, under $200,000.

18:34So I'm still loving that homies said four weeks jobless claims.

18:39And I was like, yes, you know, that's a ticket.

18:42Again, I thought it was a good speech and a good press event and telling people what's really happening with

18:50the economy.

18:51And there's things that need to be fixed before you can, you know, lose that hiking bias.

18:57And, again, we went into the year with two to three rate cuts based only on the labor market getting

19:02softer.

19:03If the labor market improved even a little bit, those Fed hawks who never wanted to cut rates last year

19:10were going to go for it.

19:11And they went for it.

19:12And then, unfortunately, on top of everything else, the conflict has lasted.

19:16And they made the conflict a big hawkish point out there.

19:19But at least now we know what needs to be done to get things better.

19:24And we don't sit here thinking, oh, the economy is on the verge of collapse, collapse, collapse.

19:28The Fed's behind the curve or anything like that.

19:30And we work off the economic data.

19:32I mean, if you have a few – I mean, to me, I just think the labor data just got

19:36back to equilibrium, not so much a reacceleration.

19:40But I think if you are – what you don't want to see is the labor market really picking up

19:46and wage growth picking up.

19:48Because if the labor market starts to pick up and wage growth starts – oh, my – those hawks are

19:53not going to relent.

19:54You're talking more than just the rate hikes about taking the insurance rate cuts back.

20:01That's going to be different because, as always, the Federal Reserve wage growth under 3% and lower gets you

20:08a better way to get to 2% inflation.

20:11And, you know, Kevin Warsh talked about how productivity data was strong and that's good.

20:15You know, if President Trump and his people are listening, Lisa Cook is also a productivity dove.

20:21Those two actually have the things together.

20:23So if you want to put two doves together, Lisa Cook and Kevin Warsh would actually be doves.

20:28If productivity growth is there, then wage growth is not inflationary.

20:35But that's obviously not the discussion now because inflation is above target and you have the conflict.

20:41But something to think about going out in the future is that if you do see better productivity data and

20:46wage growth picks up but inflation isn't,

20:48then that's the productivity miracle that everyone's waiting for and the economy could grow more and then, you know,

20:54when the economy could grow with better productivity, that's what everyone's hoping for.

20:58And that's why there's so much money being put into AI and everything.

21:01They think this is the brand new sector and we'll see where it takes us.

21:05I know where it takes us at the end.

21:07It's Skynet and I'm, you know, you're Sarah Connor and I'm Logan Chart Daddy Connor.

21:13We've got to take care of some business.

21:15Who is the Terminator in our group, you know?

21:18Oh, that's a really good, that's a good.

21:20Also, does this mean like I'm your mother?

21:22Yes, you're my, you're my mother.

21:24You're my boss.

21:25So you might as well be my mother.

21:26Yes, yes.

21:27I say we get Puff my cat.

21:29He'll be the Terminator because he'll just scream at every data center you can mine and tell it to shut

21:34up.

21:34So.

21:35Oh my gosh.

21:36Okay.

21:37Well, thank you so much as always, Logan.

21:39We will talk again soon.

21:40Pleasure.

21:45Pleasure.

21:46Pleasure.

21:47Pleasure.

21:49Pleasure.

21:50Pleasure.

21:51Pleasure.

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