WEBVTT - Jim Egan on the Mortgage Gap That's Dividing America 0:00:02.480 --> 0:00:15.840 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.000 --> 0:00:20.960 Hello and welcome to another episode of the Odd Lots podcast. 0:00:21.079 --> 0:00:22.440 I'm Tracy Alloway. 0:00:22.200 --> 0:00:23.919 And I'm Jill. Why isn't thal Joe. 0:00:23.960 --> 0:00:28.160 There's been this very long running now it feels, conversation 0:00:28.360 --> 0:00:31.319 about the health of the American consumer. Yes, you've seen 0:00:31.400 --> 0:00:34.479 all that commentary, right, So you see these headlines that 0:00:34.560 --> 0:00:37.920 are like consumer debt at a record high, and you 0:00:37.960 --> 0:00:40.479 see some of the sentiment surveys which have for the 0:00:40.560 --> 0:00:43.199 past two years been coming in pretty bad. They started 0:00:43.560 --> 0:00:46.480 to look kind of bad when all the tariffs were announced. Again, 0:00:46.520 --> 0:00:50.879 they've improved a bit since then. And yet consumers seem to, 0:00:51.040 --> 0:00:53.200 you know, pretty much keep doing what they've been doing 0:00:53.240 --> 0:00:56.320 for a long time, which is spending, buying houses, things 0:00:56.440 --> 0:00:56.720 like that. 0:00:57.440 --> 0:01:00.160 Well, they're spending, for sure, But this is the thing. 0:01:00.200 --> 0:01:03.000 There's all this dismal sentiment data everywhere you look, and 0:01:03.080 --> 0:01:06.280 yet by and large, you know, you read like CEOs, 0:01:06.440 --> 0:01:08.080 you look at the retail data, et cetera. 0:01:08.200 --> 0:01:09.640 It's not like that terrible. 0:01:09.720 --> 0:01:13.399 Companies seem to be doing fine, but there are pockets 0:01:13.840 --> 0:01:16.280 of the economy clearly that are softening. 0:01:16.640 --> 0:01:17.959 There is rising. 0:01:17.680 --> 0:01:20.039 Inventory of homes. This is like one of the huge 0:01:20.080 --> 0:01:22.759 stories in the economy. So there are clear areas where 0:01:23.040 --> 0:01:24.960 high rates and stuff are having in effect. But to 0:01:25.000 --> 0:01:27.280 your point, like it has not been some sort of 0:01:27.319 --> 0:01:31.000 linear story of people are depressed in the economies. 0:01:30.600 --> 0:01:33.280 Farm But you're right, we have seen some signs of softening, 0:01:33.640 --> 0:01:35.760 So you know, we have to ask is it going 0:01:35.840 --> 0:01:38.320 to be different this time? Is it the start of 0:01:38.360 --> 0:01:40.600 some sort of real deterioration in the health of the 0:01:40.720 --> 0:01:46.760 US consumer. I have also seen some very interesting stats recently, 0:01:47.000 --> 0:01:51.360 specifically about consumer lending and mortgages and things like that. 0:01:51.680 --> 0:01:56.240 I've seen, for instance, that existing home sales are down 0:01:56.400 --> 0:01:58.800 one point nine percent year to date and have recorded 0:01:58.840 --> 0:02:01.320 the lowest volumes by count at this point in the 0:02:01.400 --> 0:02:04.960 year since two thousand and nine. And when you hear those, 0:02:05.080 --> 0:02:08.000 you know, since two thousand and nine dates, you start 0:02:08.000 --> 0:02:08.800 to get a little worried. 0:02:08.880 --> 0:02:10.640 Right, this is definitely the case. 0:02:10.720 --> 0:02:13.600 I saw something I think it was from Redfin they 0:02:13.600 --> 0:02:16.840 said there was a record gap between sellers and buyers 0:02:16.919 --> 0:02:19.760 in the housing market right now. Look, this is one 0:02:19.840 --> 0:02:23.320 area where the high rates environment, Like, there's clearly something 0:02:23.360 --> 0:02:25.840 going on. We haven't gotten like big you know, when 0:02:26.160 --> 0:02:28.920 rates shot up in like twenty late twenty twenty one 0:02:29.040 --> 0:02:31.480 or whatever that was. Do you know, by the way, 0:02:31.720 --> 0:02:34.959 twenty this occurred to me last night. Twenty one is 0:02:35.040 --> 0:02:37.560 kind of a long time ago, Like I know, I 0:02:37.560 --> 0:02:39.280 was thinking about this last night because it's sort of 0:02:39.320 --> 0:02:42.120 a cliche to point out that the pandemic twenty twenty 0:02:42.240 --> 0:02:44.800 was long time ago. But some of those really pivotal 0:02:44.880 --> 0:02:47.560 years where we got the surge of the raid hikes, 0:02:47.680 --> 0:02:50.520 we got the surgeon inflation, even that's starting to fade 0:02:50.520 --> 0:02:53.079 into history a little bit. I don't know, maybe just 0:02:53.160 --> 0:02:54.480 last night I was think about getting. 0:02:54.240 --> 0:02:56.320 Old and Joe, time is a flat circle. That's all 0:02:56.360 --> 0:02:56.560 I'm going. 0:02:56.720 --> 0:02:59.760 But there's something like, you know, house prices didn't fall 0:02:59.800 --> 0:03:03.400 off cliff when rates were high dramatically, which was a 0:03:03.440 --> 0:03:06.000 surprise to some Like some people thought, Okay, they're hugging 0:03:06.080 --> 0:03:09.200 rates dramatically. The housing market is going to be affected. 0:03:09.320 --> 0:03:11.720 The housing market is the US economy. Therefore the US 0:03:11.720 --> 0:03:14.280 economy will fall off the cliff. That did not happen. 0:03:14.680 --> 0:03:17.760 But there has been this slow down and lately we've 0:03:17.760 --> 0:03:20.240 been seeing like, okay, like rates are still high, even 0:03:20.280 --> 0:03:22.360 with talk of raid cuts, et cetera. They're still high 0:03:22.600 --> 0:03:25.799 and there's clearly this sort of accumulation of household inventory, 0:03:25.840 --> 0:03:28.600 these imbalances that are emerging. I don't know, maybe we 0:03:28.639 --> 0:03:29.680 will get price to clients. 0:03:29.680 --> 0:03:30.360 What's going to happen. 0:03:30.440 --> 0:03:32.840 Well, I'm glad you brought that up, because we actually 0:03:32.919 --> 0:03:34.960 do have the perfect guest. We're going to be speaking 0:03:34.960 --> 0:03:37.600 with someone who was very, very correct in calling that 0:03:37.720 --> 0:03:39.760 we wouldn't see a massive house price. 0:03:39.840 --> 0:03:40.640 I thought it was wrong. 0:03:40.720 --> 0:03:42.320 I didn't say it at the time, but he came 0:03:42.360 --> 0:03:43.720 on the podcast like, we're not going to say and 0:03:43.720 --> 0:03:44.760 I was like, there's no way. 0:03:44.880 --> 0:03:46.680 I'm glad I didn't say. This is why I never get. 0:03:46.520 --> 0:03:48.960 Anything wrong, because I don't state prediction because you don't 0:03:48.960 --> 0:03:52.120 have opinions. But as a matter of professional accountability, when 0:03:52.160 --> 0:03:54.480 we were interviewing him, in my head, I was skeptical. 0:03:54.560 --> 0:03:56.880 All right, well that's a big maya coupla from Joe. Okay, 0:03:57.040 --> 0:03:59.560 without further ado, then we are going to be speaking 0:03:59.720 --> 0:04:03.080 with Morgan Stanley housing strategist Jim Egan. He's been on 0:04:03.120 --> 0:04:06.640 the show quite a few times before. And here's where 0:04:06.720 --> 0:04:09.720 I produce my disclaimer, which is that stat that I 0:04:09.840 --> 0:04:12.880 just quoted about existing home sales actually came from one 0:04:12.920 --> 0:04:15.920 of his recent notes. So, Jim, welcome back to the show. 0:04:16.320 --> 0:04:18.280 Thank you so much for having me back. It's an 0:04:18.279 --> 0:04:18.960 honor to be here. 0:04:19.680 --> 0:04:21.440 I'm going to start, Actually, I'm going to go back 0:04:21.440 --> 0:04:24.279 in time for a second. Let's just start. Why has 0:04:24.360 --> 0:04:27.520 the American consumer been so resilient? And it's kind of 0:04:27.560 --> 0:04:30.719 funny because you see people even talking about it still. 0:04:30.800 --> 0:04:33.280 So we just had corporate earnings and there was this 0:04:33.320 --> 0:04:36.159 funny comment from the AMEX CEO where he basically said, 0:04:36.200 --> 0:04:38.760 our card members say they don't have any confidence in 0:04:38.800 --> 0:04:41.599 the economy, but they keep spending, which is pretty funny 0:04:41.680 --> 0:04:43.360 to me. But why this strength? 0:04:43.839 --> 0:04:45.640 Yeah, So I think there are a number of different 0:04:45.640 --> 0:04:48.880 things driving the underlying strength in the consumer. We do 0:04:48.960 --> 0:04:52.080 a lot of work across our debt analysts and Morgan 0:04:52.080 --> 0:04:54.960 Stanley Research with our economists to kind of try to 0:04:55.040 --> 0:04:58.240 tie these positive macro numbers to some of the things 0:04:58.279 --> 0:05:01.280 we're seeing on a more micro level. Look the unemployment rate. 0:05:01.400 --> 0:05:04.320 We're at four point two percent, very low unemployment rate. 0:05:04.360 --> 0:05:07.520 It's been low for a few years now. And on 0:05:07.600 --> 0:05:10.840 top of that, you've had an incredible amount of wealth growth. 0:05:11.240 --> 0:05:14.760 There's been volatility in markets recently, but whether it's home 0:05:14.800 --> 0:05:17.320 prices at record highs and the record amount of equity 0:05:17.360 --> 0:05:20.320 that homeowners and sixty five percent of Americans are homeowners. 0:05:20.520 --> 0:05:23.440 The equity that they have in their home, or the 0:05:23.480 --> 0:05:27.040 wealth they've been able to gain from appreciating financial assets. 0:05:27.400 --> 0:05:30.360 That's contributed to consumer's ability to spend. 0:05:30.920 --> 0:05:33.479 These tracks completely with me because I'm anxious about this 0:05:33.520 --> 0:05:35.880 date of the economy. I read all the headlines like 0:05:35.960 --> 0:05:38.359 everyone else. But you know, like I owned a home, 0:05:38.560 --> 0:05:40.760 I bought a home, I have my retirement account. It 0:05:40.839 --> 0:05:43.760 seems to be doing fine despite my anxiety. I don't 0:05:43.760 --> 0:05:45.640 think I'm like changing my behavior anyway. 0:05:46.160 --> 0:05:48.080 And I think another piece to that when we think 0:05:48.120 --> 0:05:51.640 about just the consumer balance sheet, one of the statistics 0:05:51.680 --> 0:05:53.880 that gets quoted all the time is the just debt 0:05:53.960 --> 0:05:57.680 service ratios debt service to income. It's above where it 0:05:57.680 --> 0:06:00.120 wasn't twenty twenty one, but it's still it's so of 0:06:00.120 --> 0:06:02.120 the lowest levels we've seen in the past couple decades. 0:06:02.160 --> 0:06:05.520 The capital c consumer, the holistic balance sheet of the 0:06:05.520 --> 0:06:08.360 consumer that still looks healthy. We don't think that the 0:06:08.400 --> 0:06:12.000 consumer holistically is over levered. There might be some pockets 0:06:12.040 --> 0:06:15.200 of pressure, but we don't think they're in aggregate overlevered. 0:06:15.560 --> 0:06:17.719 Yeah, so this is exactly what I wanted to ask 0:06:17.760 --> 0:06:19.760 you because one of the things that I've been sort 0:06:19.800 --> 0:06:22.560 of internalizing from recent years is this idea that the 0:06:22.720 --> 0:06:26.440 aggregate hides a lot of stuff happening in the tails. Right, 0:06:26.480 --> 0:06:28.719 And the question, I guess is always when the tails 0:06:28.760 --> 0:06:31.279 start getting fat enough that they start affecting the whole. 0:06:31.760 --> 0:06:34.520 And this is one reason why your recent research really 0:06:34.560 --> 0:06:36.680 caught my interest and I actually wrote it up in 0:06:36.800 --> 0:06:40.000 the All Thoughts newsletter. But you are starting to see 0:06:40.080 --> 0:06:44.760 some pockets of strain. Describe what you're examining right now. 0:06:44.880 --> 0:06:46.960 Yes, so thank you for writing that up. 0:06:47.400 --> 0:06:50.880 Visibility was very much No, thank you for producing it, honestly. 0:06:51.040 --> 0:06:53.440 And I think what we're seeing and this is something 0:06:53.760 --> 0:06:56.480 as part of my role at Morgan Stanley, I work 0:06:56.480 --> 0:06:59.320 on the teams that look at auto credit, within asset 0:06:59.279 --> 0:07:02.880 back securities, credit cards, all of those other consumer products. 0:07:02.880 --> 0:07:06.880 And one of the i'll call it apparent contradictions that 0:07:06.920 --> 0:07:09.640 we were seeing was the macro consumer data that we 0:07:09.640 --> 0:07:13.800 were just discussing, incredibly healthy consumer keeps spending and then 0:07:13.840 --> 0:07:18.080 we're seeing delinquencies climb, delinquencies climbing with the unemployment rate 0:07:18.120 --> 0:07:20.520 as low as it was. That was something that we 0:07:21.120 --> 0:07:23.400 had been asked to explain a fair amount of times. 0:07:23.400 --> 0:07:27.080 We're trying to find better data to explain, and so 0:07:27.560 --> 0:07:30.240 the impetus behind that report was to kind of say, look, 0:07:30.480 --> 0:07:33.440 subprime auto delinquencies have been climbing to a point where 0:07:33.440 --> 0:07:37.640 they're higher now than they've been at any point. I 0:07:37.640 --> 0:07:40.040 mean some metrics there above where they were in two 0:07:40.040 --> 0:07:42.000 thousand and eight, two thousand and nine at their prior peaks. 0:07:42.040 --> 0:07:44.480 Now there's some apples to apples issues there, but you'll 0:07:44.480 --> 0:07:47.920 see those numbers. Prime auto delinquencies have started climbing. Unsecured 0:07:47.920 --> 0:07:50.640 consumer delinquencies are up. They're not at local highs, but 0:07:50.640 --> 0:07:54.160 they're up. And so from a pockets perspective, we are 0:07:54.160 --> 0:07:56.160 seeing a little bit of those delinquencies climb. 0:07:56.600 --> 0:07:59.080 I just want to explain the terms really quickly, but 0:07:59.240 --> 0:08:01.560 what's the official definition of delinquency. 0:08:02.240 --> 0:08:05.840 So delinquency as we're talking about it here is somebody 0:08:05.840 --> 0:08:10.520 who is thirty days past due on their loan. So 0:08:10.560 --> 0:08:12.280 we'll either talk about it in terms of thirty days 0:08:12.360 --> 0:08:14.880 or sometimes sixty plus days. But you've missed at least 0:08:15.240 --> 0:08:19.080 one or two payments on a debt instrument, whether that's 0:08:19.120 --> 0:08:22.200 an auto loan, we'll look at it for mortgages, credit cards, 0:08:22.200 --> 0:08:23.160 and so on and so forth. 0:08:23.440 --> 0:08:26.360 So this is really important though, because in the aggregate 0:08:26.480 --> 0:08:29.440 things are mostly fine, but we're seeing this rise across 0:08:29.480 --> 0:08:33.960 different categories, which is not entirely intuitive. So what you're 0:08:34.120 --> 0:08:36.640 saying is that there are these tails, there are these 0:08:36.679 --> 0:08:39.760 sources of stress, but that they're not a function of 0:08:39.960 --> 0:08:41.000 credit worthiness. 0:08:41.080 --> 0:08:44.080 What are they a function of might not be a 0:08:44.080 --> 0:08:47.640 function of aggregate credit worthiness, And that's when it comes 0:08:47.640 --> 0:08:50.679 into looking at these statistics that we need to use 0:08:50.920 --> 0:08:53.640 to think about just kind of broadly, how the economy, 0:08:53.679 --> 0:08:55.800 how the consumer is going to move forward. But I 0:08:55.840 --> 0:08:59.000 mentioned debt service ratios right when we think about what's 0:08:59.240 --> 0:09:01.920 brought debts service ratio is down to kind of some 0:09:01.960 --> 0:09:04.439 of the lowest levels we've seen in decades. The mortgage 0:09:04.440 --> 0:09:06.959 market plays a big role. The largest piece of debt 0:09:07.040 --> 0:09:09.520 on any household balance sheet that owns a home is 0:09:09.760 --> 0:09:13.520 almost certainly going to be that mortgage. And the lock 0:09:13.600 --> 0:09:15.520 in effect that we've heard in the housing market, that's 0:09:15.559 --> 0:09:18.680 a function of the fact that a majority, an overwhelming majority, 0:09:18.679 --> 0:09:21.160 of mortgage debt in this country thirty or fixed rate mortgages. 0:09:21.760 --> 0:09:23.760 Most of those borrowers were able to take out that 0:09:23.800 --> 0:09:27.520 mortgage at historically low rates. In twenty twenty, twenty twenty one, 0:09:27.880 --> 0:09:30.400 the effective rate on the outstanding right now four percent, 0:09:30.640 --> 0:09:33.680 prevailing mortgage rates six point eight six point nine percent 0:09:33.760 --> 0:09:36.600 as we're in this studio today. So when you think 0:09:36.600 --> 0:09:40.920 about two thirds of the country or homeowners, their effective 0:09:41.000 --> 0:09:43.960 rates at four percent are dragging down that payment. Only 0:09:44.000 --> 0:09:46.080 sixty percent of homeowners even have a mortgage, so forty 0:09:46.080 --> 0:09:48.680 percent own their home free and clear any debt. They're 0:09:48.679 --> 0:09:51.280 not contributing to the numerator. And the thirty five percent 0:09:51.320 --> 0:09:54.360 of households that are renters rents don't count as debt 0:09:54.400 --> 0:09:57.439 service in these equations. They're contributing to the denominator in 0:09:57.520 --> 0:09:59.800 terms of the income piece of this calculation, but they're 0:09:59.840 --> 0:10:02.360 not adding to the service piece, right and or the 0:10:02.400 --> 0:10:05.160 debt service piece, And so that's all helping to drag 0:10:05.200 --> 0:10:09.160 this down and potentially missing a few pockets of specific 0:10:09.200 --> 0:10:11.640 borrowers that are under a lot more pressure than those 0:10:11.679 --> 0:10:13.000 aggregate numbers would suggest. 0:10:14.520 --> 0:10:17.079 Just to be clear, so is the story that the 0:10:17.120 --> 0:10:22.160 stress is building basically among the unfortunate people who have 0:10:22.200 --> 0:10:24.320 a mortgage, but don't have a Zerbier mortgage. 0:10:24.400 --> 0:10:26.960 I think when we started to see delinquencies climb, and 0:10:27.040 --> 0:10:29.559 this is two to three years ago, we started to 0:10:29.600 --> 0:10:33.280 see it subprime borrowers, and those tend to be borrowers 0:10:33.280 --> 0:10:37.360 who in this post GFC past fifteen years, lending standards 0:10:37.360 --> 0:10:40.000 have been tighter, more likely to be renters. We're not 0:10:40.040 --> 0:10:43.080 capturing rent, and so their payments are getting tougher. But 0:10:43.120 --> 0:10:45.520 then to your point, now, over the past twelve to 0:10:45.559 --> 0:10:48.400 eighteen months, now prime delinquencies are moving higher. These are 0:10:48.440 --> 0:10:50.880 households that are much more likely to be homeowners. And 0:10:50.920 --> 0:10:52.800 what we think we're seeing there is exactly the dynamic 0:10:52.800 --> 0:10:55.720 you're talking about. Right, If you bought a home prior 0:10:55.720 --> 0:10:57.360 to twenty twenty one, Let's say you bought in twenty 0:10:57.360 --> 0:11:02.600 sixteen median priced home percent down prevailing mortgage rates at 0:11:02.640 --> 0:11:05.119 the time, that was a thirty year fixed rate mortgage. 0:11:05.480 --> 0:11:09.080 Most homeowners who bought at that time refinanced at record 0:11:09.080 --> 0:11:11.480 lows in twenty twenty twenty twenty one. And if we 0:11:11.559 --> 0:11:14.680 just assume that their incomes have been growing along the 0:11:14.760 --> 0:11:16.920 levels that median household incomes have been growing for the 0:11:16.960 --> 0:11:20.000 past nine to ten years, their monthly payment is a 0:11:20.040 --> 0:11:23.280 share of their income is eight to nine percent. Today. 0:11:23.760 --> 0:11:26.160 Anybody who bought before twenty twenty one, that median household, 0:11:26.240 --> 0:11:29.760 we think that payment is probably below twelve percent. If 0:11:29.800 --> 0:11:33.920 you bought the past three years, as rates moved materially higher, 0:11:34.720 --> 0:11:37.440 your monthly payment as a percentage of your income median 0:11:37.480 --> 0:11:39.880 household probably twenty four to twenty six percent. 0:11:40.120 --> 0:11:42.040 This is like the most important state in the world. 0:11:42.160 --> 0:11:44.640 Yeah, this is like you have the haves and half 0:11:44.679 --> 0:11:47.679 knots of renters versus homeowners, but you also have the 0:11:47.760 --> 0:11:50.640 have and have nots in homeowners themselves. 0:11:51.000 --> 0:11:53.040 Yes, and so we think that the Joint Center for 0:11:53.080 --> 0:11:55.480 Housing Studies at Harvard right, they have some great statistics 0:11:55.480 --> 0:11:59.360 on affordability, and they will qualify thirty percent of your 0:11:59.360 --> 0:12:02.800 income as the threshold for are you cost burdened on shelter, 0:12:03.200 --> 0:12:05.600 So twenty four to twenty six percent. We're not saying 0:12:05.600 --> 0:12:08.800 that those homeowners are cost burdened, but they're spending two 0:12:08.840 --> 0:12:11.600 to three times more of their monthly paycheck on that 0:12:12.000 --> 0:12:15.400 mortgage than somebody who was fortunate enough to buy prior 0:12:15.440 --> 0:12:17.559 to twenty twenty one, which you'd think has to be 0:12:17.640 --> 0:12:20.520 crowding out something and maybe that's it hasn't been spending 0:12:20.600 --> 0:12:22.600 that that's clearly been the case from the data that 0:12:22.640 --> 0:12:25.959 we talked about earlier, but maybe it's these marginal payments 0:12:26.000 --> 0:12:40.840 on other debt service products. 0:12:44.080 --> 0:12:46.720 So one of the results of having a lot of 0:12:46.720 --> 0:12:50.520 people locked into mortgage rates that maybe they got before 0:12:50.920 --> 0:12:54.080 everything went up by quite a lot is the lock 0:12:54.120 --> 0:12:55.920 in effect and the idea that people don't want to 0:12:56.000 --> 0:12:58.040 move houses because they'd have to get a new mortgage 0:12:58.040 --> 0:13:01.960 and then they would end up potentially cost burdened. And 0:13:02.200 --> 0:13:06.440 I'm curious if we're still seeing an impact from that 0:13:06.640 --> 0:13:10.200 particular or as much of an impact from that particular dynamic, 0:13:10.360 --> 0:13:12.079 or are we at the point now where people are 0:13:12.080 --> 0:13:15.480 thinking like, well, maybe mortgage rates aren't going down anytime soon, 0:13:15.520 --> 0:13:17.280 and so I'm just going to bite the bullet and 0:13:17.480 --> 0:13:18.240 do something new. 0:13:19.200 --> 0:13:21.600 So, if I were to take a ten thousand foot 0:13:21.640 --> 0:13:25.160 view and answer your question, the locket effect is clearly 0:13:25.200 --> 0:13:28.439 still playing a role. Right If we look at overall 0:13:28.440 --> 0:13:31.640 inventory levels as a share of the outstanding housing market, 0:13:31.920 --> 0:13:35.000 the chart still looks like there's a TYPEO given how 0:13:35.040 --> 0:13:38.800 low inventories are. But I can't sit here like I 0:13:38.840 --> 0:13:41.040 have been able to in the past and say we're 0:13:41.040 --> 0:13:44.280 at historically low inventories, right, we are starting to see 0:13:44.320 --> 0:13:46.800 to the point that you're making. We are starting to 0:13:46.840 --> 0:13:50.200 see four sale inventory volumes move higher. Year over year, 0:13:50.200 --> 0:13:53.760 inventory volumes are up almost it's almost eighteen consecutive months, 0:13:53.800 --> 0:13:56.160 now almost a year and a half. They're up almost 0:13:56.200 --> 0:13:59.400 twenty percent from those lows. And while that's still below 0:13:59.440 --> 0:14:01.640 where we were we are in the fourth quarter of 0:14:01.640 --> 0:14:04.920 twenty nineteen, below where we were when rates picked up 0:14:04.960 --> 0:14:08.520 massively and inventories kind of retrenched, that's still a pretty 0:14:08.520 --> 0:14:11.480 healthy increase where we're starting to see a little bit 0:14:11.520 --> 0:14:14.000 more supply come on the market here, despite the fact 0:14:14.000 --> 0:14:17.440 that the lock in effect remains two hundred and fifty selling. 0:14:17.559 --> 0:14:20.160 Is it just eventually, like, what is the source of 0:14:20.200 --> 0:14:22.360 the inventory? Is it the people who have needed to 0:14:22.400 --> 0:14:25.160 sell for a while are finally capitulating and you're not what, 0:14:25.240 --> 0:14:26.280 I finally. 0:14:26.040 --> 0:14:26.960 Got to sell this house. 0:14:27.520 --> 0:14:30.120 Is it that there are some marginal buyers who have 0:14:30.200 --> 0:14:32.640 dropped out because they've been waiting. I don't know what 0:14:32.760 --> 0:14:34.920 is the source of this inventory? And this is the 0:14:34.960 --> 0:14:36.920 longest inventory growth since the GFC. 0:14:37.440 --> 0:14:40.760 It's the highest percentage change when I look at year 0:14:40.760 --> 0:14:42.520 over year growth. But we just saw with the most 0:14:42.520 --> 0:14:44.680 recent data that came in, it's now the biggest it's 0:14:44.720 --> 0:14:46.360 been on a year over your basis since the GFC. 0:14:46.720 --> 0:14:48.480 It's also the second largest it's spin in the history 0:14:48.480 --> 0:14:51.000 of the data, which goes back to the early second 0:14:51.120 --> 0:14:51.840 nineteen eighties. 0:14:52.160 --> 0:14:53.960 What streak a year over year growth? 0:14:53.960 --> 0:14:54.120 Oh? 0:14:54.120 --> 0:14:57.280 Okay, Like just in terms of how much we're up now, 0:14:57.960 --> 0:15:02.240 the question as to who is selling i'd argue probably 0:15:02.320 --> 0:15:04.560 one of the more important questions in the housing market 0:15:04.640 --> 0:15:07.400 right now. Yeah, so it's a question we're trying to answer, 0:15:07.800 --> 0:15:11.440 but it's one that's a little bit more difficult to answer. 0:15:11.640 --> 0:15:16.320 We can identify at this point where the inventory is 0:15:16.320 --> 0:15:18.920 picking up more. Right You look in states like Florida 0:15:19.200 --> 0:15:22.440 has some of the steepest increases. Texas has had some 0:15:22.480 --> 0:15:26.560 pretty steep increases, and we get a lot of questions, 0:15:26.600 --> 0:15:29.800 For instance, in Florida, cost of insurance increasing, Are the 0:15:29.880 --> 0:15:32.920 ancillary costs of home ownership? Is that forcing inventory? We 0:15:32.920 --> 0:15:36.360 don't know if that's the case. We can't empirically prove 0:15:36.400 --> 0:15:38.040 that right now, but I think you combine that with 0:15:39.040 --> 0:15:40.760 twenty twenty one was a long time. 0:15:40.640 --> 0:15:44.360 Ago Yeah, this was my realization last night that actually 0:15:44.400 --> 0:15:45.880 twenty twenty one was not yesterday. 0:15:46.200 --> 0:15:48.720 Yes, and these people have been lack of effect has 0:15:49.640 --> 0:15:51.640 had people stuck in their homes in a lot of 0:15:51.640 --> 0:15:54.520 instances for probably longer than they wanted to be. Growing 0:15:54.560 --> 0:15:57.840 families both in terms of number of children as well 0:15:57.840 --> 0:16:01.160 as larger children, like just growing needs for more space, 0:16:01.520 --> 0:16:03.800 if those for lack of a better word, if those 0:16:03.840 --> 0:16:06.400 dreams have been delayed, like maybe the realization that rates 0:16:06.440 --> 0:16:07.920 might not come down all that much, maybe it's time 0:16:07.960 --> 0:16:11.080 to do that. And home prices are up fifty percent 0:16:11.520 --> 0:16:14.360 since March of twenty twenty, Like over the past five years, 0:16:14.400 --> 0:16:16.400 you have a fifty percent growth in home prices. It's 0:16:17.600 --> 0:16:19.680 perhaps those homeowners with that equity might be just a 0:16:19.720 --> 0:16:22.760 little like marginally more willing to list. 0:16:22.640 --> 0:16:24.640 And the economics to make a little bit more. Yeah, 0:16:24.680 --> 0:16:25.480 this is yeah. 0:16:25.920 --> 0:16:27.880 Wait, can you talk a little bit more Since we're 0:16:27.960 --> 0:16:31.400 all about digging into the aggregate and finding the different 0:16:31.400 --> 0:16:33.560 tales here, can you talk a little bit more about 0:16:33.600 --> 0:16:37.280 the different pockets and geographical differences between what you're seeing 0:16:37.280 --> 0:16:39.160 in supply and home prices. 0:16:39.440 --> 0:16:42.960 Yes, So we've been trying to figure out what are 0:16:43.000 --> 0:16:47.000 the most because we talk about home prices nationally, the 0:16:47.040 --> 0:16:49.800 housing market is so hyper local that those national numbers 0:16:49.880 --> 0:16:52.960 are helpful, but they don't describe the dynamics that are 0:16:53.000 --> 0:16:55.520 going on at the ground level at any individual place 0:16:55.520 --> 0:16:57.720 in the country. Right. And so when we look at 0:16:57.760 --> 0:17:00.000 the growth and inventory, looking at it year over years, 0:17:00.160 --> 0:17:02.280 looking at it since the fourth quarter of twenty nineteen 0:17:02.320 --> 0:17:06.320 before the pandemic started, you're seeing the sharpest increases in 0:17:06.640 --> 0:17:09.400 the South, right, Like you've seen it in Florida, You've 0:17:09.400 --> 0:17:11.600 seen it in Texas, a couple of states that show 0:17:11.640 --> 0:17:13.280 up a little bit more on the year over year numbers, 0:17:13.320 --> 0:17:16.640 or Colorado, North Carolina. When we look at the implications 0:17:16.640 --> 0:17:19.720 from home price perspective, what we've seen to be more 0:17:20.240 --> 0:17:23.760 at least statistically significant for now are places where either 0:17:24.160 --> 0:17:27.600 those inventory levels are higher highest compared to the fourth 0:17:27.680 --> 0:17:31.639 quarter of twenty nineteen, which you have New Orleans eleven 0:17:31.680 --> 0:17:33.520 of the top fourteen msas from that perspective, or in 0:17:33.560 --> 0:17:36.200 Florida or Texas, and that's where you're seeing softer year 0:17:36.200 --> 0:17:38.640 over year home price growth, or in some instances where 0:17:38.640 --> 0:17:40.600 you are actually seeing prices come down on a year 0:17:40.640 --> 0:17:44.439 over year basis. The other side of that coin is 0:17:44.480 --> 0:17:47.520 the Northeast. It's New York, it's New England, it's the 0:17:47.560 --> 0:17:51.000 northern Midwest. Those are places where inventories are still falling. 0:17:51.640 --> 0:17:54.399 Inventories are far shy of where they were in the 0:17:54.400 --> 0:17:56.919 fourth quarter of twenty nineteen. And to put all of 0:17:57.160 --> 0:18:02.200 these percentages into context, rationally, inventories are down. I believe 0:18:02.240 --> 0:18:04.679 it's twenty eight percent from the fourth quarter of twenty nineteen. 0:18:04.840 --> 0:18:07.560 So to talk about places where inventories are actually up 0:18:07.680 --> 0:18:10.440 relative to fourty twenty nineteen, that is an outlier relative 0:18:10.480 --> 0:18:12.080 to national numbers. 0:18:12.640 --> 0:18:14.720 This conversation wasn't on the record, but I'm going to 0:18:14.800 --> 0:18:16.439 quot him anyway. I was trying to my friend Connor 0:18:16.560 --> 0:18:19.800 saying he writes for Bloomberg Opinion. Hopefully it doesn't mind 0:18:19.840 --> 0:18:23.119 me quoting him. We're talking about this phenomenon of the 0:18:23.200 --> 0:18:26.240 fact that inventories are very tight in the Northeast, and 0:18:26.280 --> 0:18:31.399 one of the things that he said was that, And again, 0:18:32.040 --> 0:18:34.040 I don't think he told this to me for publication, 0:18:34.160 --> 0:18:35.320 but maybe he's written about it. 0:18:35.359 --> 0:18:37.000 So I'm just going to take a risk. 0:18:36.800 --> 0:18:38.879 That it's okay to quote him from a chat that 0:18:38.960 --> 0:18:41.200 I had with him. But I want to give him credit, 0:18:41.440 --> 0:18:44.960 but that there's this natural, long standing migratory pattern in 0:18:45.000 --> 0:18:47.920 the US of people moving essentially to the sun belt 0:18:48.040 --> 0:18:50.840 from the northern and that the way he characterized it 0:18:50.880 --> 0:18:54.560 to me is like imagine a university town in which 0:18:54.600 --> 0:18:56.800 suddenly for a few years no one moves out of 0:18:56.800 --> 0:19:01.000 the town after graduation. How inventories would rapidly diminish, And 0:19:01.000 --> 0:19:03.840 that because of the lock in, the mortgage lock in, 0:19:03.880 --> 0:19:06.399 you're not getting the same sort of migration out of 0:19:06.440 --> 0:19:09.159 the cold areas to the southern areas, and so people 0:19:09.200 --> 0:19:12.119 are stuck in the cold areas basically, and that is 0:19:12.280 --> 0:19:15.960 does that resonate as a reason for why vacancy rates 0:19:16.000 --> 0:19:18.640 would be very low or inventory rates in the northeast 0:19:18.640 --> 0:19:19.800 would be very low right now? 0:19:19.960 --> 0:19:22.240 So from the data that we've looked at, is common 0:19:22.280 --> 0:19:25.320 around the migratory patterns. They didn't start in COVID when 0:19:25.359 --> 0:19:28.440