Moody's Talks - Inside Economics - Healthy Inflation, Unhealthy Housing

Episode Date: July 14, 2023

The stellar June CPI inflation report is top of mind for Mark, Cris and Bernard.  The report arguably couldn’t have been better, as the conversation makes clear.  The podcast then turns to a discussion of whether the worst is over for the troubled single family housing market with Lance Lambert, the real estate editor for Fortune. No one has a better pulse of the market than Lance.For more on Lance Lambert, click here or follow him on twitter @NewsLambertFor the full transcript, click hereFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. 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 Sandy, the chief economist of Moody's Analytics, and I'm joined by two of my colleagues, Chris Dredes. Chris is, of course, the co-host of Inside Economics. Hi, Chris, how are you? Doing well. Yeah? I know your vacation in Brutzo, Italy, is coming to an end.

You must be shedding a bit of a tear as a result of that. No? Got to come back to the reality. Yes, of course, of course. But, you know, I miss all of you. I have something to look forward to as well. That's nice of you to say. And we got Bernard, Bernard, Yaros.

Bernard, you're increasingly irregular on inside economics. Yeah, yeah, yeah. I've been coming for CPI week every now. And, of course, everyone knows you as our Renaissance man. Guy who knows 10 languages, ran the marathon in Greece three times, won five squash tournaments, pro squash tournament. Am I getting that roughly right? No running, just squash.

Swash languages and traveling. There you go. And we're going to have a guest later in the podcast, Lance Lambert, Lambert, I should say. Lance is the real estate editor for Fortune. And he and I have been chatting quite a bit over the past few years about housing. And great guy to get a sense of the housing market because he talks to everyone in the housing community, all the housers. And so it would be great to have him on. So we'll come back to that in just a few minutes.

And we are definitely going to talk about. the consumer price index, because that came out this past week and really pretty good, huh? Oh, I shouldn't put words in your mouth. I'm really curious to hear what you have to say. And maybe we should just do that. We should just dive right in, right? Bernard, you want to give us a sense of that CPI number? And we also got producer price indices index as well. And that also came in pretty well. So maybe you can cover those two price measures, inflation measures. Yeah, I mean, overall, this was a week of disinflation of downside surprise. So to start first with the consumer price index, which I would say is the most important of the three that we got this week, it was a very good report. I'm totally on board with that analysis. And it was the inflation was just less than expected for the month of June. So the consumer price index, which captures the average basket of goods and services that consumers typically spend on rose by only 0.2% in June, whereas consensus expectations,

were for a slightly larger 0.3% gain. And then during, if you look at it year-over-year, we're seeing a lot of disinflation. So, you know, we're back now around 3% year-over-year growth in the CPI. But if we just start looking at the components, you know, let's just start with the most important basic essentials like food and energy. Energy prices were, you know, moderately boosted the CPI in June. So we saw the gasoline prices rise by 1%.

after falling by a large margin in May. But the outlook is pretty, at least in the near term, the outlook is pretty benign for energy prices. If you look at gasoline futures prices, which typically lead retail gasoline prices by a few weeks, those suggest very little change in the CPI-free gasoline in July for the next CPI print. And then just over the long term,

I think the risks of oil price spike seem a bit less elevated, as maybe we thought before, just because of how successful Russia has been in invading the sanctions imposed by Western powers. And if we move on to food, we also found out in the latest CPI print that food prices only rose by 0.1%. But it's important to note that there's a, there's been this dichotomy that's been emerging within the food CPI. So on the one hand, inflation and food at home, or what I like to call grocery store inflation, that has been very weak. And this again speaks to the unwinding of all these supply shocks from Russia's invasion of Ukraine, which last year really roiled global agricultural markets and also sent the price of diesel soaring.

And that matters because diesel, after all, is the workhorse of the agricultural industry. And then you have another factor that's potentially weighing on grocery store inflation, and that's the end of additional food assistance that the federal government had been providing under the pandemic emergency declaration. And this is also probably weighing on grocery store inflation, at least on the margins. And when I'm talking about this food assistant,

we're talking about food stamps, which based on our work is the most effective form of federal spending out there. But on the other hand, you've got inflation and food away from home or restaurant inflation. And that has still been stubbornly strong. It's been growing at about 0.4% or more on a monthly basis over the past several months.

And this probably speaks to the wage growth that we've been seeing in the food services industry. Wage growth in the industry went stratospheric in 2021, 2022. And it's come back down, but it's still much higher than it was. It's still higher than it was prior at any point prior to the pandemic. So once we see labor market conditions loose and further, I think, in the restaurant industry and wage growth normalizes, we should see some less inflation in this food away from home category. So food and energy prices, they're important. We've got to talk about them because they exert outsize influence on consumers' inflation expectations. But they're volatile.

These are prices that are largely set in global markets, so they're not necessarily something the Fed has direct control over. So it's important to focus on the core CPI, which excludes food and energy. And here I would say there was way more to like. There was way more, you know, much more good. I didn't even you expected, right? Yeah, yeah, yeah. Yeah, I was looking. We went back and forth.

Yeah, yeah. I was on like a razor's edge. I was getting 0.25% for. You rounded up. Yeah, I rounded up. By the way, I took that number and I rounded down. Round it down. Exactly.

Yeah, no, you're spot on. But there was a lot. lot to like for the core CPI. It was up 0.2% in June. So this, again, surprised to the downside relative to concessus expectations for a 0.3% increase. But also, if you look at the third decimal point, this was the smallest monthly gain in the core CPI since February 2021. You look at the third decimal point? Bernard, I'm just asking. You got a, you got it. You got it. Chris, do you look at the third decimal point? I'm just, I just wondering. There's an old joke, right, about economists.

If they use a decimal point, they have a sense of humor. Oh, that's right. Bernard's hilarious then. So it was, you know, it was even just looking on a sequential basis. You know, this was a very good development. And this, the core CPI, it broke a six-month streak where we were getting 0.4% or more growth over the month. So it does seem that the core CPI fever that we've been feeling is starting to break, at least in this month, in this past month.

And on a not easily adjusted basis, the core CPI is up 4.8% from a year earlier, which is also the slowest pace since late 2021 or October 21. So there's a lot of reasons. Can I just stop you for a second, going back to seasonal adjustment. But one reason I thought, you know, before the number came out, and I haven't looked, so I'm asking, that the increase in inflation, particularly core CPI would be so soft is so-called favorable seasonals, that the seasonal prices are very seasonal. And because of the pandemic, we saw price swings, big price swings when the government shut down and reopened. And that messed with the seasonal adjustment process at the Bureau of Labor Statistics, employees to seasonally adjust the data.

And that's flattering this number. Is that right? And do you know that? It definitely, I think, on the margins it did contribute. Or at least on the margin. Yeah, yeah. Or I would say it probably, you know, a tenth of a percent. It could have.

So that's, yeah. Okay. Yeah. So when we're looking at it on a sequential basis month over a month, I think that's a pretty significant or meaningful reason why I think this is also surprised to the debt. downside. And it just goes to how difficult it is, you know, the, the, the, the, the, the BLS really does an admirable task in trying to, you know, capture the seasonality in these prices. But that has been so tough in the past couple of years, especially with, you know, the post-lockdown rebound in prices that

we saw, you know, in the middle of, of 2020. I think some of these areas where I see, a lot of these are very consumer dependent prices. So if you look at, like, lodging away from home, that has been extremely volatile bouncing all around, and it was especially weak. And some things I've read is just, I think in the past couple of years when you had a lot of post-pandemic revenge travel, people were spacing out, or were traveling over longer periods of time rather than historically people really will all travel at once, you know, on the 4th of July weekend or on Memorial Day. But, you know, in the past couple of years, they've been spreading out their travel over longer periods of time. And that I think has contributed to some of these seasonal adjustment issues. Remote work too probably. Remote, exactly. Yeah. I mean, I talked a lot of people that are here, there, and everywhere because they're,

they're remote working, you know. Yeah, yeah, yeah. And I think next month, you should also see some favorable, the number could be a bit more flattering than would otherwise be the case because of this residious. But after the summer, after the June and July, I don't think this is really much of an issue going forward. So I stopped you in the middle of your run day. Is there anything else, any further explication you have in terms of the overall number?

I mean, it feels like you could go down the rabbit hole for each one of these components. Oh, yeah, yeah, yeah. Which is great, which is great. But is there anything else you wanted to point out before we move on? Oh, I would just say the biggest development was just used vehicle prices that after two months of 0.4% surges, month over month, we finally got a decline. And this is something we had expected for a while because a good leading indicator of used vehicle prices are what the prices that car dealerships are paying at auctions for the used vehicles that they sell later. And those, if you look at our wholesale used vehicle retention value index, which really captures this, it's declined cumulatively by nearly 10% from February through June. So that, you know, looking ahead, at least for next July, that suggests that use vehicle prices.

are going to be an even bigger drag on the core CPI than they were this month. So it's not just residual seasonality, but, you know, the actual fundamentals, I think with vehicles, for example, that's going to really weigh on a core CPU. What about new vehicles? I noticed this past month. They had fallen a couple months, and this month they were flat. They were flat. Yeah, yeah.

I just did it continue declines as production. We also, exactly, because there was, you know, part of the reason that we got an increase and used vehicle, there was just a lot of some hiccups late last year in auto production, but the auto production numbers have rebounded. So that does auger for lower new vehicle prices. But one thing we've seen is just second order effects from the past increase in new vehicle prices, because if new vehicle prices rise, that means auto repair costs are going to also go up. It means the cost to replace a totaled car for car insurers is also going to go up.

And there's, if you look at the data, there's almost been a perfect 12 month, almost a perfect 12 month lag between the peak in new vehicle inflation and the peak in auto maintenance and auto insurance inflation. But you're still seeing car insurance inflation is really picking up recently. And I think that has to do with just a lot more accidents on the highway compared to pre-pandemic rates. And also, I think car insurers really got. hit with a lot of losses last year that they really underestimated, you know, the premiums that they would have to pay out. So, they're kind of readjusting. So for now, you're seeing, while we're seeing some relief on the, you know, new vehicles and used vehicles with elsewhere within the vehicle space, motor vehicle insurance has been putting some upper pressure on inflation.

But just to connect all the dots, I mean, now that used and new vehicle prices have rolled over and starting to decline, that would suggest down the road, you know, this time next year, we might see some relief on, oh, yeah, yeah, on auto repair and auto repair. You're already seeing like year over year

in auto repair, but it's the car insurance that's been stubbornly strong. Okay, here's a test of your, your detail-oriented, detailed-oriented understanding of this. Apparel prices,

they confuse me a little bit. Each and every month, they seem to be rising by three-tenths of a percent, which seems, you know, historically that's high, because you go pre-pen. pandemic, probably pre-Trump trade wars when we, you know, China was coming on the scene,

pair prices would always fall. They would consistently fall. Now they are seemingly consistently rising. Any color there? That is a tough way because we don't have a lot of good. Hey, Chris, I just found something he doesn't exactly know the answer to. How about that? Pretty amazing.

There you go. There you go. I'm sure next month when we have him on, he's going to go. Yeah. involved discussion about apparel prices. Yeah, I'm just, I just, that struck me. Here's the other one that, I think we might. But men's suits.

Men's suits are down. Right. Oh, is it men's, oh, there you go. That's the next, there's an explanation for that. Right. When's the last time you bought a suit? Chris, what's the last time you bought a suit? Oh, I had to go to wedding in 21, 2020.

What about you, Bernard? When's the last time you bought a suit? Oh, it's been 2019. Yeah. Me too, 2019 before the pandemic. Yeah, yeah. I actually went to a wedding this past weekend and I put on one of the suits I bought in 2019 that I've worn maybe three times or maybe maybe less than that.

And, you know, it just did it fit? It actually did. It fit. Yeah. Okay. There you go. And there it go. I've been doing a lot of running during the pandemic. So it fit.

So, oh, here's the other thing that I think we need to just put on the table, medical care costs, right? Because medical care services have been a part of it. prices have been declining. Some of that goes back to insurance, medical care insurance. But that's going to reverse, isn't it, here later in the year? Yeah, that's going to, so the, the way the, so the BLS looks at, you know, the retained earnings of medical insurers. And they don't estimate this in real time. They do, they updated about, you know, once a year. And during the course of that year, the, you know, the price, the month over month gain is pretty, you know, pretty fixed, at a fixed rate. So over the past several months, we've been getting consistent 3.6% declines in

medical insurance, which has been shaving off a few basis points off the core CPI. But that's going to end around September, October, and presumably that we're not going to have as much of a drag on the core CPI at that point. Okay. So before I turn to Chris and get his reaction, our expectation, our baseline forecast in the middle of the distribution of possible outcomes has inflation, CPI inflation, consumer price inflation. It was 9% at the peak year over year back June of 2022. With this month's release for the month of June, we are now down to 3%, so 9 to 3. And we basically have inflation coming back fully to the Fed's target, which on CPI

inflation is about two and a half percent core, core CPI, excluding food energy, which is actually right this point higher than overall because energy and the prices. And as you point out, food prices are weak. Back to the Fed's target of two and a half percent-ish by the second half of 2024. What do you think? It sounds good to me. And I think the key point is wage growth. I don't know if you want to get into.

Before you do that, let's turn to Chris and see what Chris, where, where. Chris wasn't fill in any holes or gaps or pushback or any comments on that. And also your view on our baseline forecast. Yeah. Yeah. I think Bernard did an excellent job summarizing at all. My points were the base effects, the seasonal effects, and the medical care services. So good report overall, but be pre-prepared for some reversal, perhaps, in the next few months. But why? But nothing. Why? Because the medical care services start to tick in, some of those base effects, you know, you go from favorable to unfavorable. So I'm not calling for this to take off again, but I wouldn't overreact to a single month's report either here. This is a very good report. But, you know, if you told me next month, it's going to, inflation could tick back up. Totally. Right. Well within the moment of possibility here before things settled down. That's why I think our forecast is reasonable because we're, you know, not talking about a long, slow period of time here, because I just, there's a lot of things that have to happen here. We touched on the shelter costs as well, which we know will continue to

need some time to work through the entire system here. So I think it's a reasonable forecast, the direction certainly seems as though it's firmly in place here, but the specific timing and the hiccups along the way, obviously we have to be prepared for those. Yeah, I totally agree. I mean, so what you're saying is, look, we're at three. Target is two and a half, and we're expecting that to get to two and a half on a consistent basis by the second half of next year. That feels like a long time, but there's a long set of things that have to happen, long winding road, as they say, between now and then. And as you're saying, there's going to be maybe two steps forward, one step back here. Maybe in some months, maybe two steps back, one step forward, you know, something like that.

It's going to be hard, as they say, to traverse that. last mile and get inflation back to target. That's what you're saying. That's right. Exactly. Yeah. I totally agree. The trend is there, right? Things are going down, how things are moving the right direction. But specifics could vary. But you would say, wouldn't you, that you're, aren't you surprised at this? I mean, this was really, really good report, wasn't it? I mean, and it feels like it's something, you know, fundamental disinflation because it's broad base. It's not one, two things. It feels like pretty much everything is disinflating, right? Wouldn't you say? Yeah, everything that, I don't want to say

that matter. Like shelter, right? Shelter, we know it's going to come down, but just because of the mechanics of how we calculated, it's artificially in some sense keeping it up. But yeah, otherwise, certainly it's a good report. Yeah, surprising how, how robust it is. I, I guess that's our high widespread, the declines are. I'd agree with that. And here's the other thing. It's happening without higher unemployment, this so-called sacrifice ratio, that we got to have much higher unemployment, much weaker economy,

even a recession for, you know, many people think recession to get inflation back in. That narrative feels much like almost blown apart by these numbers. Well, you know, let's wait a minute here. Okay. I'm getting ahead of my. I'm two, two, to, employment's the lagging indicator. Okay, got it. These rate hikes could still make their way through the economy here.

But yeah, everything right now, taking at face value, looks as though the slow session is in place. The soft landing is certainly higher probability than it was a few months ago. Right. And maybe there needs to be some sacrifice. I mean, I'm not arguing that. Unemployment, because in our baseline, we have unemployment going from 3.6% to over four. I'm not, you know, I think that's right. But it feels like it isn't like we got to, we have to go into recession.

We don't have to sacrifice the economy to get inflation back in. I mean, again, a lot of script to be written here. Things can happen. But that's what it feels like pretty strongly, I would say, at the moment. No? Yeah, no. I think there was some analysts calling for 6%. We needed to have 6% unemployment to get unemployment, get inflation down to target.

And that seems, I think it's pretty clear. That wasn't necessarily. We don't need that. Right. Yeah. Right. Okay. Even the 3.6% I'm becoming increasingly of the mind that maybe we don't even need four, right?

That 3.6 feels like kind of sort of like full employment because this is where I cut Bernard off around wage growth. You know, I guess we need to get more data in. But that also feels like it's moving in the right direction. Not in there where it needs to be to get inflation all the way back in, but pretty close. And actually, if you look at. super so-called super core inflation. That's services excluding housing services and energy service. That's the measure that Jay Powell, the chair of the Fed, you know, put forth as, you know, what he's looking at. Correct me if I'm wrong, Bernard, but that, because that's, those are labor intensive activities.

Yeah, it was at 3.8% year over a year in June. So that's down significantly from the peak of 6.6% in September. So it's come down a lot. Yeah. And on a three months, if you look over the last three months and annualize that, it's, I think it's like in the twos. Yeah, it's even lower. Yeah, it's like a two three, two four, two five. Yeah. Some of that goes back to the medical care. So maybe that is overstating the case. But it feels like, you've seen, you've seen a lot of weakness in these consumer like travel or. Yeah, exactly. I mean, the oil airfare is plummeted by 8.1% that's dragging on it and lodging away from home. Rental vehicle prices. All of these have been. and really weighing on super core. So I guess my broader point is that we could get service price inflation back into the bottle, you know, back consistent with the Fed's target, without wage growth actually going down

much more. Maybe we don't need, you know, much further deceleration in wage growth because it's already happening, you know. Part that may be because for many companies, margins did widen out during the pandemic. their profit margins got juiced. And now on the other side, as competitive pressure start to kick back in and supply chain issues are no longer issue, labor market issues, disruption is no longer an issue. Those competitive forces are driving those margins back into something that are more typical pre-pandemic.

And so you could actually get inflation coming back in even if, you know, you don't get wage growth all the way back to something that we think might be, you know, longer run consistent with the inflation. Am I making sense there? That I don't know. Is that Chris? Okay. Yes. You must be arguing that that productivity kicks in or, you know, staking. No, no, I'm saying we ultimately have to get wage growth back down to, say, 3.5%.

That's our bogus, right? 2% inflation, 1.5% underlying productivity growth. But in the immediate near future in the next 12, 18, 24 months, maybe not. You know, maybe businesses take it on the chin. You know, their margins come in, you know, from where they were. They bloomed out. Now they come back in. So, therefore, we can have a period of inflation, you know, price inflation that is, you know, more consistent with the Fed's target with actually, with wage growth that's a little bit more inflated than it would be than what you need over the longer run.

So you see what I'm saying? It may be marginally, right? If we're at 37, three eight, that's that what you're arguing? I think on average oil earnings, we're at four and a half. You know, maybe that's a point over what we think. I think, I guess I'm saying we could get inflation back into target over the next year, even at a four and a half percent wage growth because margins could come in over that period. That's what I'm saying.

Just guess it's possible. Okay. Okay. Okay, very good. So anything else you want to point out on the, we also got the, we also got the, producer price measure. Anything there they want to? Yeah, I mean, it rose less than expected. There was, you know, going back to the food, food prices that you saw some weakness there, and that's a good leading indicator, you know, wholesale prices for food. That's a very good

leading indicator for overall consumer prices on food. We also got the import prices that fell a bit more than expected, according to today's report. So it does suggest that the U.S. is importing some deflation from abroad. But all of these, I don't think the implications from these, I mean, for at least monetary policy are not as big as the consumer price index. And I guess just going back to the whole wage growth conversation, the one reason why I think we're not going to get as much, or wage growth will come down over the next years that I think a lot of the strong

wage growth that we've seen has been a product of employees clamoring for higher wages, higher raises to compensate for the really strong inflation that we've gone over these past two years. And this goes back to some of the work that we've done, that it's, you know, the direction of causality is not from wages to consumer prices. It's the other way around. It's from consumer prices to wages. And I think, you know, beyond margins and other behaviors by businesses, I think employers, you know, over the next year, they'll probably push. back against employees who are asking for higher raises because they'll be able to point to a lower rate of inflation and they're not going to acquiesce to some of the high, you know,

raises that people were asking, you know, justifiably so over the past couple of years. Yeah. Did you see the San Francisco Fed paper on this issue of wage prices, prices, wages? I mean, they came to the same conclusion that it's inflation driving wages, not wages driving In inflation. So we're not this dreaded wage price spiral has no. We're not there. If anything, wage growth, high wage growth is slowing the dissent in consumer prices, but it's not, you know, they're not self-reinforcing into an upward spiral. Yeah. Okay. Let's play the statistics game because, you know, I'm afraid if we keep talking, we're going to take all the statistics. For the way Bernard is thrown out these numbers. It's going to take all the statistics. And I got a really good one, I think, that makes a good point. The game is, that we each put forward a statistic. The rest of us tries to figure that out through clues, deductive reasoning questions. The best statistic is one that's not so easy. We get it immediately, not so hard that we never get it, and one that's apropos to the topic at hand or, you know,

a recent statistic. So with that, Bernard, what's your statistic? My statistic is 6.7 percent, and it's a combination of a statistic that came out this week and another one that came out last week. Oh. Oh, my lord. So is it related to the CPI number this week? Yes, yes. Is it related to the job number last week? Yes. Okay.

So Chris, some combination of two things. Is it a real wage? Some type of. Yeah, yeah. It's got to be something to do with real wage game, but that's. So average hourly earnings were.

No earnings. No earnings. Okay. Okay. Is it something per employee or per? No. No. So it has to do with the consumer.

Is it a ratio? It's a ratio, obviously. It's a percent. So in the numerator, something related to prices and the denominator is something related to jobs? No, it's a sum. Oh, it's a sum.

Oh. Some. Oh, goodness. Is it a sum of inflation, CPI inflation and something? Yes. Okay. IP inflation was three.

So the other thing is three point seven. Oh, the misery index. Yeah, the misery index. Yeah. So it's, yeah, the misery index is the sum of the seasonally adjusted unemployment rate and the annual inflation rate. And it's just an economic indicator that economists like to use to measure just the economic malaise or distress that, you know, everyone is feeling. I mean, it's actually the lowest since March 2020 and even lower than its average, over the 20 years prior to the pandemic, which was about 8%.

But even still, I mean, whenever I'm talking to the media about inflation, the rate of inflation falling, people still say, well, the level of prices are still much higher. And I think this really speaks to why people are still feeling really down in the dumps. You look at Gallup polls. Everyone really thinks inflation is still a problem. And I think it's because they're not really, they probably probably look at economists talking about falling inflation rates, but they're looking more at the

level of prices. And if you just calculate the consumer price index, it's still about 10% higher relative to where it should be if during the pandemic, the CPI had increased that roughly its average pace over the prior decade. So people see that 10% difference between where they think prices should have been and where it is now. And they're saying, well, I'm 10% poorer as a result. And as a they feel pretty crummy. So I think even though we're seeing the misery index, I think that that might have had a better explanation. That might have done a better job explaining consumer sentiment

or confidence in times past. But I think since people just got so used to the low inflation that we had and really liked it, that even though we're seeing an unwinding of this consumer price shock over the past couple of years, they're still not feeling happy. And this just speaks to a lot of research, you know, like Robert Schillerhead is famous, why do people dislike inflation piece, you know, a few decades ago.

And people would even prefer, you know, more joblessness compared to inflation. So it's really, it's always been top of mind for people. The other way to make that point is we calculate the increase in what the typical American household has to pay to buy the same good. and services as they did a year ago and two years ago. And so based on because of the inflation, right now as of June, they have to pay almost a couple hundred bucks more a month than they did a year ago to buy the same goods and services, but they have to pay $750 more than they did two years ago per month to buy the same goods and services. Exactly. That's a big, and the typical American household makes, I don't know, it's $65, $70K, you know, $6570, you know, something

like that. So that gives you a sense of the financial pain that you're describing. Yeah. And also, I mean, people focus only on the negative. They don't think about that wages have also gone up a lot. Yeah, that too. Yeah. But, you know, I think people are singly focused on the negative and not, you know, some of the results of high inflation, which has also been high nominal wage growth. Yeah, Chris, what's your statistic? Okay. This is a number that isn't directly related to inflation or housing. But it came out this week and it caught my eye. It's $7.2 billion. Billion dollars, $7.2 billion. Is a government statistic?

It is a government statistic. It came out early this week. Oh, I know what it is. All right. It's the increase in consumer credit outstanding. You got it. Bernard, do you see how that's done? I'm an old guy, but I'm still quick with the numbers.

Well below expectations. Bernard's ashamed. He's slinking in his chair back there. You want to explain, Chris? Yeah, so that's an estimate of the total amount of the change in the stock of consumer credit in May. This is related to the May number. 7.2 billion is well below expectations. Expectation was for about 20 billion or so.

That's what we had in April, kind of the trend level we were at. So clearly, consumers are not borrowing as much. Revolving credit actually increased $8.5 billion, and non-revolving credit actually fell $1.3 billion, that's student loans and autos for the most part. So that's interesting. So then the question here is, well, is this because of a voluntary pullback? Consumers don't want as much credit.

Maybe they're not taking as much out. Or is this, in my theory, more likely, the case that lending standards are pulling back and consumers can't get all the credit they otherwise might desire. So I think this is something to watch, right? If indeed consumers are not

able to access card because of the tightening standards, you could see that pullback on spending going forward. So again, yeah, good one. Hey, let me ask you. Let me ask you a couple one question, one comment. On the question,

this is data from the Federal Reserve we get our own data, right, based on Equifax credit files, all the files in the country. And often, I view our data as the Bible, right, because it's a full census of the credit files. So we get all of the files. Do you know, happen to know, did we have the same kind of weakness in our June data based on Equifax files? Oh, you know what? I haven't, I did not check that.

Yeah, because I'm always suspicious of that Fed data. a month a month. And a lot goes to seasonality, too, seasonal adjustment. Yeah, for sure, for sure. And here's the question. Here's the question. That it's not a real number. The question is, what about student loan debt forgiveness?

Because I just saw that the president, President Biden, here we are, you know, July 14th Friday, announced as part of the income-driven repayment plan that there will be about almost $40 billion forgiven for those people who are still paying on their debt 20, 25 years, you know, for 2025 years, and they get debt forgiveness. That presumably would be a deduction, right, from non-revolving credit outstanding, correct? Yes. Okay. But that wouldn't have hit this number.

No. But maybe some of that's going on, though. I'm curious, you know? I wonder if, you're right, that would be more of a probably a, July, August, September thing, but it's something to watch. Yeah. Good. All right. Well, very good. Let me, I'll give you a statistic. It's related to inflation. It's not the CPI report, but it is related to inflation. And it goes back to the discussion around wages and wage growth, 3.8%. 3.8%. And it's something that came out this week. And to be precise, because, you know, I am a little weird like Bernard, 3.83%.

I don't know the third significant digit, though. I don't think it was published. Any ideas? Not an expectation. Oh, it is. Very good. Excellent. But it's not, it's not University of Michigan, because that was 31. No. That was no. New York Fed survey of Yes. Yes. Very good, guys. That's great. Excellent. Yeah, the New York Fed has a monthly survey of consumer expectations. And as part of that, inflation expectations one year ahead. So near term inflation expectations by consumers, that fell to 3.8%. The peak was 6.8% back. I believe last summer, not surprising. That's when gas prices hit their all-time high. And they're still high. I mean, before the pandemic, they were hovering near three. but clearly moving in the right direction. And this goes to one of the theories I've been espousing for a while, and that is the high wage growth that we've seen is not so much the result of the tight labor market,

although that certainly must be contributing. It's the surge in inflation expectations that occurred back when Russia invaded Ukraine, oil and gas prices went skywarding. Nothing plays more central of a role in people. people's formation of expectations than what they pay for a gallon of regular unleaded. And so that caused expectations to jump. And then they went to their employer and they said, look, you got to pay me more because I just can't come to work.

I can't afford it. And the employer said, fine, we'll do it. But now gas prices, oil gas prices are back in and expectations are coming back in. And that goes to your point, Bernard, that I do think we are going to see wage growth to moderate here. And all this happens without any change in. unemployment or any other measure of labor market tightness. You know, it discused to inflation expectations.

So what do you think? Reasonable theory? Yeah, yeah. And I mean, already, I mean, we've seen just the complete breakdown between unemployment and job openings, which job openings, I think, are down 15% year over year. And historically, or at least in the little history that we have, normally when that's the case, the number of unemployed persons also surging by a commensurate amount.

So a magnitude. So I think we've gotten a lot of reduction in excess labor demand. We've got to fall in quits, but without any real labor market stress. Yeah. Okay. We're running along in the tooth here because we do have a guest, and I want to bring him into the conversation. We're going to talk about housing.

But before I do that quickly, what you're thinking around probability of recession, but based on all this great things. data that we've gotten, you know, over the last couple, three weeks. Bernard, what is your, what probability do you put on recession, NBER, National Bureau of Economic Research defined recession beginning at some point in the coming year? I say this time next year. Yeah, it's still 35%. 35%.

Yeah, yeah. I've been there. Yeah. I'm not going to move it lower just because of one month of data, but I think this reinforces where I, like, right. Yeah, you feel better about that 35%. Yeah, yeah. Chris, you were at 50%, I believe, last week. You know, change because of these numbers? Nope, sticking with 50, 50, 50.

Because that's just, oh, what's it going to take my friend to get you coming in? One report is not enough. Okay, I'm at 40, 40% is where I am. Although I'm leaning towards Bernard. I really am leaning towards them. I might get there. Let's see how the data play out here going forward. Okay, we're going to call this part of the podcast to a close, and then we're going to now turn to our guest.

And I'd like to welcome Lance Lambert to our podcast. Hey, Lance, how are you? Hey, doing good, Mark. Thanks for having me on. Housing, housing, housing. Always a lot going on in the market right now. Yeah, and you are the real estate editor at Fortune. Yeah, so watching the commercial side and also the housing side where,

you know, they're both kind of reacting to these high interest rates. Oh, I didn't know that. So you cover commercial estate as well. Well, with my own writing, it's mostly residential, but kind of building out a team and some of them work on the commercial stuff. Oh, okay. And on the residential side, is it mostly single family or are you also on the multifamily as well? Single family. Yeah, that's got it. Got it. And we've gotten to know each other over the last couple, three, four years. we've been chatting a lot about the housing market since the pandemic, really. Yeah, through a, and a lot has happened during that time.

You know, we talk right at the very bottom and the deepest part of the pandemic. And then as the boom kind of took off in housing and the economy started to recover, and then into the quantitative tightening and the mortgage rate. So it's been really interesting to see it all play out very fast. Do you say Fortune magazine or do you just say Fortune?

now. Is there a magazine? Yeah, there is still magazine. Six shoes a year. I think I write usually one article a year. But we've really grown beyond that. And, you know, we're really known for our conference side. And so it's still Fortune magazine, but a lot of people just know us is Fortune. I got a great Fortune magazine store. You want to hear it? Hit me. So back, could be 25 years ago now, maybe longer. I don't know. When I was a young economist, Fortune Magazine had a piece,

the sexiest economist in the country. No lie. And I was one of the sexist. Obviously, the bar is incredibly low to get over. But I actually, my mother was so proud of that. She's got,

you know, took the picture, put it in the frame. I've got it somewhere. Yeah. Yeah. And, you know, back in like the 80s and stuff, Fortune used to do the list of like the toughest CEOs. And it was kind of like something that these CEOs wanted to be known for.

And now you fast forward in 2023. And it's just a very environment. Yeah. CEOs don't want to be. They don't want to be tough. I'm not sure economists want to be sexy either. I'm not sure. I was okay with it at the time.

But I don't think any, I don't think economists would want to be called. Chris, what do you think? Absolutely not. Absolutely not. Now, Bernard, Bernard, movie star quality, wouldn't you say? I don't know. Anyway, that's my story. So let's talk about housing. And this is going to be a lot of fun because I'm turning the tables on you, right? Because more often than that, you will call up and quiz me. I'm going to quiz you. Because you talk to everybody in the industry. And so you have a really good feel for, You know, the, and you, I follow your Twitter feed. And you're prolific. I don't know how you do it, but you, you were prolific with your Twitter feed.

So you have a good sense of what's going on. So what is your sense of the market right now, the single family housing market right now? How would you characterize it? Yeah. So last year, uh, into the spring, the market was overheating and a way that we hadn't really seen since like the bubble. And, you know, even that it was so dramatic that it was actually a, a little bit faster when you just look at the two-year time frame.

And that coincided with the Federal Reserve moving into quantitative tightening mode and mortgage rates going from three, four, five, six, even kind of like seven there into the fall. We saw a very kind of like dramatic move in the market with, you know, home sales going into free fall. And then out west, the markets like Austin, Boise. Las Vegas. We saw initially in summer 2022, inventory started to build very quickly as demand pulled back and, you know, kind of absorption was broken temporarily. And then we saw corrections

out west too with prices moving down and builders across a lot of the country having to, you know, pull down profits to do the incentives, to do the mortgage rate buy downs, the cash at flows, and to cut price in some of the new communities. And then you take that and then into 2023, we had a bit of a shift again, where we went from kind of like the correction mode at the end of the year into some resiliency. And as we're starting to see this data roll in, the spring, what we've seen is that house price growth at a national level looks kind of normal, right? Maybe even a little above normal.

And a lot of that is led by the markets that aren't as high cost, the Scrantons, a lot of parts of the Midwest. And then also, you know, some of the parts that, you know, to them locally, you know, like in the Northeast, it feels expensive. But it wasn't quite as separated from fundamentals in terms of rent to price or price to rents as like the Western peers. So we've seen some resiliency with some of the existing house prices this spring. On the builder side, given their adjustments that they made last year, they were in a good position to grow sales this year, right? They kind of went out and they met the market. And, you know, some buyer acceptance too as we moved into the year. And they were kind of like, okay, I'm on board with the 6% mortgage rate, a little bit of that. And then on the existing homes. And then on the existing

home sales, we're still not getting a lot of volumes, right? It's very low. It's very constrained. The churn side of the market is really just knocked off. You're not going to go out and sell your home and give up your two, three, four percent mortgage rate and then go buy something new at a six, seven percent rate. And plus, if you did that, there's not a lot of existing inventory out there. So you would have this price shock, affordability shop on the monthly payment. And then, oh, by the way, you probably wouldn't get what you wanted to because there's just not a lot out there. So existing inventory, very constrained, house price growth this spring looks kind of normal. New sales rebounded a lot. And then on the institutional side, you know, a lot of those people that I

talked to, they were kind of hoping that house prices would come down more or that rates would. would come down more. Their cap rates are in a tricky spot. So Yield Street, which they own like a thousand homes, nothing too crazy. But they haven't bought a single home in the first quarter of the year. Nothing. They didn't add anything because the cap rates are so out of whack. And if you look at the earnings reports for the beginning of the year for invitation homes and for American homes for rent, they were actually net sellers, those quarters. It just doesn't make a lot of sense to go out. The returns just aren't there right now for the really big guys. Some of the small players have stayed out there because they don't kind of live in that same cap rate world that the

institutional guys do. So some of them are still playing. But in terms of the institutional side, I consider that constrained right now. And then of course, you know, you look at the mortgage side of the market. They're still paying there. Rocket mortgage, they were like a top 250 company. on the Fortune 500 last year. And then this year, we just put out the new report. They completely fell out because the refi market has just dried up. And so refi is very, very weak. And that's expected when you go from 3% mortgage rates to 6. So just to summarize, in terms of home sales and mortgage originations, where you just ended weak, some stability, I guess the free fall is over, but the level of activity remains very low. And that just goes to continued high fixed mortgage

rates and still high house prices. Affordability is still really poor. Well, that's what I didn't get to is that, yes, okay, so you look at house price growth, it looks kind of resilient somewhat this spring. But on the other side of it, you know, affordability is just in the toilet. I was going to say, I was, I paused, because I was going to say, that same word, but then I said, maybe I shouldn't say, but then you go ahead and say, so that's fair. That's the big question here with house prices. It's kind of like, are, you know, okay, a lot of people worth saying that we're in the clear now. You look at CoreLogics forecast. You look at Zillows. They're like, hey, you know, we bottomed. It's up from here. And you look at the house price

growth this spring. Okay, it looks kind of normal. But then you look on the affordability side. And then we're in a very bad spot. And there's just not much. And yes, prices are kind of moved up. the spring, but it's happening on very, very low levels of volume. Right. Okay. And then on the new home side of builders, you kind of alluded to this just to make a concrete. What you're saying is they've been more aggressive and effectively cutting price, right?

I mean, interest rate buy down would buy downs would be a good example of that. So they've helped to restore some level of affordability. So they've been able to keep sales up. Is that fair way of describing? Correct. Yeah, if you look at it at the pandemic peak, their profit margins were off the charts. They had pretty much had all the pricing power during the pandemic as, you know, the market overheated. And there wasn't enough existing inventory out there to meet demand.

You know, a lot of that demand poured over into the new home market. And they kind of had their way with it. And so when the correction happened, they just went right to pricing adjustments. and mortgage rate buy downs. And so you're starting to see some builders raise some prices. But is that when a builder raises a price, okay, maybe they go up 2%. When a builder cuts a price,

it's often on like a new community and they're going down like 10%. Like they just rip that band-aid off. So it's not like it's right, it's not like a V-shaped recovery for new house prices. And new house prices are really tricky to measure. you know john burns real estate consulting has a few different things they do and then you do have the medians uh but those also can get moved by you know just the shifts and mix too um but yeah we we know

we know john really well john was i actually been on our podcast a couple times really i listened to that when i said that i've listened to a few that was that was one of them yeah he's really good he's very good i have to have him back on and then in terms of house prices just to round out summary, there was some real weakness back about a year ago when the interest rates first kind of hit the market, the higher interest rates. But more recently, so far this year, more stability in price. And actually, as you pointed out, some price increases that are occurring. Yeah, that's what I'm seeing when I look at like the monthly, month-ever-month data from like Freddie Mac and from Kay Schiller, Zillow Home Value Index, the Black. The black

night ones is that it's a pretty normal level of month-over-month grains for the spring, and if you seasonally adjusted, it's still fairly normal. But the big question mark is what happens in the second half of the year is we move into the seasonally slow window. Is there kind of like, you know, does the balance shift a little, like does the strained affordability gain more of an edge on the market? Where it's like spring, what happened is the tight resale inventory, gain the edge. And so it's like, okay, what happens in that second half of the year?

That's a good way of thinking about it, framing it. So you're saying you've got these two different cross currents. One, supporting prices, and that's the lack of inventory. People are kind of locked into their home. They don't want to move because they've got to go from a three, three and a half percent mortgage to a six and a half, seven percent. And then the countervailing is kind of the affordability issue, which is really weighing on the ability for transactions to kick in. So there's the balance between those two things.

I think that's right. And so one of the, so I was looking back at the K. Schiller data since 1975. And in the K. Schiller data on a year-over-year basis, you've only had three periods in that series where we've gone negative year over-year. early 90s, the 2000s, and just now. And the interesting thing about this one that we just had is that this happened while inventory was still down, active list, and still down like 40% from pre-pandemic levels. So I think that what that kind of tells us, and then if you also look at the markets where the price cuts have happened, I think if there was even like 10, 20, 30% more inventory,

I think this could be a whole different game in terms of like what give up could have happened over the past year. Well, I want to come back to the outlook in just a second because that's obviously very key here. And I think there's a wide, and you'll tell me, because you know this better than I, but it feels like there's a wide disparity in people's expectations about where house prices are headed. But before we do that, Chris, let me just quickly turn to you. You heard this characterization of the market where we've been where we are.

Any pushback there? Or would you characterize it any differently? Anything else you would add? No, I think you nailed it. I would say it's a meaning he agreed with him. You agree with him. That's what you know. Yes.

Yes. Yeah. Okay. That's right. That's right. The only thing I that, you know, given all that that's been discussed here, is that's a very unhealthy market. Are you in Italy still?

Because your connection is. It's not good. Not that great. Are you in Italy? Oh, yes. I am. Oh, okay. Yeah.

Everyone's abandoning me, Lance. Chris is off in Italy. Marissa, our other co-old. Yeah. Yeah. Where's she? She's like in Hawaii or something. I'm the only guy who's working.

Yeah, what's that all about? I don't, you know, I guess I deserve it. Okay, so, so Lance, looking forward. So let's think about the outlook. And, you know, one of the key, there's a lot of different components to determine the outlook for housing. The obvious is mortgage rates. And you and I have been talking about this for quite some time. And, you know, my sense is that, you know, fixed mortgage rates that right now they're hovering

around 7%. Probably will continue to do so somewhere between, yeah, I think for the year we have 6.5% for the 30% for the 30% or fixed on average. And that feels kind of roughly right to me. Do you have a sense, Lance, is that, do you have a view on that? And, you know, what is the consensus view on that from your perspective? Yeah. So the consensus view, a lot of it's actually kind of gravitated a little bit more to your model and Goldman's model, which is you and Goldman were both came into the year and we're like, okay, we're going to stay probably in these mid-sixes, you know, the 10 years not going to give up a lot this year, and it's going to be more of a slow grind down for mortgage rates.

Heading into the year, there were still a lot of the places that thought, you know, it would be like low fives this year, a little more the optimistic crowd. So as the years went on, a lot more of these have kind of gravitated to yours, which is kind of like the higher for longer. And I think some of those thought the economy would weaken much faster than it has. Like there's been a lot of resilience in the labor market, a lot of the resilience that you've kind of talked about, that you know, you were kind of optimistic that we might be able to avoid a recession, whereas, you know, that recession camp got really big last fall. And so now I, I'm. I think a lot of them still have like, you know, a slow grind down into the fives into like 2024, 2025. Your outlook is 6-5 this year, 6 next year, and then 5-5. Right. Wow, that's really good.

I think, yeah, I, well. You know the numbers. Okay. Very sure. And in Goldman's kind of around that range. Are they? Okay. You know, the outlier that just came out last week is that morning.

Star said they think that 2025 would average 4%. And so the average 4%, you would have to have a three-handle for a lot of the year. And that's probably a dramatically weaker economy. Recession, it sounds like, right? Yeah. Yeah. Yeah. Right.

And so, and, you know, like mortgage bankers association has been a little more of the optimistic side. And Fannie Mae and Freddie Mac have just been a little bit under yours and Goldman's. But they've kind of had to come up this year and kind of get a little closer to you in Goldman. Well, that's good. I mean, our thinking is that we are able to skirt recession, 10-year treasury yields upon which fixed mortgage rates are ultimately related to pegged. About 4%ish, we're kind of hovering around that at this point. and that spread between the fixed rate mortgage and the 10-year treasury yield, which is extraordinarily wide.

You know, right now fixed mortgage rates are seven, 10-year yield is four, that spread is 3% or 300 basis points. That's about double what it is historically, that that spread will narrow over time. That's our forecast, and that's how we go from kind of a six and a half, seven percent down to something closer to a five and a half percent. That spread normalizes, gets back down to us. That's been interesting to watch. You know, this year it started to maybe come down a little bit early in the year. Then we had the banking crisis. It kind of expanded again.

And then it came down just a little bit. The debt ceiling stuff came back up. And now I think it's still in like 300 basis points, three percent. It is. Yeah. It's still, you know, three percent. Yeah. But I think a lot of that goes to the shape of the yield curve.

I'm not going to get, you know, there's a lot of nerdy things to talk about there. the shape of the yield curve, prepayment risk, so forth and so on. But, you know, over time, if we skirt recession, inflation comes in, the Fed can start taking its foot off the brakes, lowering rates, that yield curve will start to become more normally shaped, more positively sloped. And then the result will be that spread will slowly normalize over time. But it will take a little bit of time for that to happen. So we'll get back to, in the long run, abstracting from the ups and downs in the economy

me, we expect, I expect the 30-year fix to be around 5.5%, you know, something like that. But we won't get there for a while. It'll take some time. Kind of the thinking. Yeah. Interesting. Yeah. So, okay, in terms of the house price outlook, let me try something out on you, kind of my pet

theory as to how this is going to play out and get your perspective on this. I have to say, I have been surprised. that we haven't seen more house price weakness. I expected more, you know, given the current mortgage rates. And I think you're right that, you know, it's the lack of housing inventory going back to the interest rate lock. People just like their mortgage, love their mortgage, may not like their home, but they love their mortgage so much they're not going to move, at least for a while. But here's the theory. The theory is that life happens, you know, there are life events, death, divorce, children, job change.

And, you know, over time, people have to move. They can't stay where they are forever. And as they move and we get more transactions, those transactions have to be at a lower price. Because at these mortgage rates at these house prices, people can't afford it. They just simply can't do it. Can't get the mortgage. So prices have to come in. And so right now, by our house price measure, a repeat sales index.

tracks the same homes over time. So it abstracts from the measurement issues you mentioned earlier around Mix. They're down maybe 1, 2% from the peak a year ago, year over year, as you say, they're down. But I still expect prices to be down when it's all set and done peak to bottom, down kind of in the mid to high single digits, you know, something like that, which means some markets are going to be down, they're already down double digits. But in, you know, in California and parts of the mountain west, maybe Florida, you'll see some bigger price declines. Okay, that's the theory. What do you think? Well, I think, you know, like we talked about earlier, affordability is just terrible right now. And even if mortgage rates come down a bit, I mean,

it's still not great affordability. And that'll happen when you have 40% run up in national house price in two years and a three percentage point move up in mortgage rates. And so the thing that I'm really interested in is just to see what how the market reacts in the second half of the year? Like, does that strain on the affordability start to like pull down on the price in the second half of the year? That's the part that I really want to see. And then also what happens to active listings? Because when mortgage rates spiked, we started to get active listings moving up fairly fast and velocity in some of the markets like Austin and out west. And then all of that is really good.

tightened up. Now, Austin, of course, bottomed for active listings in January. And if you look at their house price data, they look like a market that's still very much in correction mode. Very little appreciation in the spring. If you seasonally adjust it, they're still down. But then you look at like Phoenix and Vegas, and they still haven't even bought them for inventory. So it's like, are they still like tightening? So it'll be interesting to see what happens with the active listings too. Now, in terms of the forecast, a lot of the forecast have revised upward a bit for the year. Like, Fannie Mae thought we would be down like four something for the year.

Now it's like one or two. Goldman thought we'd be down six for the year. The one they put out last week is now 2.2 for the year. Freddie Mac, I think, still thinks like down one or two for the year. and then you have like core logic, which never went negative, and they think it would be like four something over the next 12 months. Zillow positive four, positive four. Yeah.

Oh, interesting. Five over the next 12 months. AEI, American Enterprise Institute, they think that it will be six for the year and then seven next year. Oh, wow. That's Ed Pinto. We've had him on as well. Yeah.

So he went from, he was kind of a whole. out last year going negative. And then right in like December, January, he went, okay, 10, 15% peaked to drop, which then he went past a lot of people. And now, and he's at, you know, six for the year and then seven for next year plus. So they've had a very big reversal over the past six months. You know, and for the ones that are down for this year to be right, they, you need the seasonality to kind of hit hard in the second half of the year, blow off the gains, and then be down a little more. Yeah, I think we're kind of more in that camp.

We get some additional weakness. But in our thinking, this weakness plays out over the next couple, three years. There's no cliff event here. It's more of a kind of a slow grind lower. Hey, Chris, you know, you're obviously, we're on the same page here with regard to the house price out, because we talk about it all the time. And it's what our modeling would suggest. If we're wrong in prices to end up being stronger than we're anticipated,

how would you square that? How would that happen? Under what conditions would that happen? Well, you mentioned that you have this tug-of-war between the inventory because of the lock and the affordability issues. So under this scenario, it must mean that the inventory, the lock-in effect wins, right? People just hunker down.

They don't sell. And that lack of inventory continues to sustain the prices or actually pushes the prices up because there's just nothing available. So the few buyers that are out there, they're competing with each other and continue to cause the prices to rise. Okay. So we're going to be, if that's the case, we're wrong in two regards. One, the house prices are stronger, more resilient than anticipated. And the other is that home sales are weaker than we anticipate.

Yes. In origination volumes, obviously, weaker as a result also. That's right. Yeah. Okay. All right. Okay. Well, Lance, we'll see how this plays out.

You know, so far I feel pretty good about our forecasting track record, but this is going to be a real test because there's a lot of differences out there with regard to house price growth. Let me ask you this. We're coming to the end of our time. You talk to a lot of sources. Other than me, I'm sure I'm one of your favorite sources. I'm just guessing. And you mentioned John, John Burns and Ed Pinto at AEI. Who else do you really pay close attention to?

Yeah. So I really like people who are like really close to the builders. I think those people are interesting, like Alec Wolf over at Zonda. I think that's really interesting because the builders react very quickly. And they really have that pulse there because they're in a vulnerable spot in the market at all times. So Allie is really great. And, you know, for data sources, I really like all the public data that Zillow puts out, too. Because, you know, they're a little ahead for the monthly data.

They do it for a very, for a lot of regional places. So I think that's great. And then, you know, my other favorite source is just the tenure and just watching how, you know, the market and financial markets are reacting to everything. You're a weirdo then. You're watching the click, click, click, click, watching that tenure move up and down, huh? Well, yeah, and every day I tweet out the new mortgage rate that mortgage news daily does.

I love that too. I click on that several times a day. Yeah. Yeah, very good. Now, the thing that we have seen lately is that we've seen the financial markets tighten up a bit over the past months. Now, I know this week they've loosened a little more, but we have finally been over 6.8% in the Mortgage News Daily tracker every day since May 18th. So we've had a couple months where we've started to firm right as we've kind of went into that slower seasonal window.

And I think that's something interesting to watch and to see if that can move up inventory at all. Yeah, just for the window. Oh, sorry, go ahead, Lance. Well, yeah, we're still in the seasonal window where inventory does move up, but active listings have not moved up that much this year compared to last year. Last year, there was more of a break upward for active listings, and that was really just the market's reaction to spiked mortgage rates and that initial demand pullback. Yeah, just for the listener out there, mortgage daily news is a well.

website and they, it feels like almost real time they're publishing mortgage rate information. And it feels like that's the kind of the Bible for rate information. Yeah. They're always a little higher than that weekly average that Freddie Mac puts out. But I like it because it's daily. And yeah, I think it's great. And you can see on a daily basis, you know, when that tenure moves up or goes down, and then it reacts to it.

So I think it's really interesting. Right. Hey, Chris, any questions you want to post to Lance? Did I miss anything? Anything we should touch upon that you feel is important? I don't know if you want to get into some regional trends. Do you want to talk about some spots? Yeah.

You mentioned Austin, Lance. What other areas are you noticing some real weakness in some perhaps on the other side of it, some surprising strength in the market. So last year, the initial weakness was out west. And obviously, Texas, Austin, although Texas was still kind of bifurcated in parts. And then places like Raleigh, too, kind of fit into that. And the southeast was kind of a little patchy. And then the Midwest last year in the northeast, when you seasonally adjusted the price declines,

there wasn't a decline. with seasonal adjustments. So I think that kind of was telling us even last year that those places were probably going to be a little more resilient. Some of the places this year that have been weaker than expected maybe. New Orleans keep showing some seasonal adjusted declines, and that's been interesting. And then there's parts of Florida. I don't know if it was like the hurricane that rolled in last year, but like Cape Coral and I don't know if I'm pronouncing that right, but some of those areas have been weaker. And I think what that tells us is that the market is so unhealthy right now that it's vulnerable in ways that it's not normally.

And yeah, if you look at like Hurricane Harvey, there was an impact in Houston a bit, but not as much as you're seeing in these parts of Florida this spring. And so I think that tells us that this is just a very unhealthy market. And I do think, even though prices haven't declined the spring, I think there's some vulnerability depending on how things play out. Very interesting. Just a sidebar, you've mentioned seasonal adjustment a few times. And I guess the important point is that the housing activity is very, as one could imagine,

if you think about for a second, is very seasonal. So, you know, and prices reflect that. So if you're selling in the wintertime in the northeast or Midwest, prices are seasonally, week. And then if you're selling in the spring, summer, they're seasonally strong. And you need to correct for that if you're trying to get a sense of, you know, real time, you know, what's going on with the prices. Exactly. And so, Chris, I would love to know a couple of your thoughts on the regional stuff. And then also are you watching like the global stuff? Because one of the things I'm starting to see is that some of the global markets that last year corrected kind of hard, harder than us.

and then this year had a bounce or actually starting to fall again. And then the other rate sensitive asset class, autos last year corrected kind of hard, the spring sol a bounce, and then now has seen some correction. So I'd love to know, Chris, your thoughts on the regional differences across the country right now, and then if you're kind of what you're seeing in some of the global markets, if you're tracking them. Yeah, sure. So on the regional side, kind of share what you outlined in terms of the Northeast, Midwest, showing some resilience.

And I point to we have an index of valuation or overvaluation that we produce for all the different markets. And those were areas where we didn't see a lot of excessive appreciation, let's call it, right? 40% appreciation over two years was high for the nation as a whole, but it was really concentrated in the west, parts of the south, the Northeast and the Midwest because of some of the demographic trends as well. without migration actually held up pretty well from an evaluation standpoint. So those are areas where, especially with work from home, young buyers who are looking to buy a home can find some values there. So I'm not at all surprised by what you mentioned in terms of those areas holding up a bit better.

And then conversely, some of the other areas like a Boise, where we had such tremendous run-up in prices, actually giving back some of those gains. So we see that those similar patterns in our data, and I do expect that to continue. The other key regional aspect I'd emphasize, and it was interesting that you picked out New Orleans and parts of Florida, areas that obviously are hurricane prone. I suspect that we're going to continue to see more and more of an impact from insurance prices on house prices, right? The availability of insurance is going down in a lot of areas, right? insurance are pulling out of parts of California and Florida. Insurance is very expensive in newer means, especially.

And I think that now we're seeing homeowners or home buyers facing more of the reality of the total cost of ownership. They can't rely on appreciation. So I suspect that might factor in more into their decision. So those areas certainly could be more vulnerable to some house price corrections. In terms of the more, yeah, go ahead. No, no, keep going. Sorry.

I was going to move on to the global. Yeah. I didn't want to point out one thing. Lance, I believe, is from New Orleans. Is that right? No, Cincinnati. Oh, Cincinnati. Okay.

Okay. But I don't think you, maybe, I don't think you say New Orleans. You say New Orleans, right? Noglands. No, Orleans. Yeah. Okay. Just saying.

But not only if you're from. Oh, is that right? It's like voicey. Boycee, okay. I see where you're getting the Lambere thing from. My Zoom doesn't have the T on at the end of it. It doesn't. No.

It's missing. Anyway, okay, so we're going to talk about global prices. Go ahead, Chris. Global prices and autos. I think we're going through. Why autos? Why are we talking about autos? I thought we're talking about it.

Just in terms of you see a similar type of. of a pattern of strength and weakness. What about those Antoine prices? You know, never mind. Go ahead. Go ahead. Not lost trade of thought. But yeah, I think we're seeing it.

I do that to Lance all the time. What the hell are we talking about? You're throwing me off the track here. Okay, go ahead. Fair enough. Yeah, I think that the other thing that or the other factor here, both for the U.S. and then externally as well as just what's going on with foreign investment, right?

There was certainly a lot of cash flowing around over the last few years looking for a home, and real estate seemed like a good place to park some money, both in the U.S. in certain markets. I think that's part of the reason why you might have seen some of the appreciation. We did in certain markets, particularly if you think of Miami or parts of California, but then also in other global cities as well. And now I think that I suspect some of that is weakening, right? Given some weakness in China, other parts of the world, you may not have that foreign market support that we had previously. So all of these markets now are adjusting.

And I'm a firm believer that price to income ratios have to come back to some type of affordable equilibrium. And I think that process is underway. Well, Lance, I think we're at time. We cover a lot of ground. We're all on the record, including you. Congratulations. You're now an economist. So with a record, and we'll look forward to having you back on and reprising the market at some point down the road here. So thanks for taking time out with us. So very much appreciate it. Yeah, this was a lot of fun. And to the listener, we're going to call this a podcast and we will talk to you next week. care now. One last plug I want to put in. Oh yeah, fair wife. Go ahead. People can find me on Twitter at News Lambert. Say that again? People can find me on Twitter at News Lambert is my handle. And I'll testify. You have a great Twitter feed. I follow that regularly. So I think listeners should definitely follow because it's very informative. Okay. With that, we'll call it a podcast.

Take care, everyone. Bye-bye.