Moody's Talks - Inside Economics - Colyar on CPI, Dietz on Housing

Episode Date: December 19, 2025

Moody’s Analytics economist Matt Colyar weighs in on the government-shutdown flawed consumer price data for October and November, and teases his own CPI that will better represent what’s happening with inflation. Stay tuned. And Robert Dietz, chief economist of the National Association of Homebuilders, joins the conversation to provide his outlook on the housing market. Housing will have another tough year, but Rob finds some bright spots.Guest: Robert Dietz, Chief Economist of the National Association of Home BuildersHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by a couple of my colleagues, my trusty co-host, Chris DeRides. Hey, Chris. Hey, Mark. Good to see you. This is like take three. I mean, don't go anywhere. Stay here. No technical, we, you've been having a bunch of technical difficulties this morning, but you're, you're here now. I am. Let's hope. Let's hope. Let's hope. Fingers crossed. Fingers crossed. And we've got Matt, Matt, how are you? I'm doing well, Mark. How are you?

I'm okay. Oh, okay. That was convincing. Okay. No, no, I'm good. I'm good. It's just all these, the computers are, you know, a real bane of my existence, you know? So, anyway. We won't go there. And Matt's on because we've got inflation data that came out this week, CPI, Consumer Price Index. We want to talk about that. But before we do, I want to bring in our special guest, Rob Deeds. Hey, Rob, how are you? Doing well.

Good to join you guys again. See how he answered it much more upbeat than I certainly did. He said, yeah, I'm doing good. Of course, Rob's the chief economist of the National Association of Home Builders, the NAHB. And you've been on before, Rob. Yeah, that's second visit. Good to join you. Okay, great.

Good to have you. And can you just remind everyone, how long have you been chief economist at NAHB? I just hit 10 years and I've been at NHB 420. And I know you've worked with a whole succession of NHB chief economist. I have. I have. Can you like name them going backward in time? I'm just to go down.

Yeah, we had Dave Crowe. right after the Great Recession. And then you worked with Dave Siders, who was chief of Congress from the 80s up until 2008. And before that, was Michael Summichrist in the late 70s and the 80s. And he got his Ph.D. in economics from the Ohio State University, as did I. So he was our second buck guy and going back in time. Yeah. Well, you're a lucky guy.

You've got a great. Oh, so you must be. focused on college football like a laser beam. I am. Yeah, we got the playoffs this weekend. Let's see who wins Texas A&M and Miami. Yeah, it should be great. That should be great. The Ohio State seems like they're the odds on favor. Well, they lost, you guys lost Indiana, but that was weird. Indiana, yeah, that's right. This is a kind of neat year for those programs rising up. Are you surprised I know this about football? You think I'm this, this nerd, don't you, Rob? And Zandi doesn't know anything about football?

No, it's funny when you go on the road talking to folks. Football is this sort of universal conversation piece. Right. Of course, being from Philly, we're all into the Eagles, you know. So they have a big game this week. But, well, it's good to have you aboard. I didn't realize you've been at NHB for 20 years. Wow.

Okay. So quite some time. Well, that's great. Great, great to have you. Before we, obviously, we're going to talk about the housing market, the single family and housing market, a lot going on there. But before we do, let's turn back to this inflation data, the consumer price index. And Matt, what the heck?

What's going on with that CPI? The good intro. Usually, I ask you to give me a rundown on the CPI, you know, what's going on with this product, that product, and everything else. But I'm not sure I even want to do that with this data. Yeah, I was anticipating you looking for like a one-word summary or like a, you know, how would I characterize that, which I would say is bizarre to have it written down. So I'm going to have to say it. Yeah, it was a very strange report. We got the November Consumer Price Index Thursday morning.

You're saying that's your word is strange? I went with Bizarre, but they're synonymous. Yeah, yeah. I go with junk. I was building up my case for why it might be junk. Okay, all right, right off of that. The fact that we're talking about two-month changes is strange enough and junky enough. All right, explain.

So, like Dante was on earlier this week, talking about the jobs report. this is a shutdown, the government shutdown is all over this report and really makes it unreliable for a lot of reasons. So enumerators, the statisticians at the BLS, the Bureau of Labor Statistics that go out and collect prices weren't working during October. Really hard to retroactively go out and collect prices. So all along, as the shutdown hit 31, 32 days, we knew that October's price data was just never going to be available. So what we got was November. We got was November December's data. November's data didn't have a month. The month changed because we didn't have October wasn't there. So really what was anticipated was this year over year change. And there,

at first glance, it looked really good. If you didn't think too much further about it, you had the headline CPI dropped from 3% to 2.7%. So 3% in September and then 2.7% in November. That's year over year percent change through the month of November. That's right. Right. Okay. Our expectation and we were right in the middle of consensus was that over these two months we were going to see, instead of dropping 2.7, that CPI was going to stick at that 3.1 or 3 to 3.1% year over year growth. That didn't happen. We get a 3 tenths of a percentage point drop. The two month change is, there was what reported. So what was the change from September to November, 0.2%. That's not bad for one month. But over two months, that's really. soft, and we'll get into why that's not a reliable number. Over the past three months, CPI was rising at about 0.3% each month. So this two-month stretch of 0.2 was curious.

Core CPI, also 3% in September year-over-year, and then dropped to 2.6% in November, where we expected to stay at 3%. So same dynamics there, much sharper drop than we anticipated. Just to summarize, so, you know, before the, we had gotten data through the month of September before the shutdown. Shutdown, it happens. No survey done in October. A survey was done in November, although that was late, later than normal, which we should talk about as well. For sure. But anyway, we get the November data, and as of September, the percent change year ago in the CPI, top line and core excluding food and energy was 3%. We were expecting it to remain at 3% year over year through the month of November prior to the release.

The release comes out and it shows CPI top line is now year over year, 2.7% and the core is 2.6%. So we have this big drop down in the rate of growth. So it's inflation, and that runs counter to what we expected. And obviously, it's because of the, everything was scrambled by the government shutdown and the lack of the surveys. And the way the BLS actually handled that, it goes to this result. Is that, I got that right?

Exactly. I think the way the BLS handled it, as you said, is the kind of whole explanation here. We didn't have October data for almost everything. Speaking for the BLS's point of view, so what they do and what their handbook lays out is if that data isn't available, and you take the most recent data point you have and just carry it forward. So for September, for October, if we didn't have an estimate, on food prices. We just assume September. And that essentially means for all of those goods and services that that needed to happen, we got 0% inflation, which I don't think anybody is arguing

happened in reality in October. But that change is how you get a very weak two-month change and you get that big drop in the year-over-year rate because of this, because of the shutdown, the unavailability of data and the way that the BLS, I think defensively, I mean, this is a very odd time, and it's an odd time to have to, you know, you've shelter inflation running a little bit hot, and then to say for a given month, it's 0%. It's unrealistic, even if it is, you know, technically defensible. Well, it's not the word, I don't think it's unrealistic. It's just made up, right? I'm just, I just picked a number. It's called zero, you know, so, which we know is, it's not consistent with anything. So, uh, and so you, you picked on shelter as one of the

components where that matters a lot. And that's because. because the shelter is such a large share of the CPI, the consumer price index. Right. And you have, so looking at the same two-month change, the shelter in total, so we're looking at rent, owner's equivalent rent is the more important, it's the homeowner's estimate of what shelter costs are, but taking them in aggregate, it's a big portion, over a third of the CPI. That two-month change was just 0.18%.

So cut that in half. if you wanted to, you can interpolate it that way and say that's a 0.09% increase in shelter over each of those two months. And that's just a fraction of what we've seen over the past year or two years. And famously, we've been talking about shelter inflation for a while, is how slow moving it is. So to get that sharp drop off, as you mentioned, it's made up. It's not something that people are considering is sending any kind of real signal from the housing market. So given the weight, given how slow moving it is, it's extremely, I think I think easy to, well, one, to point out to and point to and say, this is, this is, you know, what we're

dealing with here and this is why it's an unreliable report. And it's, you know, very, I think, easy to argue that it's a downward bias and what we saw in, you know, yesterday's report is a false signal that inflation is coming down quickly. Can I ask how many prices, how many prices for goods and services had to be assumed to be a zero increase? Do you know? Of the, If you just take the weight of the CPI basket, about 88% had to be, now, and there's, admittedly, there is things you just have to assume. There isn't, within those components, we don't know that, say, something like airfare. Airfare comes from the department transportation.

We can look at prices, but not in total. So the BLS didn't report October's data in a way that they would for gasoline, which they use external data, and they're comfortable looking at energy markets and saying, this is what the change was in October. But for the things, the components that actually had October data reported, that was about 11%. And 88 point something is there is just no October data. So we can assume that that was just plugged in from September. So for 88% of October's change. So basically the whole, for the month of October, they just assume no inflation.

No price increase. Right. So for small vehicles we have data for in October, gasoline, yeah, a few of the least cars, postage wireless stuff. And I guess there's a number of other methodological issues. I mean, one other was that the survey done by the Bureau of Labor Statistics for the month of November was kind of on the late side, right? And that matters, particularly in the current environment because you're in the holiday season

when there's all kinds of price changes and discounting and everything else. And that probably also played a role in biasing lower the inflation numbers. Is that right? Do I have that right? Yeah, I think that's right. And if I, you know, as I try to work, and as I'm sure a lot of other people are doing coming up with alternative measures or just coming up with hypotheticals, we did get a bunch of new information. And if we take that 88% zero inflation because it was all carried from September to October and just apply what we do know. So vehicles and gasoline prices, you can get an October index. And then we have November index values. So we have a sense of what growth looked like in November. And even And my long-winded way of saying is core CPI, if you just take an estimated October to November change, was weak. And I think the primary argument there, if we're talking about core CPI, you're excluding food, you're excluding energy. Much of it is attributable or I think can be intuitively understood as the government shut down until November 13th. And what we're looking at when the BLS comes back to work is a lot of holiday sales that always happened, but they're usually counterbalanced off of the beginning of the month when there isn't those discounts. So, what was being observed. It was a very abnormal November that was, you know, a lot of discounts and prices may have

looked lower than the otherwise would be, which, again, is a downward bias, especially for core CPI. Got it. And I guess the other problem, which is before the government shut down, was because of budget cuts and layoffs at the BLS, the BLS was imputing, so-called imputing more prices as a result. They didn't have this, they couldn't get the service. they were able to get the survey number, so therefore they acceded the numbers from other information that they have.

And typically prior to the government cutbacks and Doge and everything else, about, as I recall, about 10% of the products and services had imputation, but now it's closer to a third and even higher than a third, I think, the month before last. So that's likely is also playing a role in terms of the bias there. I don't know what it is up or down, but there's definitely a bias as a result of that. Sure. Yeah. And the data we have for November is that not as high as September, which is 40% different cell imputation, and that fell to 34, still more than triple, as you mentioned, where it normally is.

Okay. So going forward, we got a problem, right? Because, you know, we've got like a level shift down in the price level. That means year-over-year calculations are going to be messed up, at least until this time. next year when we do a round trip around this data. So is that right? I mean, it's going to be a step down. So it could be, we're really at three, but we're saying now 27 and that gap is going

to remain in place for at least the coming year. Is that fair to say? I think that's fair. I think there's a hope that some of this is addressed by the BLS without the time crunch of getting this published, that there starts to be a bit of a lagged effect. of not plugging in zeros where they shouldn't have even, you know, they approach it conservatively. But yes, as of what we know today and that October 0% inflation for most goods is going to be there for the next 12 months. For December, you're going to get a month-a-month change that's

relatively reliable. I think you could get an acceleration because you're comparing November's discounted prices at Black Friday to now normal December stuff. And that could look like a, you know, 0.3, 0.4 type of monthly increase. That's still not going to jump. the year-over-year inflation because we're effectively looking at an 11th month change. But yeah, that's the kind of thing that I don't think we anticipated when the government shut down, but the echoes of this are pretty clearly going to be here for at least 12 months. And as a result, we are now, as you intimated, but I'll just stated out flatly. We're going to come up with our own CPI, right?

Yeah, I'm taking a few cracks at it. I just, so I'm not going to go through it. I don't think I, we've agreed to this, but I think we should, right? We should come up with our own measure of what's going on with our inflation. Yeah, I think that's a reasonable way to do it. I think there's different, defensible, technical ways to do it that we should do. We should do that. Okay.

Okay, good. Hey, Rob, you've been listening to this conversation. What's your reaction to all this? Yeah, we've been watching the shelter inflation component that that big drop in November just didn't match what I, at least here on the road. And we are expecting rents to decelerate, you know, the shelter inflation component should trend a little bit lower and provide some downward pressure on overall CPI. But, yeah, I mean, what Matt walked through, I agree with, my team agrees with. And if you guys produce some, some alternative CPIs, I can imagine a lot of forecasters kind of plugging that into our models when we're looking at, you know, our Fed outlooks and everything else. Yeah, right.

Yeah, you're right. I mean, the shelter component of the CPI, which I think, correct me if I'm wrong, Matt, is about on the core, I think almost a third of the core is shelter, isn't it? Something to that effect. A little bit higher, yeah. So you get a little higher than that. Maybe the total. It's 40%. Is it 40%?

Okay. Yeah, almost 40. For the total top line, it's closer to a third, I guess. Yeah. So it's a huge component. And you're making great point, Rob, that, you know. the reality is that that shelter component

is tied to rents and we know rents are very weak that they've kind of gone flat here for a while. Yeah, and there was a lot of apartment supply and I think that he was putting some downward pressure. We've seen vacancy rates rise. The labor market's weakening in 2025

that tends to heck hit the rental market as well. Yeah, in fact, the overall inflation, CPI inflation rates have been accelerating in despite of the deceleration in the in the in rents and therefore the cost of shelter incorporated in the CPI and that was going to continue but this what we saw this big step down is obviously not reality because of the the way it was done hey Chris any comments here any other color you want to add no I think we covered it's bogus right I wouldn't uh well I have

one last question. I got the question, and I won't tell you how I answered it, but I'll ask Matt, anything nefarious here? Because there's all kinds of concerns, you know, since the BLS commissioner was fired, that, you know, maybe someone's going to put their finger on the scale here and change the numbers or make decisions that are just, you know, obviously political. Any sense of that here? No, I think it's a reasonable question. But the transparency, I think to a fault almost that BLS has outlined this very transparent and

I say defensible because it's logic that I think anybody can wrap their head around what we don't have, we're just going to assume didn't change the month before. If you just put that in isolation, okay, if you're in the housing market, you're going, that's absolutely not what's happening, but the BLS didn't want to overlay anything they were doing with that assumption. So nefarious, no. I think extremely cautious

and they're there, they're smart, they know this is going to be dismissed, but it was something they could put out in a kind of neutral way is how I would interpret it, but it's certainly not nefarious. That's how I answered it. Yeah, that's how I answered it.

I mean, they're being very transparent. I mean, they're telling us exactly what they did, so, you know. And then it's a little bit more... If they'd be criticized for anything, I mean, you know, if they did... Like, we're going to go back, we're going to construct our own measure

based on the data that we have and make more reasonable assumptions about what's going on, but somebody would easily criticize that as well, saying, you know, why did you make that assumption? Yeah. I mean, they could do, and I hope they do. There is some

things that we just don't know yet. Some of these components, they do use third party data. Do they have that? Did that filter into the November data? Good point. Is it just, you know, did we seasonally adjust these things that we pulled forward September? Was it just to make it zero? And did you, November and,

or I'm sorry, October, September, aren't massively seasonally adjusted months. But I don't understand exactly how that happened either and that could change things a little bit. But that's great point on the margins. And just given their kind of philosophy, I expect those things to be published eventually, but not yet.

Matt, is this the first time this has happened in the history of this series? And the series goes way back, right? It's like one of the first. 30s, right? I think the 19th 30s. I haven't seen somebody say really confidently, but you have like the 40s,

late 40s, I believe is when the CPI started. And there's no break in that time. series. So it feels like, you know, like, like a, yeah, like something broke that shouldn't have, like this, you know, old artifact that now has an NA in a time series. But maybe no, other people aren't looking at a time series as passionately as we are. But I will also just add, if there is any ambiguity here, we're obviously all agreeing. But if you look at like the way bond markets reacted yesterday, everybody's tossing this out. See, you look at expectations for the feds next meeting. If people, if investors believe,

that inflation cut from 3 to 2.6 or 3 to 2.7 in a month, you would have seen January cut probabilities go to 100. And that is not the case. If anything, they just move sideways or ticked down a little bit. So I think it's, you know, a consensus is just being dismissed. Right. Okay. Okay. Well, let's turn to the housing market, Rob. And kind of the way to I like to frame the conversation, if you're okay with it, is to think about demand, supply. Obviously, that's where you're mostly focused, but you know, you obviously focus on demand and supply. It may be pricing, you know, prices. And let's begin with demand.

And they're my kind of way of thinking about housing demand. This is home sales. How many homes are sold? There's the existing home market. and the new home market. And we just got data for the existing market today. For what month?

I didn't even look for what, is that for the month of, that would be from the November data. The November data, because this is a private source. This is from the realtors. The realtors. Not affected by the shutdown.

And that's just been very weak. You know, it's starting to trend up a little bit, but very, very weak. We can talk about the reasons why. But the new home sales, they've held up better, you know, know, the number I have stuck in my mind and you know what better is 650K per month, annualized. I mean, if you kind of cut through the volatility month to month in the data, it feels like

that's kind of where it's been. And that's kind of, that's been, that's, that's, that's, that's pretty good. That's, you know, that's certainly not in the dumper like the existing home sales numbers. And I attribute that to the fact that builders have been willing to be very aggressive with, with pricing, you know, effectively. They have interest rate buy downs and other incentives. effectively have cut price to keep sales up. And so they've been able to manage sales around that 650K kind of a per annum level pretty successfully, you know, even up to now.

Is that, do I have that, is that roughly right? Do I have that right? Yeah, they've been fairly strategic and aggressive when it comes to using incentives. So in our surveys, we find that two-thirds of home builders are using some kind of incentive, roughly. 40% in the last few months have actually outright cut prices. In fact, if you look at the median new home price on a single family newly built sale, that pricing peaked at the end of 2022 and is now down more than 10%. So we've actually got one of these odd moments where median new home pricing is actually lower than median resale pricing because the resale market has continued to see price growth

reflecting scarcity, a little bit of selection bias, and who puts their home on the market. But it really reflects the fact that builders have gone all in on incentive use, which has helped then prop up new construction sales in a market that's been relatively weak since 2022. Just a technical question, the median new house price. This is data from the Department of Census. That's right. When a builder provides an interest rate buy down as an incentive, will that be reflected in the effective price? Is that it is not?

Okay, so that price that we're observing is just the actual price at which the home is transacting. Transaction price. Now, if they cut the price, it'll be reflected, but something like a rate buy down, I mean, it's not a constant quality measure. of course, it's the median new home price. So new home size is falling. A lot of builders have used amenity upgrades. So, you know, what you're actually getting for the home, none of that is reflected. But the medians do tell us something.

I think this is only like the third time and data going back to the 1940s where you've seen this kind of inversion between new home pricing and resale. Yeah, you're saying, so if I just look at the median price, that's basically gone flat to down since the Fed jacked up interest rates in 2022. They went from zero aggressively to five, five and a half percent on the funds rate target. The mortgage rate jumped. At one point, it was over 30 or fixed was over 7 percent. Now it's a little over 6. That knocked the wind out of demand, but the builders responded by not only cutting price, but then offering these, I've mentioned this a few times, the interest rate buy downs, which are quite substantive in terms of their effective. price the impact on the effective price that people are paying right yeah it does reduce profit margin so there's a financial cost to that but it is a kind of a teaser rate to kind of get in and maintain affordability it doesn't affect the down payment requirement so we always kind of think of that is a big binding constraint on demand and the price to income ratio in the housing market as you all

know it's five historically it was three so you know there has been a fundamental change in construction costs and therefore pricing in the post-COVID period. Got it, got it. And in the existing market, there we haven't seen the same kind of price discounting or certainly homeowners have been less willing to effectively cut their price or provide other incentives to move homes. And you've got this in large part because you've got this so-called housing lock or interest rate lock. You know, people got into, they were able to refinance their mortgage down during the pandemic when rates were very low. The average coupon in an existing mortgage now is, it's up from where it was, but it's still only 4%. And then you've got market interest rates sitting over 6.

That gap is just too wide for people to feel like they can sell their home, pay off that mortgage, go buy another home and get a higher price mortgage. They're just not doing that. And that's depressing sales in the resale market. Yeah, I think it's hold back some of the cyclical inventory that we would have expected just from natural turnover. But I do think it's a warning sign for existing home pricing in 2026 that existing homeowners are going to have to do the price discovery. The builders have undertaken in 23 and 24, which suggests that we should see home pricing.

I'm probably out of consensus on this, but I think we will see price weakness in in 2026 on measures like the K Schiller Index. As I've traveled, you've already see in some of the indices weakness in markets like Denver or Austin, Texas, Austin, I think prices are down 10 to 15 percent from peak in the resale market. So that's going to spread in the rest of the country in 2026 in resale. Right. When you say weak, what do you mean? actual price declines nationwide?

Price declines. Our forecast is for 1 to 2% decline in outright pricing for the resale market over the coming quarters. Right. And why do you think, why don't you think that homeowners are just going to hang tough? They're just not going to list exactly what they've been doing for the last few years. They just aren't going to move. therefore they're not going to cut price. Why won't that continue?

Yeah, I think that does continue, but I think it's at a diminished rate. And you do see rising resale inventory. In fact, one of the things builders say is competition is that the resale market represents more competition than it did in 23. And then there's a certain amount of life happens, job losses. So there's only a certain, it's like the car industry at some point, those transactions have to take place. Right.

Okay. And if nationwide prices, house prices, are kind of down one to two percent, that means some parts of the country, as you were kind of intimating, pretty substantive price declines then. Yeah. And like I said, we've already seen that in some of the markets like Austin, Texas. Austin's sort of good example. Really hot, younger population. So it's disproportionately sensitive to changes in mortgage interest rates, younger buyers. And so price discounting has already occurred as inventory.

rose in that particular market. Hey, Chris, you heard Rob's call for decline. By the way, Rob, I don't know if you were, oh, you would remember back in the GFC. You're a young guy, but you obviously lived that period as well. If you had come out before the crisis and said national house price is going to fall 1 to 2 percent, you would be vilified because I was vilified. I said down 1 to 2 percent. I remember that, yeah.

Right? Yeah, it, look, we all have the battle scars of 2008 to 2010. And look, I advise people to have to go out and buy land with personal loans. So, you know, we try to be straight shooters on some of these things, even when the news isn't great. How the world has changed, though. I mean, because, you know, now everyone says, oh, down one to two percent. Okay, you know, back then, one to down, you said one down, down one to two percent. And, boy, it was like the world was being shattered.

In fact, I remember, I think I told, I'm pretty sure I told this story on the last time you were on the podcast with Dave Siders. You mentioned him as a previous chief economist. He was chief economist in, I think into the lead up to the financial crisis. And maybe during the, and I spoke at, NHB used to have this massive annual conference. You may still do, but you don't invite me, Rob. I don't know. That might be it.

Oh, did die with the GFC. You would bring people in from all over the place. They come to your beautiful office building in D.C. And I spoke at that. And it was like circa 2006. And I was saying the world, the things are going to go south. And he got so mad at me, publicly mad at me, you know, basically told me to leave the room. Oh.

And I kind of slunk out of there. Everyone was, you know, I felt really, you know, that's, but that was the time. That was the period, yeah, yeah, anyway. Absolutely. Chris, let me bring you into the conversation. You heard down one to two. We're up one to two, I think, aren't we? Well, we're just below one, right?

Oh, we're just below one. I just don't know. But yeah, that's our core index. So you, would you consider this at a difference or or not? Not really. It's flat. Not really. Yeah.

There is some degree of error, right? or so, up one or Don one doesn't really make a big difference on a national base. I think the more interesting piece is actually the regional parts that Rob mentioned. Some markets, like in Austin, or parts of Florida. I'm really worried about Florida. There's a lot of inventory that's been building up there plus the insurance costs. I think there could be some pretty substantial price to climate. Insurance markets, condo owners having to pay.

put up tons of money for these funds to help support the condo if there's a problem, that kind of thing. That's right. There's just a lot of other structural issues going on there. Can I ask, you know, this, that, you know, back, the reason why prices, a lot of reasons why prices decline so much in the GFC, but the proximate reason was you had a lot of people lose their homes, right? The prices declined, wiped out what equity they had. Of course, then you had a weak economy rising unemployment, and then you saw a lot of foreclosures. And that was the foreclosure

sales at distressed prices that caused the whole market to cave. And at the end of the day, the peak to drop decline in house prices from 2006 when they peaked to the bottom, which was I think 11 or early 2012, was almost a third. I mean, nationwide. So, that meant, you know, places like Miami were down, I don't know, 80, 90 percent, something crazy like that in the so-called sand stays. That's, we're not seeing any, that just doesn't, that's not possible in the current environment, or it doesn't seem at all likely, right, Rob, in the current environment? Not with the structural housing deficit behind it in terms of the mismatch between the size of the housing stock, but some cyclical weakness, given that affordability conditions are

are fairly low. You've got lots of uncertainty, consumer confidence continues to be weak. And then, you know, some of the job numbers have not been encouraging to think about the demand side of the housing market. So, yeah, yeah, I think it's more about resetting. And again, that price and income ratio is the thing that's got me worried because, you know, there are no magic numbers, but if mortgage rates could get to 5.95% or something like that, it would be helpful. But that doesn't mean then those potential homebuyers would have the down payment to be able to make that purchase. And if you don't have access to the bank of mom and dad, it's hard to get those savings. Yeah, you're saying mortgage rates just can only get you so far in terms of this affordability thing.

Incomes have to catch up to prices or prices have to fall back down towards income or both those things got to happen, you know, to some degree to restore affordability. And we've been saying this for about a decade. We have to make fundamental reforms on the supply side. Bending the cost curve in the supply side is ultimately how we get out of this. But there are no quick fixes. We often say there's no single simple, scalable solution to the housing deficit, yeah. Say that fast five times. No single simple scalable solution.

I like that. Labor shortages, building materials, zoning rules. financing rules, all these things. A lot of these are legacy issues from the Great Recession that left us with the housing deficit. And there lots of estimates out there. You all put out recently a new housing deficit number. We think it's about a million, a million and a half.

But it's going to take us a number of years to kind of build through that, given some of the demand-side challenges as well. Yeah, I want to come back to that in just a second. When we talk about the supply, I just want to just end up the conversation on demand. The way I would have responded to the, we're not going to see those big kind of price for high foreclosures and big price declines is that homeowners have a lot of built up equity, right? I mean, because prices took off in the wake of the pandemic. And so most homeowners, except the ones that bought more recently, have a ton of equity in the home. And therefore, there's just, they're not going to, they're not going to default.

They could, they could sell the home if they get stressed, if we see unemployment rise. in job loss, but they're not going to default, and therefore we're not going to see those kind of distress sales. Is that right, Chris, is that a reasonable argument? That's right. I'd also say that, you know, some context is always needed in these stats as well. Even when we look regionally, yeah, Austin is down double digits, but it's after five years of substantial above average type of price growth. So, you know, for that homeowner who's been in their house for a long time, kind of no big deal, right? Went up a lot, you know, and it's coming in a little bit.

You know, it's not at the end of the world. It's not going to cause me to default. It's more of those broader dynamics and the new homeowners that we have to really focus on. Right, right. And I, although having said that, the homeowners who've gotten in, you know, in the last couple, three years, they have not, because prices have effectively gone nowhere, have risen very little over the last least. at least two years, probably now three, those folks don't have a whole lot of equity, right? So, you know, they might be at more risk if, if, so it does feel like we will see some pickup in

foreclosure and default, obviously from very, very, very low levels. So maybe just more simply a normalization, but we are going to see some pickup because you've got those homeowners that are recent that are more exposed because they don't have the equity. the delinquency rate on mortgages is rising but it's so much smaller than auto loans credit cards let alone student loans yeah yeah right it's very concentrated in fHA and VA type of loans as well it's kind of the tail or the riskiest part of the mortgage lending market right well since we're on price i just want to point out rob uh philly house prices have you noticed have you have you have you even look at affiliate you of course you don't

look at Philly House prices. Not recently, no. Not recently. Our homes are worse something in Philadelphia. They're actually doing pretty darn well, right? The northeast and the Midwest have been relative bright spots. You know, I look at Columbus, Indianapolis, Kansas City. These more affordable markets are places where we expect to see some strength move into 2026. So it's kind a complicated story. There's industry bifurcations, geographical differences, but that's interesting. Yeah, the Northeast is one of those areas where we've seen strength and Philly would be included there. Yeah, we construct our own repeat sales house price index for the entire market. And I think we met, Chris, I think Matt just sent, I think I just saw, certainly October data,

November's too early. I think I saw October data. Yeah. And year over a year, I think Philly house prices are up like six, seven percent, something like that. And if you look, it's the, for across big, relatively big metro areas with more than a million in population. I think Philly's number one in terms of price growth. Yeah. I don't think I've ever been able to say that in my entire life. House prices in Philly are, you know, actually rising. And, you know, to some degree, it goes to a lack of inventory, but it also goes to the strength of the economy because it's all health care, right?

Philly's healthcare, and that's the only industry that is adding to jobs right now. Nobody else is, so interesting. And an older home buyer base that's benefited from stock market gains. Yeah, yeah, exactly, exactly. Okay, that's demand and we talked about price. Anything else on demand or price that we want to talk before we go on to the main event, which is supply, which is supply. Anything else?

Chris, anything else you want to add there? Matt is a recent home buyer. Do you have anything to add on that all this? And as the Philadelphia analyst, I would just chime in there that Philadelphia is, I'm glad you mentioned, broader macroeconomy doing really well, job growth, and it is a health care story, but you just look at other, even northeast metros, Philly stands out, doing really well. Philly stands out, yeah, okay. I won't talk about my home in Bureau, but, you know, different story.

Yipes. Don't shed any tears, though, because we had a nice run up there. But anyway, okay, let's talk about supply. And okay, so Rob, here's the way I kind of think about supply. I just want to throw it out there and see how you would think about this. On supply, and I'm now focused on single-family home building. We should talk about perhaps multifamily as well, but single-family. And there, the home builders have done a really amazing job.

maintaining the same level of home building. We've been putting up about a million single family homes annualized, you know, over the last several years. Now, that has changed and it is changing. It started to change about six, nine months ago. And what has happened is at that level of building, a million units per annum, because sales weren't up to it, the inventory of unsold new home, rose quite substantively. And right now it's sitting at a high level, about 500,000

unsold homes. This is census data. And the only other time it's been higher was right before the financial crisis in that period of obvious overbuilding. So the builders are saying, oh my gosh, you know, I've got too much unsold inventory. I've been price discounting and interest rate buy downs and I still have this problem. Now I've got to respond and cut construction. And so we see permits down, we see starts down, and that means in the not too distant future, we're going to see, when I said a million per annum, that was completions. We're going to see completions start to come down in a significant way. So the builders are, you know, kind of retreating here pretty quickly. Do I have that roughly right?

Yeah, I agree with that. If you look at single family housing starts for 2025, and we're still waiting for the census to, you know, up to. Some of the post-August data, but we think single-family home building starts for 25 will end up down 6, 7%, something like that. So it will be the third year of decline for starts in the last four. 2024 was up, not a lot, but it was up. And then it kind of gives us a kind of a false dawn that we were kind of going back to the growth trend to maybe get up to about 1.1 million, which is where we need to be. But for 25, it's going to be right under 950,000. We've got a slight gain in our forecast for 2026, taking us close to 950, maybe a little bit higher.

Really, you have, you have starts, home, single family starts actually rising in 2026. Just a little bit. We do this builder sentiment survey every month. And for the last three months, the component that measures future sales expectations has been a of 50 or positive territory. Now, there are splits in the industry. Where the weakness was in 25 was spec home building and larger home builders. So it's basically larger builders that got out a little ahead of where the market was,

as you described it. But there are pockets of strength. I mentioned the Midwest, custom home building, which is about 20% of the market that's building on an owner's lot. That's up this year. And so I think on net, those trends are going to result in a little bit of a gain for a single-family home building next year. Oh, that's interesting. Chris, in our forecast, do we have starts rising in 2026?

Or what do we have them doing? We have them pretty flat. Pretty flat, yeah, okay. I mean, a small rise, but. Right, okay. And, of course, on the multifamily side, there are things have been. construction has been falling off pretty quickly here, you know, for over a year, probably a couple of years now, right? It's actually kind of a little opaque. There's a bit of controversy in 2025. You talk to the biggest multifamily builders in the biggest markets. They'll say, yeah, the market was down in terms of starts. We have this big run of supply, so completions was increased. If you look at the multifamily permits data from the census, it would suggest a more than 10% gain in,

multifamily starts for 2025. And we try to reconcile this. How is some of what we see from the private data providers suggesting a lot of weakness, a big slowdown, consistent with the multifamily permit data. And the best story that we've come up with is geography. When we look at the geography of permits, we find that there was growth in smaller multifamily construction in ex-urban markets, secondary and tertiary markets, low-density markets, but a big drop in the biggest ties density markets where the biggest builders are working with some of those private data suppliers. So there's a lot of controversy. I'm probably in the minority in thinking that the final data for 25 will show a small gain for multifamily construction. I think a lot of people expect

the numbers to show a decline, but we're going to have to wait for the census data to kind of come back online that tells us the final story. Yeah, I guess this is, I keep thinking about completions. Completions. So just for the listener, there's permits. So you go, if you want to build a single or multifamily, you've got to get a permit. Once you get the permit, then you can start construction. That's a start when you actually start the construction.

And then completions is when you're finished, obviously, the building. And I'm, when I'm speaking about supply, I'm mostly thinking about completions because I'm tying that back to the macro economy, you know, because it's the act of construction and completions that are, you know, related to jobs and economic output, GDP, that kind of thing. So when I say the multifamily is down, completions are down. Absolutely, completions are down. Because that reflects a weakening in permits back a couple years ago. They peaked, I think, a couple years ago.

And there was just too much building, particularly at the high end of the multifamily. market, and we're still feeling the ill effects of that in terms of completions up to this point. And the construction time expanded, too. I think it's now from start to completion at something like 14 months. Used to be under a year for your typical multifamily unit start. Yeah. Okay.

But now what you're saying is the level of completions are down low enough, and vacancies are just starting to stabilize at a place where builders are saying, okay, we don't need to cut anymore, and maybe we can actually start to build a little bit more as we move forward. But that's on the margin at this point. It doesn't feel like we're going to see this big pickup and certainly not on the single-finding,

so we're going to see some weakness, but on the multifamily side, it's more flat than up, okay. Yeah, you take out some of the cyclicality. It's about 400,000 units. Got it. You know, that's where we are. And I think that's where we kind of stay over the next five years or so.

By the way, just as a tangential point, You know, we put together this leading indicator of the economy, probability of recession in the next 12 months. The machine learning algorithm, random force algorithm, and the number one, you might find this of interest. The single most important leading indicator of recession is building permits. So in aggregate, you know, single plus multifamily in aggregate. So if they're coming down, then that's a sign that the economy's, you know, recession risks are higher, all else being equal. But anyway, you mentioned, you know, one reason for some kind of at least intermediate term optimism, and that's the supply shortage, that there is still a gap between underlying demand and supply in the new housing market. Chris and I with a couple of other folks did a recent study and found that the supply shortage

is about a couple million units might be a little bit lower now because of the changes since we did the paper. Some of that is related to, you can see that in the vacancy rates. The vacancy rates were low relative to where they should be kind of in equilibrium in the long run, no longer in the rental market in aggregate, but in the in the homeowner market, that's still the case. The homeowner vacancy rate is still low compared to where you see it typically. But the big contributor to the supply shortage is really the so-called pen-up household, the fact that because there is no affordability, as you've been pointing out,

it's just been so low that people can't afford to either buy a home or even rent a home. So that's why we've seen this significant increase in the number of people living with parents or doubling up, and that that is a, that's pent up. And as soon as we get some semblance of affordability, those folks will come into the market and, you know, support demand. Does that all sound right to you, about right to you, that kind of thinking, the way we've kind of framed it? Yeah, and we think of this as a multi-decade, you know, kind of span of challenge. If you look at young adults who live with their parents, so 25 to 34-year-olds, go back to year of 2000, it was roughly one out of 10 of those young adults who lived on their parents' couch.

Today, it's one out of five. So that's the question I get a lot from policymakers and journalists is you guys talk about a housing deficit. We've got the homeless numbers, of course, and those have increased. But, you know, really where the impact is households that did not form. And that then has all kinds of economic consequences in terms of marriage rates, the fertility rate, wealth accumulation. So there are some, you know, these challenges in the housing market, we think, are going to have macro impacts over the coming decade.

Now, I do suppose that the immigration policy, the kind of highly restrictive immigration policy, is having some impact on this, though, right? Both on the supply side and on the demand side. Yeah, anecdotally affecting rental demand on the supply side, to the extent that immigration policy would affect construction workers, it's being. masked somewhat by the decline in activity levels of underlying construction, but I think it is something that's going to show up more in 26 and 27. I see. Chris, anything to add on the supply shortage and how it's estimated or anything else you want to add before we move on? I think that's right. I would say that the impact of immigrants in terms of household formations is certainly more limited to certainly the immigrants have come to the country over the last few years typically have

joined existing households right they're not buying homes or may not even be renting home right they're the typical path forward as they come they join an existing family member or friends so it's not really a large impact in terms of net household formation might it might affect the composition or the the demand for larger homes or smaller homes but i i don't see that as having a significant, I don't expect to see a very significant change due to the reversal of that immigration policy on the formations themselves. On household formation, thus on demand for new housing. That's right. I think it's much more coming from the, that 10, 20% population of young adults that Rob mentioned. Right. And that's not true. And Rob, on the supply side, I mean,

I think, correct me if I'm wrong, the construction industry relies more heavily on immigrants at least as a share of the workforce than I think any other major sector of the economy. Maybe some parts of the agriculture sector, but yeah, when we've looked at the data, one out of three workers in construction

is non-native born. So, yeah, it's traditionally been that way for, you know, a century or more. So, yeah, it has an effect on the supply side, remodeling, apartment construction, single-family home building. But the jolt's

number, the job openings number in construction, is actually half of what it was two years ago, but that's because the number of single family homes under construction right now is down 10 to 15 percent. As that recovers, the demand for labor is going to go up. And we'll see that in the remodeling sector, which is now like, you know, 40 percent of residential construction activity. So you're saying right now because demand is so weak and construction is falling off, The fact that we have this very restrictive immigration policy is not having much of an impact on the construction trades because you just don't need the workers at this point. Yeah, it's a little easier to get construction crews. That's particularly true for the largest builders.

You hear more concern about smaller contractors and remodels find your workers, but we still think there's kind of this generational-based skilled labor shortage that's going to have to be dealt with, particularly with a wave of retirements coming. we did one estimate that indicated the need to be on a gross basis recruiting about 700,000 construction workers a year in the coming years just to kind of keep pace with where we are. So it's a huge challenge in terms of workforce recruitment and development. I guess the other policy that might be having an impact would be tariffs. How big a deal is that in terms of creating problems for builders in terms of their costs? small but measurable so when we've surveyed the industry the average impact for single family home 5,000 to 10,000 40% of builders by the way in our survey say they've seen no

impact on material pricing I would probably put in parentheses 40 40 I would say thus far you know I think like a lot of the tariff effects they're going to kind of come into the marketplace. My expectation, as we survey in 26, that share will go down. But, you know, it's certainly smaller than what we were modeling as a potential impact back in April and May when we were concerned about $15,000, $20,000. And the dog that hasn't barked yet on this one, soft with lumber. Softwood lumber pricing is relatively flat, maybe up a little bit year over year. But it started 2025 with a duty, an existing duty rate that was about 15%. Then the summer that duty rate went to 30, and then on top of that was piled a Section

232, 10% tariff. So we've got an effective duty and tariff rate right now that's north of 40%. And we get a quarter of our softwood lumber from Canada. And it would take years to step up the sawmill capacity to replace that supply. So if the demand for lumber goes up with rise in construction trends, you're going to expect to see building material pricing go up. And right now, the year-over-year price gain for building material pricing is around 3%. It's a measurable but small. Got it.

Okay. All right. So just to summarize, when you look at housing, demand, supply, and price, you know, it's been a tough – 2025 was a tough year on top of a few very tough years. And that you're, what you're, what you're, what I hear you saying is that 2026, it's not going to be great, but it's not going to get any worse. And we might see a little bit of improvement, not, not on the pricing side, but, but, but on, really on the, on the, on the construction side, we might to see a bit of a, of an improvement there because levels of construction have gotten down, uh, so low. Is that, is that, is that fair kind of characterization of what you're saying? Yeah, a small improvement, maybe flat conditions on the more negative.

side for single family, multi-family flat, remodeling is the place where we think we will continue to see growth. In fact, we do, you know, 10-year forecasts, as we all know, 10-year forecasts aren't great, but we do a 10-year projection. Mine are. I don't know. Speak for yourself, man. All right. I know Matt's are, well, Matt hasn't been forecasting for 10 years, so we don't know. There we go. Yeah, it depends on how long you can grade for, but we think the remodeling market over the next decade is going to grow by 30 percent with an aging housing stock. So there's going to be 2026 is going to be a year where you're going to see individual submarkets show some strength, but a lot of the market's going to be flat.

You mentioned remodeling. Maybe we end on a higher note. I'm sure they're pockets. What other pockets of kind of strength are there out there? Yeah, I think the other place is townhouse construction. That's a good example. That's sort of the bipartisan agreement that if you can enact zoning reform and build medium density, light touch density, walkable housing, there's demand for that. And then the other place of strength is kind of consistent with the kind of the case shape discussion, which is custom home building.

That's about 20% of single family building. It's where the builder builds on an owner's lot. So there's no sale of real estate. The builder is providing the service of construction. that's a wealthier, older buyer, demand moves with the stock market and less with the interest rate cycle. That market has done well this year. There's a lot of smaller builders this year did well, and it's really the spec market that showed a lot of weakness in 2025. What about build a rent?

You know, another area of some strength? And I guess that goes back to the townhouses, doesn't it? Yeah, there's a good kind of overlap. Single family built for rent right now is probably about 10% of the market. It's a little hard to measure because there's different components. A little bit of a slowdown during the second half because the cost of capital went up. But historically, single-family built for rent was 3% of building. And near 10%, it's kind of carved out its own little territory, and we think it will continue to do so.

More mobile population, you do have some downsizing seniors, and then just the broader affordability challenges has lifted demand for, you know, the single-family unit so that you can have a little bit up a little bit up. a lot or a little bit more space than a typical apartment. Hey, let me ask also on the policy side, because I guess that's because of potential, say, upside risk to the outlook. I mean, the administration, the Trump administration seems to be focused on housing and there's some support in Congress. I know there's some legislation that's kind of making its way through the process. Do you think that there will be any legislation that would help support housing and

some way? And what would that be if that were to happen? Yeah, I think we will see some, but as a guy focused on the supply side, I think where the real news is going to be is regulatory reforms coming out, things like that deal with land development rules. There were some building code requirements for FHA buyers of new construction. The administration has already indicated it's going to redefine some of these things. And that's how we've been the cost curve and the right direction. But housing has this sort of unprecedented moment where it really is in the political discourse. We certainly saw that in the presidential election, but it's because we've got this kind multi-decade low and affordability. So my hope would be more focused on the supply side because

that's really where I think we're going to get the benefit of tackling some of these issues over the next five to 10 years. So some of these proposals like the 50-year mortgage, portable, assumable mortgages, all that kind of stuff, not so excited about or, yeah. Yeah, it's nice to have people focused on some of those things, but, you know, like on the 50-year mortgage, what would the rate have to be compared to the 30-year rate? It would build equity up slower, which for new construction, that's the down payment for future move-up purchase, remodeling effects. So, like, everybody's thinking.

I think there's a nice kind of consensus about some of the state and local policy issues like zoning where we could see some real tangible improvements that would add for sale, for rent, single family, and multi-family supply and increase the stock, which is really what we need to house today's population. Yeah, I guess there's some efforts in this legislation, at least my cursory look, around manufactured housing, right, to make it a little bit more viable form of housing. Yeah, and that's about 100,000 units that are delivered a year. So that's why I said before, there's no single, simple, scalable solution.

It is going to take, it's going to take improvements everywhere. And so we can't sort of say, fix that and we get a solution for housing. It's going to require workforce development, land development, manufactured housing, ADUs, building materials, you know, the whole litany of things that kind of got us into the shortage that we face today. Got it, got it. Hey, Chris, before we let Rob, Rob, go. Any anything else you want to ask him? Any other things you want to call out? Any push back on his forecast? It feels like it's pretty similar to our own. Yeah.

Pretty similar. We may be looking a little further out. We've been also paying some attention, of course, the demographics and demographic shifts that are occurring. You kind of alluded to some of them, right? So right now there's a housing deficit. We have a lot of young adults living at home. But behind them, the generations coming after are smaller, right? So a projection, certainly built into our longer term forecast is that, you know, assuming no real change in immigration policies and no change in the birth rates or death rates, we're going to see this kind of wave crest. And as we get, you know, 10, 15 years out here, things are going to moderate much more from a demand side. In terms of a number of housing units themselves, I do think that translates into more remodeling. and more demand to take care of the existing housing stock. But I'm curious your thoughts around those types of shifting demographic patterns, if indeed we're seeing a population that's stabilized and then further out even starts

to decline. Any thoughts there? This goes to Chris's 10-year forecast, Rob, which are also pretty good. Yeah, we're talking 10-year-for. No, we agree that Gen Z fall off. Certainly, gen Alpha, by the time you get today's 15-year-olds, it drops off. Single-family home building in the early to mid-2030s could decline 25% from peak due to the decline in household formation. So the industry is going to be more remodeling focus.

There's going to be, as a share, more tear-down construction. Tear-down construction right now is about 7% of single-family home building. That share will be higher undoubtedly in 233. So, yeah, you know, the decline in household formations does mean the industry is going to evolve. By the time again, 2030s, I agree. Well, great. Rob, this is a great conversation. Thanks for coming on.

I really do appreciate it. And, you know, if you need any help with that 10-year forecast, just let us know. I will let you know. Excellent. Yeah. But it was a great conversation. Really appreciate you taking the time with us. I hope you have a wonderful holidays.

And go the Ohio State Buckeyes. I'm just saying. Not that I'm a Penn State fan, but I'll root for them this weekend. There we go. Thank you very much. There you go. So, thanks, Rob. Really appreciate it. Thank you. And to you, dear listener, I hope you enjoyed the conversation. And I think we're going to talk to you next week. I'm not sure. Are we Christmas? I think we are. They're making me, making us work, you know, the powers that be.

That would be Sarah. She's making us work, Chris. Yeah. But anyway, we'll be there for you next week. Take care. Talk to you soon. Looking forward to the next conversation. Bye-bye.