Plain English with Derek Thompson - The New Geography of Housing in America

Episode Date: July 30, 2025

Subscribe to Derek’s new Substack. In 1991, the median age of first-time homebuyers was 28. Now it’s 38, an all-time high. In 1981, the median age of all homebuyers was 36. Today, it’s 56—another all-time high. This is the hardest time for young people (defined, generously, up to 40!) to buy their first home in modern history. Derek talks about the history of how we got here and then brings on Bloomberg columnist Conor Sen to talk about the state of American housing today and how the national housing market has broken into “two Americas.” If you have questions, observations, or ideas for future episodes, email us at [e-mail]. Host: Derek Thompson Guest: Conor Sen Producer: Devon Baroldi Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey, it's Craig Horlebeck here to tell you that the NFL is back, whether you like it or not, and we are covering all the latest news, trades, rankings, and more on the Ringer Fantasy Football Show with my two co-hosts who are both named Danny. Check the Ringer Fantasy Football Show out on Spotify or on our new YouTube channel. Today, housing. Sometimes a single statistic can tell you quite a lot. In 1991, the median age of first-time homebuyers was 28 years old. Now it's 38, according to the National Association of Realtors.

That's an all-time high. In 1981, the median age of all homebuyers was 36. Today, it's 56. Another all-time high. This is not just a story of Americans generally getting older. This is a story of the housing market, generally getting more unaffordable for young Americans. Indeed, for most Americans, you could say one's 30s, had historically been a decade of owning, a home, starting a family. But now it's more common that one's 30s are instead the decade of

trying and failing and trying and failing again to buy a home. By this measure, at least, this is the hardest time for young people, here defined generously as anybody under 40, to buy their first house, condo, or apartment. In a recent essay on Substack, I explained how I see the story of how we got here. It's a nested history, a cursed, nested history of troubles. There's the 50-year story, the 20-year story, and the five-year story. The 50-year story, as I see it, is significantly about rules. The 1970s marked a turning point in the use of zoning restrictions, minimum lot sizes, and parking requirements.

Starting in the 1970s and then quickly accelerating, city planners and neighbors aggressively sought to restrict overall housing growth. Construction rates plummeted, especially in high-demand places like California and in the Northeast. If the 50-year story is about rules, the 20-year story adds in the economics of homebuilding. The Great Recession of 2007 and 8 obliterated the construction industry. Homebuilding was stuck in a depression for years. The U.S. built fewer homes per capita in the 2010s than in any decade on record.

And now if the 50-year story is about rules and the 20-year story, as I just told you, is about a business cycle, the five-year story is about the legacy of the pandemic. When COVID shut down the world, it's supercharged home buying. Suburban home prices went absolutely nuts. Consider this factoid. Between March 2020 and the summer of 2022, the Case Schiller Home Price Index increased by 42% equal to the entire home price index increase between 2003

and the beginning. of the pandemic. To put that a little bit differently, the U.S. experienced two decades worth of housing inflation in the first two years of the pandemic. As inflation got out of control in 2021, the Federal Reserve jacked up interest rates in 2022. The typical 30-year mortgage rate jumped from about 2.5, 2.7 percent in early 2021 to about 7 percent by 20 percent by 23, where it's basically bounced around for the last few years. As a result, the typical monthly mortgage payment on new loans has more than doubled. Meanwhile, you add on top of that the fact that insurance costs and tax payments on homes have also increased dramatically. On the insurance

side, this is due to a variety of factors, especially an uptick in natural disasters. We have a warmer Gulf of Mexico, Gulf of America, whatever you want to call it. We have more polar vortexes. As the warm air rising out of the south often meets the colder air coming out of the north, we have more intense storms to go along with more tornadoes, to go along with more hurricanes, and all of this is increasing the cost of ensuring the American home. So you add this all up. half a century of bad rules, a generation of insufficient building, half a decade of pandemic, inflation, interest rate, mayhem, and we're left with a situation where home prices are too high and mortgages are too expensive and insurance costs are too high and existing homeowners

don't want to move. And meanwhile, you have this very large millennial generation trying to get that foothold, that first rung on the ladder when it comes to owning their first house, starting that first family. The five-year housing crisis fits inside the 20-year housing crisis, which fits inside the 50-year housing crisis, all like some kind of cursed Russian nesting doll. So that's the history. What about the present? Today's guest is Connorsen, a columnist with Bloomberg who writes about housing and the economy. We start by talking about how the U.S. housing market today is still changing. For the last few decades, despite all the negative trends that I've just described,

one positive story, steady positive story, has been the consistent growth of certain large markets in the South, like Atlanta. But just last week, the Wall Street Journal reported that for the first time in its history, Atlanta is shrinking, plagued, it seems, by the very forces of unaffordability that have infected so much of this country. We talk about what this means, and what all the current developments in America's housing market tell us about where things are going.

I'm Derek Thompson. This is plain English. Connor Sen, welcome back to the show. Thanks, Derek. Glad to be here. I want to start with your hometown of Atlanta. The Wall Street Journal recently published this big piece about how the Atlanta market, which has only known growth for the last few decades,

is shrinking. Now, it's shrinking a very small amount, like 1,300 people. But this idea that American have been moving in the last few years to the metros of and especially the suburbs of the sunbelt stretching from the Carolinas to Georgia into the southwest. That narrative has been complicated a little bit in the last few months. And I think it really goes a long way toward explaining some important themes in today's housing market. Just starting with your hometown of Atlanta,

what's going on there? Why do you think this tide has been reversed? So I think our bread and butter historically has been to recruit businesses and talent from the Northeast and the Midwest to some extent to come here. And we sold them on cheap lands, low taxes, cheap labor. Mercedes-Benz moved their North American headquarters from New Jersey to Atlanta, I don't know, five or ten years ago. And they put their name on the football stadium. And I think the high mortgage rates and the rise in housing prices has made that move a lot less economical. If you have a house in New Jersey at a 3% mortgage rate, maybe you don't like the taxes or the politics of New Jersey, but now with where home prices are here, that move isn't very great, which is why home sales are down kind of across the country. And then for people who are looking to move, affordability has become hugely important.

And here, Atlanta just isn't as affordable as it used to be. In town, kind of where a college grad or a high-income person might want to live, that's gone up a lot in price. And the COVID-era migration had a lot to do with that. And then where there is affordable land is really 30 or 40 miles north of the metro. And if you're going to live that far out, why not move to an even smaller metro in the southeast where you don't have the traffic, you're not 30 or 40 miles from the action. And so that's where metro is like Spartanburg or Savannah or Huntsville, places like that, have become more popular.

And if you wanted to go one level deeper on what happened to Atlanta, right, why is it so much such affordable now than it was maybe a few years ago? One option could be, well, it's richer. So the price level is just increased because more wealth has moved to the area. Another reason which might resonate with what I've heard from Texas is as you've built out places like Dallas and Houston, some of the remaining land that's left to be built. has enormous minimum lot sizes. So you can only build enormous homes on enormous lots, which means there's nothing economical that you can really offer to a new buyer.

And then lastly, I suppose you have some macroeconomic stuff. Mortgage rates are really high, and so that's going to affect affordability, I suppose, just about everywhere. What are you seeing as the main drivers of why Atlanta has become less affordable than the last few years? I'd say it's sort of the...

It was sort of an arb from day one of like what we have is an airport and highways and Starbucks and things like that, and you can get that cheaper here than you can in the Northeast. But the problem is if that's all you can offer, then eventually people have bid up the land near the Starbucks, near the Costco, near the highways, near the airport. And then you haven't really invested in infrastructure, public amenities, schools, the way that other parts of the country, more richer parts the country have.

And so it's sort of like, well, if you were selling yourself on costs and just a way of life, Wadonaga is now what you were 20 years ago. So there are other metros that are basically making the pitch Atlanta made 30, 40 years ago, and can sort of out Atlanta, Atlanta. One really interesting thing that's happening right now in American housing is that if you look at the national picture, we just hit a new record for highest medium home price ever. And so you would think, all right, well, it sounds like home prices,

therefore are rising across the country. But when you break it down by region, it gets very interesting, very quickly. in the Midwest and Northeast, right? If you live in Chicago, if you live in Iowa, Connecticut, every city and metro around you is basically seeing rising home prices. If you live in the South and the West, if you live in Georgia, Texas, Florida, California,

home prices are falling in basically every metro. I think that would really surprise a lot of people because it's almost as if America is two countries right now from a housing perspective, one in which home prices are rising, another in which in the South and West, home prices now are falling, which is the total opposite of what we saw four years ago during the pandemic. What explains that?

So I think you have the sort of the two Americas you've been talking about. One America is the place where we build housing, and that's everywhere from Florida to Texas to Idaho to the Mountain West. And those places have kept building over the past few years. And that's where home builders have offered mortgage rate buy-downs. They've decreased the size of homes. They've moved farther out. They're doing what they can.

to meet the demand that's there. But then the other is because migration is down everywhere because people don't want to give up their mortgage rate, their low mortgage rate, or they don't want to buy and move states to move, say migration's down 30%. And maybe part of the business model of the Florida or Texas is we're going to get a certain number of people every year from Illinois and California and Connecticut.

And if that migration is down 30%, then your model just isn't working because you expect, almost like a college town. If freshman enrollment was down 30%, a college town would have problems. Kind of the same thing for Florida, where it's like, if people just aren't moving in general, that's going to hurt Florida. I want to slow down on this idea of existing home sales, because for the last few quarters, we've seen just absolutely pathetic levels of sales of existing homes.

And one thing that seems to be happening here is that lots of Americans who either own their home outright or still paying a mortgage that they got in like 2016 that was, I don't know, 3.3%. Now they're looking at existing mortgage rates and thinking, why in the world would I ever give up this house and have to get into a new rate that's going to eat up, you know, 2x, 3x more of my income. Can you just explain a little bit about how the existing home sale market has really berserked America's, maybe national housing picture? I'd say that was definitely the story in 2023 and four, where there just wasn't anything to buy because sellers didn't want to sell. They had those low mortgage rates you talked about.

They didn't want to move. They were thinking, I'll just wait until rates fall, and then I'll sell, then I'll move. And what we've seen in 2025 is rates are still high. But at this point, it's been three plus years since we had those ultra-low pandemic error mortgage rates. Some people are trying to sell. And that's why we've seen inventory go up in Florida and Texas and Colorado and places like that. And now the market is still dysfunctional, but now in a different way than it was over the past few years, where prices are falling to your point in a way that they weren't over the past couple years. And now it's, I think this deflationary mindset has taken in these places where if you're in Dallas, if you're looking at a $400,000 home, that's probably going to go down in price two to three percent over the next year. Why would you want to spend $400,000 and lose 2% over the next year? Why wouldn't you just wait, especially at a time when in these metros, they also still have falling rents in a lot of cases because of all the apartments that were built during the pandemic. So you have falling rents, falling home prices. It's just really not a good environment to buy when you think prices are going to fall.

And that's a very reasonable thing to believe. And I want to provide a very specific example of this, which is Florida. If you look at a map of home prices over the last year, the real outlier here is Florida. You go back to the pandemic and the Florida market was absolutely on fire. There was a new story every week about Americans leaving California and moving to Florida. Americans leaving New York and moving to Florida. Miami was hot, Jacksonville, Tampa. But right now, home prices are falling in Miami and Jacksonville and Tampa.

In Cape Coral and Punta Gorda, they're down 14 and 19%. Like that's like 2007, 2008 level, like recession level collapses. Specifically, what's the matter with Florida right now? So I think to your point, prices went up so much, mortgage rates went up so much. ones up so much. You're talking about a market that always needed migration, and you had migration on steroids during the pandemic, and that has now come crashing down to levels that are more akin to what we saw during the financial crisis in 2008. And then also home insurance prices have surged. And so you stack all those costs on, and the affordability is bad, and prices are

falling. So who would want to buy and move into that environment? Why wouldn't you want to wait until either affordability gets better, or you feel like there's some bottom in home prices? I'm speaking to you from San Diego. I'm talking at a housing conference here, and I was talking to a guy from the insurance industry saying, I'm just about to do a podcast about the housing market. What should I say about Florida? And he said, you have to talk about number one, and you clicked into this. Insurance rates have skyrocketed in large part because disasters are just getting worse and worse. Hurricane Ian caused over $100 billion worth of damage. It's the third costliest hurricane on record. And in fact, you're seeing this really around the country. I mean,

Insurance rates are rising everywhere because storms are getting more intense. We built up right to the coasts. Hurricanes are worse. Hale is worse. Tornadoes are more likely because hot golf air is meeting a higher propensity of polar vortex weather coming out of the north. So a lot more natural disasters. That was one thing he put on the table. The other thing that he mentioned, and this is interesting, I just love to hear you comment on it,

is after, do you remember the surfside condo collapse in June 2021? Right, so this big condo building in Florida that collapses. And in the aftermath, Florida passes new structural safety rules. They basically say, you need more inspections, you need more funds. You know, Rezi Club by Lance Lambert, sent a wonderful job looking at the local condo regulations that have fed into this. And as a result, the rise in regulations after that condo collapse, many of which may be wise, by the way, I'm not slandering regulations at this point, combined with the increase of frequency, and disasters and its effect on insurance payments. And then on top of that, the fact that, as you said,

the pandemic's, you know, housing or migration boom has fizzled a little bit. It's just created this, like, worst of all possible worlds for the Florida housing market. So anything else you want to add on insurance here, because it does seem to be a huge part of it. I mean, I know that insurance increases have now gone down, or they've stabilized. And you've seen it in car insurance as well, where insurance rates boomed during the pandemic. Part of it was due to inflation, a damaged car or errands damaged home. If the cost of repair has gone up, then that's going to flow through into insurance rates. And so I think that the increase in insurance rates is at least relative to what we saw over the past couple years is largely behind us. But something I've been thinking

about is like, how long will this go on for? And during the housing bust in the late 2000s, the peak to trough, if you look at sort of affordability relative to incomes, took five and a half years. We're now, say, three years since the peak in the spring of 2022. So, there's no reason this couldn't last another two or three years. And I think it will end at some point, but it's just sort of July of 2025 where we sit today. We might have to wait until sort of the latter part of 2027 to get through that boom and bust. So I'd love you to talk a little bit about how the construction companies in the South and the West are responding to markets where home prices are falling at the rate that they're falling. Because this is a little bit of, I don't say like an

an uncomfortable subject for me, but it's a place where, you know, I think a lot of folks who are yimbies, like I'm a yimby, celebrate building and celebrate when prices go down. I mean, like, in the biggest picture, we should want home prices to moderate or fall if it's a place where a lot of Americans want to live. You don't want Americans trying to move to California and home building is constrained and home prices go through the roof. I don't want to see that. But I also have to admit, like, as a YIMB who also has a mild grasp of economics, when I see condo prices in Florida falling by 20% year every year, that seems to me to be like not an unalloyed success story if it just goes on forever. Like, if you scale that across metros, it's going to create some

kind of housing recession that might put construction companies in danger of going out of business. I mean, how much can you feasibly build if your product is declining in value 20% year over year. So tell me, how are construction companies responding to a situation where, throughout this unbuilt, where Americans have been trying to move for so long, you're now seeing this wave of falling home prices? So I think everybody in the housing supply chain needs to make money to continue operating. That's sort of common sense.

And what we saw is things like lumber prices and other inputs that go into building homes, those have really corrected already. Those have now normalized. There's no more juice to squeeze out of that. Homebuilders, which had record profit margins in 2021 and 2022, when prices were booming, have now seen their profit margins come down to normal, to somewhat some normal levels. They're now squeezing suppliers, construction workers, trades, those sorts of people.

And then it's really landowners beyond that who haven't sort of taken the pain yet, but they probably have to if we're going to keep building in places like Phoenix and Atlanta and Dallas and so on. But what they're trying to do, D.R. Horton, which is, the nation's largest home builder spoke to this on their earnings call last week, they're sort of slowly moving their production away from sort of the typical high production metros in the south to these smaller metros where they're not overbuilt. Prices are more reasonable.

You can be closer to town. And buyers who are looking for affordability anywhere they can find it are happy to move to these places. And so we're seeing, again, they sort of people, metro is out at landing. Atlanta is sort of the theme for home builders now where they feel. feel like the big metros are sort of overbuilt for now, and they're trying to pivot to smaller metros where they can still be profitable. And I want to be clear, you're talking about the big metros in the south that might be mildly overbuilt for now, because one of the things I think

it's so important to keep on the table is this to America's concept that throughout the south and maybe into the west, although maybe not California, there's been a more lax regulatory environment that's made it easier for supply to meet demand. But in many places, in many large metros in the Midwest and the Northeast in particular, supply has not been elastic. It hasn't responded to demand. There's not enough housing. And that's in part why home prices are rising in the northeast and Midwest and not in the South. I want to move to making some, make some like macroeconomic observations here. Is there a way in which like, so if I'm Jerome Powell and I'm looking at overall housing inflation, what's a little bit confusing here is like there's a national number,

but the national number, as I keep reiterating, disguises the fact that the Northeast and the Southeast are two totally different markets. Is there a way in which you could say the constraints on home building in the Midwest and Northeast, which are helping to raise housing prices there, are contributing to a situation where overall residential inflation

is higher than it would otherwise be, and it's like keeping pressure on interest rates to be higher, thus making it harder for anybody to get into the market. I think a Fed chair could do that. This Fed chair is not doing that. And I think part of it is because they were very off sides on inflation in 2021 and 2022, and they feel pretty burned by that. So they're not looking to sort of, you know, makes these adjustments to sort of say, well, if you sort of think of it this way, inflation needs to be lower or is lower and interest rates need to be lower to account for that, they're not doing it that way. But to your point,

inflation in Dallas right now is less than 1%, whereas inflation in New York is more like 4%. You're talking about housing inflation here. Overall. Overall. Oh, wow. Wow. Because housing in Dallas is like a zero. And so if you put a zero for housing and do an overall inflation number, it's going to be pretty low. But in New York, housing inflation is over 4 or 5%. And so you do have this two Americas in inflation as well, which makes the job of the Fed share complicated.

And, you know, the national number is still three and a half four or two and a half three percent, which is why interest rates are where they are. But it does mask the fact that the Fed has already more than met its inflation target in these southern metros that are now seeing sort of downside housing pressures. In the open that I just recorded, I've talked a lot about how struck I am by the fact that the average age of first-time homebuyers has just shot up in the last five years. And I wonder what some of the implications are of more 20-somethings and 30-somethings who 10, 20 years ago would absolutely be homeowners now feel like they're five, ten years away from

realistically owning a home or more. One thing I could imagine is that the housing freeze that we're seeing and that we're describing, it frees up money to flow into other asset classes, like crypto, let's say, or meme stocks. Do you think it's possible that like the extremely weird market for meme stocks and meme coins in crypto is in part downstream of all the housing weirdness that we've been discussing? I definitely think that's the case. And I remember two or three years ago some people saying, well, if I never going to afford a house, I need to really take risk because, like, I'm not going to get there through my income because housing is so unaffordable. And there was the sort of initial, I don't want to say it was rational, but I kind of get it. Sort of like,

well, I need to play poker to buy a house. It's like, that's probably not going to work out for you, but sure, whatever. But then it's sort of because that mentality leads to an increase in prices for meme stocks and crypto and whatever, you then have this line goes up market in these asset classes, which further reinforces this is where to put your money, not in housing. And so I think it is a factor. And again, if you buy a house in Dallas today, you're probably going to lose money on it for the next nine months, where if you put it in crypto, maybe it'll go up.

So I get it from a, this is a sure loss. I might as well gamble in this area because maybe I'll score a big hit. I mean, I find this like such an interesting provocation. The idea that America's absolutely dreadful housing market is contributing to the crypto, meme stock, meme coin, even AI play that we're seeing in the market. Do you know of evidence that this is happening? I'm trying to think like how I would make an airtight case that this is happening. I guess it would be, it would have to be evidence that these markets are being driven by certain buyers. in their lower to mid-30s,

who in previous decades you would absolutely expect to be homeowners, but now they don't have mortgage payments at all. And so not only do they feel like desperate times call for desperate measures, but also maybe they have this little piece of savings that would otherwise go to housing,

but now is going to AI and crypto. Do we have strong evidence that this is happening, or does it just seem like a logical inference to you? I think it's a logical inference when you look at how social a lot of these, like, meme stocks or crypto is, people will post their big hits. Like, I've gotten back into baseball cards, my childhood hobby, and people will post on Instagram, like hitting their one-on-one, one-of-one show-houtani cards. People get excited, and then it's like, I want to buy baseball cards because maybe I'll have the big hit.

But also, this is sort of historical, but the late 90s, when the dot-com stocks were booming, was actually one of the more affordable times for housing in U.S. history, which is sort of surprising when you think, well, people are making all this money in tech stocks, would not be going into housing? But maybe there is sort of an either-or dynamic with risk assets where either money's flowing into housing or stocks, but not both, because you can only sort of be caught up in one mania at a time. Yeah. I mean, there's a sociological layer to this as well, which is that, you know, not to be a classic middle-aged guy here, but, you know, you invest your money in housing. You're investing in a community. You're investing in a foundation

for building a family, you put that same amount of money into crypto and meme coins. You're doing something very different. You're putting not only your attention into very different fields. You're also delaying the year at which you begin to maybe start a family. And there's so much evidence showing that, you know, coupling rates have been delayed and, you know, age of first fertility has been delayed and overall fertility is going down. I, you know, it's funny, I, I, I've been thinking about this take maybe for the substack that's like every social phenomenon is a housing phenomenon and a smartphone phenomenon.

Like I think I want to call it like the home screen hypothesis. It's like every single thing you want, are you understood why Americans are having less sex? Are you interested in why Americans are socializing less? Why they're partying less? Why they're dating less? why there's higher anxiety. You can tell a housing and or smartphone story about all of this. And I wonder if there's like, if I should probably just like pull everything together and write

like the home screen hypothesis piece. Because like it feels like it's just waiting to be written right now, especially as you've described it. And to me, a fascinating possibility is that a lot of people say, well, we can't let the Fed cut rates because how could you inflate housing when all the stuff in crypto and stocks was going on and just going to inflate everything even more? But as somebody who's, somebody who's bought a house, when you're looking to buy a house, one of the first things you do is raise a ton of cash for down payment and pay off other debt and get your finances in order to get your mortgage approved. And I wonder if the housing market were to work again and first time home buying were to pick up, if people would actually be selling their crypto and mean stocks

because it's like, oh, shoot, now I need to show that I'm a very respectable borrower who has cash for down payment. I can't be in all these other asset classes that aren't really going to get me there. That's such an interesting thought because, right, like the macro model, would absolutely say higher interest rates should be bad for meme stocks. Like, that's obvious. If interest rates are high, then you would think, well, people, that's going to crash the kind of asset classes that are most speculative. But if what you're doing is crashing the ability of young people to buy a home, then it

frees up this amount of money that's just going to go to these things. Yeah, that's really interesting. I never thought about that. I want to continue talking about some of the surprising ways in which macro policy is affecting the housing market. We talked a little about monetary policy, talked a bit about crypto. Let's talk about tariffs. So, you know, Trump is celebrating this new tariff agreement with Europe.

There are new tariffs that are going to be imposed on August 1st, rounds with many countries, Canada, Mexico. Those rates are going to go way up. how do you see the higher price levels that are likely to come from tariffs affecting the housing market? So I think so far homebuilders say that the impact has been manageable, like 1, 2%, things like that. So it's not bad for now. It's certainly a headwind. But I think it's sort of like even if tariffs were to work, you are moving production back to the U.S., probably leading to factory construction and expansion, that's taking workers out of the housing supply chain

and put it into the manufacturing supply chain. So you're sort of starving the housing sector to fund the manufacturing sector. And is a 30-year-old, does that really what they want? Do they want to work in a factory so that they can't afford a house? To me, it's sort of trying to pull the economy back to 30, 40 years ago

when I don't think young people even want that world anymore. They just want a house. And so this sort of policy is sort of nostalgia for the mid-20th century and doesn't really meet the needs of where young people are today. In the short term, I also feel like the fear that tariffs will destabilize the price level has clearly encouraged Jerome Powell to remain sticky high with his interest rates.

I mean, I believe he testified to exactly this point to Congress just a few weeks ago. He essentially said tariffs are elected to raise prices. We're interested in price stability. So one of the factors that's discouraging us from reducing interest rates is that we're a little bit worried about prices rising. I mean, just today, I think I saw the Yale Budget Lab saying that the tariffs with Europe and other countries are likely to raise the price of shoes long-term 20%

and the cost of other clothes by double digits. I mean, that's absolutely a world where I can imagine Jerome Powell's saying, I'm not thrilled about slicing interest rates in the face of likely increases in price levels. So right there, it seems conceivable to me. Tell me if you disagree with this, that the tariff threats are helping to keep mortgage rates higher because the fear that tariffs are raising prices is keeping interest rates high. Definitely.

And you've seen it in markets all year long where investors just can't get their hands around what it means for inflation for the dollar. You've had, there was the sell America hysteria during April. You have this sort of fear of debasement that's leading to a lot of concerns. in markets. And so when you have instability, especially around inflation, that's not a great environment for the Fed to cut rates, not a great environment for lenders and borrowers to know where things stand. What do you think happens in the next three years, right? Let's assume, I mean, let's assume, ha, it's Trump and tariffs. What the hell do I say? How do I finish that sentence?

Let's put it this way. Let's assume that Trump remains Trump for the next three years. We get on again, off again, delayed, reinstated, exempted, unexempted, etc. We get a lot of wiggling on tariffs, but generally we have an elevated tariff rate that's bringing in on average $15,200 billion of revenue to the federal government per year. How do you think macro policy will affect the housing market in the next few years? I think it probably slowly brings down mortgage rates. You've seen it. They're now sort of in the high sixes consistently. I think you could get to the low sixes, but probably not beneath that.

I think the really big wild card, which we haven't even talked about yet, is just how AI shakes out. If you're going to look out two, three years when you're looking at the sort of hundreds of billions of dollars of being invested in AI every year, if that were to come down, then that to me is sort of where the risk of a destabilization is going to come from more than tariff on and odd again off again. That feel, tariff on again off again and it's just more of 2025. the AI shift. Unpack that. Let's assume, let's just draw out this scenario. I have no idea what

happens with AI in the next two years. Let's say two years from now, there's a new fear for whatever reason that AI is having less of an impact on profits than initially suggested. And the Microsofts and the meta's of the world realize, oh my fucking God, we have spent so much money on these data centers. We spend so much money on these researchers. We're going to have to pull back a little bit. What would that pull back due to the housing market? So I think there are a couple ways of thinking about it. First is that interest rates could finally come down in a more sustainable way because a lot of the overheating fears are due to all these AI investments

and also the stock market being so strong. It's sort of income growth is sort of modest, but the stock market's been on an absolute tear for the past two and a half years and consumption is being held up by the top end, people going to Europe and buying premium cabin airplane tickets, still spending even as the working class has been squeezed. and if the stock market were to go down, say, 30%, because of a massive shift in AI sentiment,

that would really obliterate the balance sheets of a lot of upper-income people probably really crushed this sort of meme stock, crypto, speculative mania, but also lead in lower mortgage rates. And so that would kind of shift who could get into the housing market, but maybe also the desire to get into it.

When interest rates first went up in 2022, I remember thinking, not that this was transitory inflation, but certainly that interest rates would come down at some point this decade. And I'm talking here about like mortgage rates, the kind of interest rates that most people are interacting with.

I feel less and less certain of that. I just wonder if we're in an environment now where the 3% mortgage rate is just dead. And if it comes back, it's not going to be for another maybe 15 years, just some whole different economic regime that I can't even imagine right now. Just between high rates now, high deficit, high debt,

it's hard to imagine a world where we get back to 3% mortgage rates. When do you think it's even conceivable that we fall below, say, five or six? I remember the 2010s people saying, I don't know if we'll ever get out of this low-inflation, low-interest rate worlds, and it kind of went on for years and years and years.

And looking back, it's like, what really changed this? And I think it was the Republican Party shifting from kind of your Bush Romney people to your Trump people who just have a very different outlook on fiscal policy than the old, being the old guard. And also Democrats shifting from kind of the more neoliberal type of economic thinking to the sort of, you know, I don't know what you want to say Joe Biden was, but somewhere on the road to Elizabeth Warren, Bernie Sanders, in terms of we had big stimulus, sort of,

everything bagel liberalism, which you've written about. And we're now in a political world where the two parties just don't really care about deficits and sort of fiscal moderation the way they did in the past. So will you get, I think you would need an AI bust and or the two political parties shifting in a way to become more focused on inflation and interest rates and the deficit, maybe the way they were prior to 2016. And obviously at the moment, it's hard to see how we get there. Or a deep recession, right?

I mean, nothing's going to break interest rates faster than a deeper session. Yeah, I mean, to end where I started in the open, I just feel so much for young home buyers today. Like, there's a 50-year story of zoning and bad rules that constricted housing supply in the most popular parts of this country. There's a 20-year story of the business cycle breaking in the Great Recession and the construction industry taking forever to dig its way out of that such that home building was really, really constrained in the 2010s in particular.

And then you've got this five-year story that's like so, so much has happened to housing in the last five years. Like, there was the boom in the early pandemic years. Then there's the rise in interest rates. Then there's the surge in insurance costs. And now property taxes are going up around the country. It's just so expensive to get into this market. So I guess it's nice for young homebuyers that prices are finally moderating or even falling in the south and west. but I just can't get over, like, how many different disadvantages young homeowners are up against

in getting into housing? What's the silver lining here? Like, if someone's listening and they're 35 years old and they've been renting for a while, they either have their first kid or the thing that having their first kid and they're really desperate to get that first house, you know, what do you say to these folks about outlook and even where to look to get that house? I'd say nationwide housing inventory is now back at where it was five, six years ago. So it is increasing. It is normalizing. We're moving in the right direction on the inventory side. Outside of the northeast and Midwest, prices are falling and incomes are still rising a little bit. So that is sort of chipping away at the affordability hole we've built over the past five years.

Interest rates seem to be slowly, very slowly coming down. So I think mortgage rates should be lower a year or two years from now than they are today. It's just very, very glacial compared to the needs of a young family that might be. might need a house today. And in the Northeast and the West, it's just a lot harder to find good news there. I think you really do need kind of a shift in policy like you and Ezra have written about or some sort of just not easy to see how that's going to get fixed in the term. Yeah. Well, I know people are working on it. I know Kathy Hochwell is working on it in New York. I know that there are YMB governors that are trying to turn back 50 years of bad housing policy.

But, you know, this thing is the Titanic and the rudder is small. And it just, it takes a while. to turn the ship around. So I'm hopeful, but it really is incredibly stark, the degree to which the Northeast and Midwest are holding up national housing inflation because they just can't build a damn thing. Connorsen, thank you very much. There, great as always.