Odd Lots - Are We About to See the Shortest Housing Cycle Ever?

Episode Date: July 24, 2023

Last year, as the Federal Reserve hiked rates to the highest levels in decades, there were lots of warnings about an imminent collapse in the US housing market. But home prices have only dipped slightly since then and now they're even recovering, stacking up three consecutive month-on-month gains. Not many people expected the most interest rate-sensitive portion of the economy to be this resilient. So what happened? Morgan Stanley housing strategist James Egan was one of few who was early to forecast that home prices would prove resilient, even as the cost of mortgages went up. In this episode, he walks us through how he sees the housing market now and what it would actually take for home prices to come down.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Allotts podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. Joe, do you remember this time last year some of the discourse around the housing market? Yeah, of course. I mean, this was like really like when people were like waking up to the sort of like eye-popping mortgage rates, at least by recent standards. You know, zoom out, maybe not that high. But by recent standards, like, oh, this is it. Housing is sort of over. Crash. Price is plunge. We're back. That's exactly it. So we had a really. historic run-up in benchmark interest rates and those were translating into higher mortgage rates. And everyone thought that this was going to lead to a, you know, some people thought it would be a house price collapse. Others thought it would be some sort of impact, something significant one way or

the other. And yet, fast forward 12 months, I'm looking at the K. Schiller index. We had like a tiny dip, you know, relatively small going into the end of last year, and now house prices are rising again. We basically had, like, the shortest housing bear market ever. Yes. It's really tiny dip in prices. Every index you mentioned, I saw some other one. Just yesterday, like, one of those, like, national, like, Freddie ones, I don't know. That's, like, rocketing up again.

Obviously, we know that, like, the homebuilders sort of, like, slam the brakes. So it's like, okay, here's prices falling. Buyers drop out. their stocks are, as we've been talking about on a bunch of recent episodes, they're like basically at all-time high. So somehow this huge repricing of mortgages did not cause the housing bear market that many, but not everyone expected. Yeah. And I mean, it's bad news if you were hoping that house prices would collapse that you could finally enter the market. Good news if you are a homeowner, potentially. But anyway, you remember we talked to a guest last year. I think it was

last October. And the idea was basically we were getting this really weird housing market with rates going up, but house prices actually not that vulnerable to a decline. And I think that scenario has more or less panned out. Totally. And it's been a theme of a few episodes, but it's totally true, which is that a precondition, so to speak, of like a real housing downturn is unemployment. And the existence of forced sellers. And so it's not a very good time to buy. And so it's not a very good time to buy, but also very few people are for sellers other than, I think we like talking about, you know, there are divorces and things like that, or people who have to move for their work. But, and, you know, this has manifested itself, not just in firm prices, but, like, no housing

inventory. And the people who track levels of housing inventory, it's like record lows or close to it. And so, yeah, demand has dropped with high mortgage rates, but so is supply, and you get your price stability. That's right. So on this episode, I am very pleased to say we're going to be doing a checkup of the weird housing market. Let's put it that way. We're going to be speaking again with Jim Egan. He is, of course, the U.S. housing strategist over at Morgan Stanley.

So, Jim, thank you so much for coming back on all thoughts. Thank you for having me back. It's a pleasure to be here. So since we last spoke, I've been following your research. And your thesis when we spoke was this idea of basically a subdued impact on housing. prices, maybe less housing activity itself. Since then, you've sort of ratcheted down your expectations for house prices and then ratcheted them back up, not by a huge degree, I should say, but walk us through what the past 10 months or eight months or so have been like from your

perspective, trying to gauge what's going on here. Right. So I think you two both brought up a lot of kind of the key underlying points for how we think about the housing market. Our general framework, we like to call it our four-pillared framework where we're talking about demand for shelter, supply of shelter, the affordability of the U.S. housing market, and the availability of mortgage credit. But a lot of what's been going on has been this kind of juxtaposition between supply and affordability. Mortgage rates move incredibly higher, and we see affordability deteriorate at a pace unlike anything that we've ever really seen in 2022. But the key question to ask on the back of that is, whose affordability actually just deteriorated.

And the structure of the mortgage market this time around is such that you have what we'll call strong hands. A lot of homeowners were able to either buy their home or refinance their mortgage at record low rates. And so they have these 30-year fixed-rate mortgages where they're just incentivized not to list their home for sale. And so, Joe, you mentioned that inventories are close to historic lows. We have existing listings going back over 40 years. and we're pretty much at the lows right now. And so if you don't have those homes listed for sale, then all of a sudden, despite the fact that affordability might theoretically warrant lower home prices,

homeowners aren't willing to sell or they're not forced to sell into those lower home prices that affordability might theoretically warrant. Of the inventory that exists, how much of it is people who are selling for some reason or another? because there's some selling. It's not none. Versus the role of new supplies. So basically, new homes. When we think of inventory, we break it down across three lines, right?

Existing listings, new home builds. And then you have kind of what we call the shadow inventory. This is distressed. This is your forced sellers. This is foreclosures. Right. We're going to put that to the side for this conversation because we do think that mortgage credit standards, that fourth pillar, they've been so robust.

They've remained so tight in the aftermath of the great financial crisis that we just don't necessarily see a substantial increase in defaults and foreclosures coming. Now, from a new home sales perspective versus an existing home sales perspective, a new listings perspective versus an existing listings perspective, this is still largely going to be an existing listings market. Right? New home sales, one of the characteristics over the past six months of this year has been the fact that new home sales have made up a larger percentage of total transaction volumes since 2006. versus existing. However, that just means they've climbed back to about 20% of transaction volumes. So existing listings are still, call it 80% of those monthly transactions, even if those listings

are kind of running at 40-year lows. So one of the interesting things that's happened in recent months is the home builders seem to have really ramped up activity, which is somewhat unusual, because you would assume with interest rates going up, their cost of capital would be increasing, and yet it seems that supply is still so tight that everyone wants to get in on building new houses. How big of a surprise has that been for you? And would you expect the new home building response to moderate at some point? So I think if we take a little bit of a step back and look at the total starts figures, because I agree, if we look at some of the housing data that's come across in the past month, the past two months,

I'd say that the three data points, if you wanted to grab an optimistic housing view, would be do home sales? Wait, what's optimistic? Yeah, is that house prices going up or down? I don't even know what the optimistic side is anymore. That's a good question. I guess if you want to say that we're going to enter,

I don't even want to call it a V-shaped recovery, but a significant increase in housing activity and then potentially even an increase in home prices on the back of that, as opposed to maybe an L-shaped. Have we found the bottom? were moving, or another leg down. Okay.

So if you wanted to grab a, we're entering a recovery, activity is going to increase, sales and starts are going to increase, prices are going to increase, by the way, these are not our forecasts. You would grab new home sales, you would grab housing starts, and you would grab home builder confidence, right? Those are the ones that have been increasing. I mentioned already new home sales making up a larger share of transactions than really any point since 2006 to begin this year.

That, we think in part, is helping home builder. confidence increase. It's climbed every single month for the first six months of this year after falling in every single month of 2022. But one thing that we would say here is a growth in new home sales is not necessarily indicative of a growth in the overall demand for shelter. That housing starts number. We think we have to take a step back and look at it in terms of single unit and multi-unit, right? Single-unit starts have historically made up, call it 70 to 80 percent of that number. they're a slightly smaller share of that total number now, as multi-unit has made up a bigger share.

From peak in this cycle in April of 2022, single unit starts are down over 20%. Now, the rate of that decline has slowed in recent months, and one of the reasons that we think that builders are also turning a little bit more optimistic is the backlog of homes under construction has been able to clear. That built throughout last year, supply chain issues related to the pandemic, labor constraints, it just took longer to finish homes. As starts have come down, units under construction have come down. From peak units under construction are down about 125, 130,000 units.

That's not the case on the five-plus unit construction side. Units under construction continue to grow, and the numbers that have beat expectations recently, we still think that multi-unit is driving the bus there. May of this year, remove all seasonal adjustments. May of this year, we saw more five plus unit starts than any month since 1986. Wow. I think it was this conversation that we had last year, and I learned like a bunch of terms that I had only pretended to know before, like, headship rates and how you measure household formation.

So I really appreciate you. I really appreciated that because I finally got to learn a few things. But one of the things that we did see, especially during the sort of like the pandemic boom, weirdly enough, the 2021, the sort of surge in household formation, people leaving their roommates, people moving out of, you know, maybe moving out of their parents' house, like the sort of like 2010's cliche of like living in your parents' basement, et cetera. What are we seeing in like current trends of household formation?

I think that's one of the key questions to where we're moving going forward. And I will caveat this by saying the data here's a little lagged. We are starting to see it slow. Okay. For all the trends that you just mentioned, household formation really, increased over the course of the past three years. If I was on this podcast in 2019 and we were talking about demographics and what they would have meant for household formation going forward, we would have said that demographics warrant 1.3 to 1.4 million formations per year for at least

the next five. Okay. The last three years, we've seen something closer to 1.8 million. Wow. Yeah. You mentioned headship rates. If we don't think that headship rates, systemically should have moved higher. They certainly have over the last three years. But if you don't think that longer term they're moving higher, that means that we've pulled forward if our original numbers were somewhere close to correct. Call it 1.2 to 1.5 million households. Wait, just real quickly. I know I said I learned last year on the podcast what headship rates are. And now I forget, what's a headship rate again? So a headship rate, when you look at the population, you break it down by whatever cohorts you want to, let's just do it by age. Okay. Right. So a headship rate is if you take

everybody who's called it 25 to 29 years old, picture a 25-year-old, they're living in an apartment with three other people, the headship rate of that very small, four-person cohort, 25%, right? If all of them move to their own apartments, all of a sudden you have four people heading, exactly, right? And so typically headship rates for that early to mid-20s, you're talking 25-ish percent, and through your late 20s, early to mid-30s, they climb to the 55 percent where they come up. So household formation is a verb and headship rate is a noun kind of, or stock versus flow, maybe one way to think about. Stock versus flow.

Okay. Yes. So I realized I should have asked you this directly at the beginning of the conversation, but what is your base case forecast for house prices? Yes. And so you did talk about a little bit of oscillation in what we were calling for. When I came on in October, we had brought our end of 2023 number down to minus 3% year over year.

We have just raised that. We're back to flat, 0.0 by the end of the year. And that is, despite the fact that we continue to see in our forecasts a handful of months of negative year-over-year prints, we just did. So the K-Shiller number for June, it's two months lagged, it's April data. It's the first time they've turned negative year-over-year since 2012. We think that's going to be short-lived. It's going to be a couple months. It was only about 24 basis points negative.

And we think by the end of the year, we're going to be back to flat. I just want to say, when we had you out in October, there was an out-of-conceive. I mean, people, it was. I think you just served a lot of credit. It got a lot of pushback and then it turned into the consensus, basically. But like it really did. Like at the time, this was, it was a real out of consensus call. And I think that we should like sort of take a moment to recognize.

And that's, you know, that's why we have you back. But that was, like at that time, people must have thought you were crazy. Listeners can't see Jim's face. But he's thinking how to respond. First of all, thank you. There were certainly a lot of conversations in the fourth quarter of last year that asked why we weren't calling for home prices to fall further. Yeah. I would say that you made the comment that it moved towards consensus.

It certainly did. And I don't think that our 0% call by the end of the year is too far from consensus right now. So what's the biggest wild card or risk factor in your outlook at the moment? because I know you mentioned that you have this sort of four-pillar way of looking at the housing market. I think the four factors are supply, demand, affordability, and credit availability. And then there's also this question of unemployment, which seems to be a big one sort of hovering over the industry or the market as a whole. So what are you looking at as the biggest risk factor to your outlook? Tracy, I think you mentioned a really good factor here from the unemployment perspective.

but I want to take a step back and frame this in terms of the risks to the upside and the risks to the call to the downside. We do think that if we're wrong, it's because home prices ended up climbing more than we expect by the end of the year. And we think that because, look, affordability still remains incredibly low, close to multi-decade lows. And so if you were to see affordability start to improve, and perhaps it improves because maybe we get more of a soft landing than we're expecting,

Maybe the labor market starts to slow down, doesn't necessarily fall off a cliff. Maybe inflation really starts to slow down and all of a sudden you get a world in which perhaps the Fed can start cutting earlier than people expect. Rates start to come down. Affordability is largely a three-pronged declaration. It's incomes, its rates, and its home prices. And if rates start to come down, yes, affordability can be very difficult for that to get back to where we were in the 2020, 2020, 2021 time frame. But if people start seeing five and a half percent mortgage rates as opposed to seven, that could bring more people off the sidelines. And supply is still going to be low. Jayback, I when our agency MBS team calculates something called the truly refinanceable index.

And I do think this is one of the more important numbers in our forecast, or at least interesting. It measures what percentage of the mortgage universe has at least a 25 basis point incentive to refinance at any given point in time, given where prevailing rates are? As we're sitting here today, it's less than... and 2% of the universe. If mortgage rates were to rally all the way to 4%, that is nowhere close to our forecasts, if they get to 6% by the middle of next year, we think that would be roughly in line with expectations that might be higher than that. But if they get to 4%, that truly refinanceable index only climbs to 21% of the mortgage

market. 79% of mortgaged homeowners have a mortgage rate of 3, 3.5%. They're not going to be incentivized to list their homes as these rates. start to come down. So you could get this demand reaction into what is still an incredibly tight supply environment that leads to upside risk to our call. Interesting. So the demand variable just seems way more potent than the supply variable. On the upside. On the upside. Downside. Yeah. Now we're looking at supply. Okay. If you don't necessarily see an improvement in affordability, if you do get a harder landing than we think if the unemployment rate picks up, and so all of a sudden

you do have issues that remain there from the demand side, and you have some impetus for supply to start being delivered into this lower demand environment, that's where you could start to see home prices come down. Because of where lending standards have been, we don't think it's going to be defaults and foreclosures. You anticipated where I was going to ask, because I imagined, so we're at like 3.6% unemployment. Like, you know, there's a world where, like, it goes over four and a half or five.

I don't know. But like, I imagine that let's say that went up to 5% in a recession, that that would have much less of an impact on housing supply than an equivalent move in the year 2007 with so many of the, you know, Ninja loans and variance. I couldn't have said it better myself. Like, one of the huge differences, you mentioned ninja loans, just the overall structure of the mortgage market, the percentage of the mortgage market that were a job. adjustable rate. You had mortgages that were resetting into a lower home price environment and a

tighter lending standard environment. So that monthly payment was increasing. Those homeowners effectively needed to refinance that mortgage and it was really difficult for them to access that credit, which meant a larger, a large share of mortgages falling delinquent. This time around, not only do you not have that lending environment, you have a much stronger just mortgage base on top of that, servicers have a much more robust toolkit, if you will. Foreclosure mitigation options, modifications. Servicers working to help borrowers stay in their homes. That wasn't something that we as an industry had had a whole lot of experience with in 2008.

Services are much more comfortable with that now. Right. I forgot like all those like stories of like people trying to get their banks on the phone even. I just had, yeah, I just had big flashbacks to writing a lot about like, the HAMP modification program post 2008. But like now we have blueprints for doing these sort of modifications or like loan for, not forgiveness, but easy. Modificate. Yeah. Somehow to stave off the like wastefulness and the costliness of a foreclosure. Yeah. But since you mentioned banks and credit availability, we have seen some banking drama this year. And there was some talk initially that

concerns around bank portfolios and maybe banks preparing for higher capital regulation or requirements was going to lead to less willingness to underwrite mortgage credit. Is there any evidence that we're seeing that, or is that something that's on your radar? It is definitively on our radar. We've done a lot of work under an umbrella that we've kind of called a new regime for bank assets for the reasons that you're mentioning. We don't. We do anticipate more regulation either being proposed or announced through the end of this year where regulations like LCR liquidity coverage ratios, T-LAC, total loss-absorbing capital, banks away from the G-Sibs having to have their mark-to-market losses on available for

sales securities moving through to their regulatory capital, which they could have opted out of up until what we believe these proposals will look like. All of that, we think, means they have to hold more cash effectively. They have to have a higher level of liquidity. It means they're going to have less dollars to lend. It also means they're probably going to be looking a little bit more shorter duration on the asset side. And banks buy a lot of mortgage-backed securities. By our estimates, banks hold about 33% of the agency MBS universe.

They buy that as longer duration assets. So we do think that that's going to impact kind of mortgage rates from that perspective. When we originally thought through this, again, Jay Beck, the agency strategist, he went underweight mortgages because this is a structural change to bank demand for mortgages on a go-forward basis. But valuations matter as well. So we're neutral at this point. Mortgages did sell off. And so we think that at this point, they're effectively fair valued. But that is how we kind of have to think about affordability moving forward. And then from a credit availability perspective, if you ask where from a four-pillar perspective we were in that

outlook, the last time I was here versus now, I would have told you that we, probably expected lending standards to ease, at least on the margins, over the course of 2023. We no longer believe that. Lending standards, we think, if anything, they'll stay tight, probably going to tighten from here. Some of the credit availability indices are already showing a little of that behavior, but lending standards have remained so tight for 15 years.

The question is really how much tighter can they get? I want to talk about another dynamic of the sort of pandemic housing boom. You know, we talked about the surge in household formation and roommates, no longer being roommates and people moving out of their family's homes. The other thing we saw is people with high incomes leaving cities and going into markets in which they had above average income. So if you're working for Facebook or something and suddenly you can go live, you know, in Arizona or Utah or whatever and suddenly you're the highest paid person in the area,

you can outbid all the locals for homes. Obviously, like that wave ended probably reversing a little bit and then some company is like, no, we actually don't want you out in the middle of the middle of the area. nowhere, come back to the office, how much did that sort of distort things and contribute to price appreciation? And how much is the sort of like, I guess it's like ameliorating some of that wave, like affecting the market now? So from a contribute to price appreciation perspective, if you ask me the one data point I really want to know for home prices six or 12 months forward, it's supply. If you ask me five years forward, it's population migration and where

people are moving. But if you think about what happened when at the outset of COVID, it was almost a perfect storm from a home price perspective where you had this demand, people, their ability to work from home, maybe their desire to get a little bit more space, leave densely crowded areas. I think I mentioned this the last time I was on, but the home price appreciation between less densely populated zip codes and more densely populated zip codes bifurcated in a way that we'd never really seen in our data going back to the late 80s, early 90s. Because not only did you have that demand, but with mortgage rates coming down to historical lows, now all of a sudden the buying power of that demand is increased.

Yeah. And supply was racing to all-time lows. And so you kind of had this three-pronged demand plus buying power of demand plus tight supply, leading to real incredible home price growth in some of those areas. Since we're throwing out sort of idiosyncratic things here, can I ask about Airbnb supply? And this is something that has been cropping up lately. People talking about like, oh, well, no one wants to stay at an Airbnb anymore. It's too much hassle. It's too expensive. You have to clean up the entire apartment or house before you're allowed to leave. I've never stayed in an Airbnb, by the way, so I have no idea. But people are talking about that as a potential source of marginal supply. So if Airbnb hosts can no longer get people coming into their properties, maybe they just decide to sell. Is that at all something that you're looking out for, or is that maybe wishful

thinking on the part of people who are hoping for a flood of supply to come into the market so they can finally buy? Look, I think that's an important question because something that I hit earlier on the downside is where could supply come from? And we're constantly trying to figure out if there's some pocket of homes that could hit in a lower demand environment. a challenged affordability environment. And one question that comes up has been, are these kind of individual investors who maybe bought homes for short-term rentals, could they become that supply? And I don't have the exact numbers in terms of how much supply that could really represent.

When we look at the mortgages holistically that were originated over the course of the past three years, it's a lot of fixed rate paper. It's a lot of a really low interest rate paper. you've locked in a very low cost of shelter, even if it's not your primary shelter, you have an elevated amount of equity in that home. Perhaps you're not seeing the rental demand that you might otherwise see, but it's not necessarily something that we think is going to end up being enough supply. We're targeting a few other areas that we think might end up materializing as that potential supply that does drive our bear case. Now, speaking of idiosyncratic things, and again,

Maybe it's not enough to move the dial. But what about the ibuyers? And I remember there are all these stories about, like, you know, we even talked about it recently on an episode with Greg Jensen, which is like people had these algorithms, and everyone's like, oh, these are the real suckers. They'll buy anything at any price. Did that really move the dial in your view?

Like, how much of a, are you thinking about things like that? The disappearance of the eye buyers. Any numbers that we can see about the amount of homes that have been purchased kind of on the institutional side, I think if you look at the markets, and this is more broadly, not just eye buyers, but if you look at the markets where institutional investors have been a little bit more active over the past few years, those also tend to be some of the markets that saw the highest degree of home price appreciation. So did that demand maybe lead to home prices increasing a little bit more than they otherwise would? Perhaps, perhaps on the margins.

But one thing we'd say is that it doesn't appear as if the number of homes purchased was really that large a percentage, at least as far as the total housing market is concerned. And then, Joe, to your point about that demand, perhaps not being there, demand has been pretty weak. The bifurcated housing view that we talked about from last year was a function of sales volumes coming down, but home price is not following because supply has been so low. And so here we're thinking it's another world in which, look, as long as supply remains contained, this is just another piece of that weaker demand part. Right. I have to ask, again, on the topic of idiosyncratic factors, but I remember we spoke to you about this the last time you were on, but baby boomers. And the idea that baby boomers own a lot of houses in some cases, multiple houses that they might be using for, additional income. What are the prospects that that supply gets freed up anytime soon? And I think

your answer to this last time was not within the next decade. But has anything changed? I mean, that's our bear case. You've hit it on the head. It is, they own roughly a third of the housing stock, not boomers in general, but people over the age of 65 hold one third of all owned homes in the United States right now, and over 50% of them bought that home before the year 2000. So you're talking about a homeowner who has seen an incredible amount of home price appreciation. They're also probably less likely to even have a mortgage attached to that home. So the whole lock-in effect that we've been discussing doesn't necessarily apply in the same way to these homeowners.

Another big difference, going back to that shadow inventory foreclosures, between 2006, 2007, and today, roughly 69 to 70% of owned homes back then had a mortgage attached to them. That's down to 61 or 62% today. And I think part of that's being driven by these older homeowners who've paid that off. So a huge chunk of the housing stock is unforeclosable under any economic environment because there is just no debt attached to it at all. Virtually unforeclosable. Virtually unforeclosable. Okay. Exactly.

And so we think that that's also contributing to the fact that foreclosures are going to remain low. Now, it's our bare case. It's not our base case because we're still seeing a trend towards aging in place. My grandfather's in his early 90s in Connecticut, and I know that he's not thinking about selling his home at any point in the near future. But they own more than enough homes to create. a supply issue, by the very definitions we just spoke about, owning their homes before 2000, for instance, that means they own the home in 2008. They watch the value plummet. If we get a

harder landing, if you start seeing unemployment rates take up, if you start seeing a little bit more weakness than we're expecting in home prices, perhaps they're going to be willing to start listing these homes at a larger clip or a faster clip than we're expecting. As you mentioned, in our base case, 10 to 15 years, it will become supply at some point. But, can really change dynamics if it becomes one to two years. So we talked about your arguments last year about the sort of frozen slash weird housing market, how that became consensus. And your base case for this year is for house prices to remain relatively flat.

What are you looking out for for the rest of the year? Like what is top of mind for you? So I'm going to come back to supply and affordability. why we've tweaked our forecasts is because of the fact that affordability, historic levels of deterioration, it's still challenged, but affordability is no longer getting worse.

In fact, over the past six months, it's improved on the margins. Supply, close to 40-year lows. It's no longer setting new historic lows every month. You mentioned that kind of people who are forced to sell, death and divorce, maybe moving for jobs, or the turnover rate, it seems like from a supply perspective, we've kind of hit that.

And so the rate of change, the direction of travel for those two metrics matter. Because of the lock and effect, we don't see supply increasing all that substantially moving forward, but we don't think you have another leg down here. We don't see affordability improving hand over fist as we move forward, but we don't see a lot of deterioration moving forward from an affordability perspective either. Those are the things that we're going to be tracking the most closely, but what does that mean? It means that from a housing activity perspective, a sales perspective, a starts perspective, we think the big legs down are behind us. We think we're kind of moving sideways

here. The year-over-year comps are going to get a lot more attractive in the second half of 2023, in particular in the fourth quarter. You're going to see some year-over-year growth. I think for the full year, existing home sales, housing starts, single-unit housing starts, are still going to be down 10 to 15%, but they're down 25% through the first five months. the year. So that's a much, a pretty significant improvement versus where we've been. Home prices, they'll stay negative year over year for a couple months. They're going to keep growing month over month. By the end of the year, we'll be flat. And the new home sales are the one statistic that we do think is going to show year over year growth simply because on a relative basis,

they're the only game in town that lock and effect keeping existing inventory off the market. All right. Well, Jim, thank you so much for coming back on odd lots. Really appreciate it. Thank you very much for having me. Thanks, Jim. That was great. So, Joe, that was really interesting. And I really enjoyed being able to catch up with Jim, given that, you know, given the call last year was pretty out of consensus and then sort of became the de facto thing. One thing I hadn't realized was that stat about housing starts, like the differentiation

between single housing versus multi. I didn't realize it was so segmented. No, that's a, I know. It's a really, it's a pretty extraordinary start. And the fact that like rents have like really slowed and yet at the same time multifamily starts continued to be setting like these like monster numbers is like kind of wild. I also just think that like the degree to which the housing market is much less frail than it was in 2008 or the last time we had a bare market.

Because obviously, and we've talked about this on a couple episodes, like unemployment would of course be a driver of more supply. but if you don't have like bad underwriting and you don't have people at the brink. And his point about how now there's a sort of like modification infrastructure, like these are like huge things working against the sort of like bare case in housing. Yeah. And I mean, I remember post-2008 the stories about how some of the mortgage servicers just didn't have enough people to go through all the paperwork and it was just a massive mess.

But now that infrastructure seems to be in place. The other thing I would say is speaking of segmental, I wonder it feels like the economy overall is just increasingly segmented between homeowners and non-homeowners. And it really is. I know he talked about affordability having increased to some degree. Yeah. But it really does feel like it's getting increasingly hard to get on that housing ladder. Totally. It's like it could be for years to come like in the year 2030 or the year 2040. Like there is still this huge divergence between.

And like millennials who had a pre-20202 mortgage and people who had a post. Yeah, seriously. And yeah, I think you're right on. Like that's like a really interesting, it moved so fast and so sharp. And some people are sitting on these, like, there's incredibly cheap loans. And some people will never see them. And that's going to weigh on people and, like, have these huge consequences that we have no idea about. Yeah.

And that refi boom that we saw post-2020, I also think the tail of it is incredibly long. in some respects and probably unappreciated because if you lock those lower housing costs in, you have them for years and years and years while others do not. And so I think that's feeding some of the frustrations as well. And to his point, like you could have mortgage rates go back down to 4%, which is far outside of anyone's base case, like not even close. And even that no longer moves the dial that much because so many people have rates on some level locked and below that is pretty wild. Yeah, it is.

All right. Shall you leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at The stalwart.

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