Housing 2020 Act 4: The Bubble Boys Cry


In a wild year in housing, you might see 2 acts in a play. When the 10-year yield goes above 2.62%, we see cooling down in housing activity, and then when yields fall back down, housing picks up.

Then we have 2020, and now we are about to enter act 4!

Before this discussion, a quick look at today’s housing starts data today. For June 2020, housing starts moved up 17.3% to 1,186,000. All the drama in 2020 single-family starts is only down 1.3% year to date. 

From Census:  

Building Permits
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,241,000. This is 2.1 percent (±1.2 percent) above the revised May rate of 1,216,000 but is 2.5 percent (±1.7 percent) below the June
2019 rate of 1,273,000. Single-family authorizations in June were at a rate of 834,000; this is 11.8 percent (±2.0 percent) above the revised May figure of 746,000. Authorizations of units in buildings with five units or more were at a rate of 368,000 in June.

Housing Starts
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,186,000. This is 17.3 percent (±11.0 percent) above the revised May estimate of 1,011,000, but is 4.0 percent (±9.1 percent)* below the June 2019 rate of
1,235,000. Single-family housing starts in June were at a rate of 831,000; this is 17.2 percent (±10.0 percent) above the revised May figure of 709,000. The June rate for units in buildings with five units or more was 350,000.

As always, with me, I fall back to my core thesis for 10 years now since I started to write about housing economics. During the years 2008-2019, we would have the weakest housing recovery ever recorded in U.S. history, but years 2020-2024 is when we will hit certain housing data marks such as starting a year with 1,500,000 housing starts, which we haven’t done yet, but we should get there in years 2020-2024. This is a stark difference from everyone in America who always believed that we were under-producing homes. The demand curve for new homes sales never warranted more building; this is why 2019 housing starts were flat roughly because we created too much supply of homes when mortgage rates got to 5%. If you want to track one housing data line for the economy, it has been the same one always; the monthly supply of new homes has to be under 6.5 months with rising sales for starts to grow. Even with this pandemic, supply never broke the highs we saw when mortgage rates got back to 5%.

From Fred: 


As you can see here, we never had any major overinvestment in housing in this cycle, this was a big reason why the damage we saw in late in 2018 was contained when mortgage rates fell in 2019.

From Doug Short:

July Permits pop

On to Act 1,2,3 and the start of Act 4!

Act 1 

The start of the year started off better than anything we saw in many years. New home sales cycle highs, existing home sales cycle highs, purchase application data cycle highs, and housing starts were up almost 40% year over year in February. Yes, the U.S. economy was in an expansionary mode as all the American bears with their 2019 recession theories had failed.

2020 BC data had – Positive PMI data YoY – Positive retail sales YoY – Job openings near 7,000,000 – Positive Non-Manufacturing ISM data – Positive jobless claims data – A breakout in housing.

All documented here because we don’t give the 2019 bears a pass because their why factors didn’t create the recession; it was the virus and nothing else. This is a key for 2020 and the AB Economic Model.


Act 2 

Covid19, even though purchase application data was positive with double-digit growth all the way to March 18th, 2020. The Virus, the fear of the virus, and lockdown protocols took over the housing market as we saw double-digit year over year decline’s in the data.

Here come the housing bubble boys and their coming collapse thesis. Cute, but misguided. Out of professional curiosity, I thought let me write an article to explain what needs to happen for this crash in 2020 and beg them not to say anything until July 15th because what you want to happen can’t really happen in 2020.


Act 3 

Don’t call it a comeback, because good demographics and low mortgage rates have been here for years?

The set up for this was actually back on February 3rd for HousingWire. The chaos theory and the butterfly effect

Read carefully:

The chaos theory, the butterfly effect refers to the idea that due to the interconnectedness of all things, a small event can result in large effects on a nonlinear, dynamic system.  

The butterfly effect gets its name from the metaphor that even small swirls of air caused by the flapping of a butterfly’s wings can change the path of a tornado, even though the system is far removed in space and time from the initial event. 

In many ways, we see this theory manifest in the U.S. bond and stock market – a dynamic system that is prone to the influences of distant perturbations.

Case in point, a virus outbreak among an urban population of a distant country may lead to a lower rate of growth in the economy in 2020. But it could also lead to a lower 10-year yield and thus lower mortgage rates for the housing market.

Short term economic events can lead to a negative GDP print. Three times during this record expansion, GDP prints were negative for a quarter. This occurred twice in 2011 and once in 2014. A negative GDP, combined with these headlines, could drive rates to recent all-time lows on the 30-year fixed rate.

Now you don’t have to be a rocket scientist to know that when a virus infects a country, and the government is forced to shut down the economy, we are going into recession. However, the trick is to know how fast do we recover from this and what data lines should we track now. Also, lower mortgage rates are a good thing for housing, not a bad thing. We always had over 133,000,000 people still working and getting paid during this horrific event, and the existing home sales market just needs 4,000,000 mortgage buyers per year to keep sales stable. Also, the St. Louis Financial Stress Index got noticeably better, and hopefully, one day, the entire U.S. will realize how vital this data line is for the U.S. economy.

From Fred: 

716 STF

716 ST Modelggggg

An Update to the AB (America Is Back) Economic model.


As we can see below, even before the July 15th date, the writing was on the wall that housing was getting better. It just needed to wait for June’s data to show it. Purchase application data has had 8 straight weeks of positive year over year growth, and the last 7 have shown double digit growth.

+18%, +13%, +21%, +18%, +15%, +33%, +16%

Looks like the V for the Movie V for Vendetta.

From Calculated Risk:

HMI data this week looks like another V.

From Doug Short:

July HMI

I have been waiting for months to write my July 15th article for Housing Wire, and here it is.

It’s official: The U.S. won’t see a housing bubble crash anytime soon


Now all that is behind us its time for Act 4! 

3 things to keep an eye out for the rest of the year.

1. The purchase application data is Too Hot!

Purchase application working from an 11 year high is showing too much year over year growth at this stage, just before Covid19 hit where we only showing 10% year over year growth the final few weeks. So, don’t be surprised if the rate of growth cools down, and we don’t see 33% or 21% year over year growth data lines anymore.  The biggest thing to remember is that it has passed seasonality on this data line, and volumes fall after May.  If we see a slower rate of growth, it doesn’t really matter as much if fact I never put too much weight on purchase application data after May. All I need to see is flat to positive year over year data line trends after May to know that we kept the early gains for the year. This is what you should focus on flat to positive year over year prints. Even if it’s 1%, 7% or 15% growth is growth.

2.  Low Inventory won’t hold back a recovery in sales.

Low inventory holding sales back. (Snicker) Sales are going to rebound for existing home sales coming up. Don’t fall for this low inventory thesis, we just had the most significant sales print ever in 14 years in February of 2020 while people were pushing we have no homes to demand. When demand flows, the buyers and sellers are there, and sales grow. Don’t overthink this one. Also, we should all be rooting for negative real home price growth. We got this in 2019, and we lost in 2020 because demand was too good. Notice that the real home price growth from 2002-2005 looks nothing like what we saw from 2012-2020.

June EHS

July Real Home Price YoY

3. The Housing Bubble Boys will start their Act 2.  

Now that the bubble crash can’t happen in 2020 be prepared for significant doom and gloom on the forbearance problems for 2021. I have some excellent insight on this subject, which I will share later, but I want the bubble boys to go all out on this topic before I do another write up on this.  Just know that what we have now is nothing like what we saw from 2003-2008 in terms of debt expansion, sales level, and an overheated housing market pushed by speculators who want to make money. The financial profiles of homeowners, even those in forbearance, are much different this time around. I have always stressed that when the next recession hits, it’s going to be FHA homeowners that are the high-risk loans, and that is the case for now. More on this later with HousingWire, but for now, let the bubble home price crash crowd has their fun.


Remember one thing, always follow people who believe in math, facts, data, models, and science. The history of the world has had a war with those who believe in numbers and facts. This is part of being human, and I am watching another crazy episode of this in 2020.

Mask up folks, be smart, help this country get its economic groove back! I still believe by September First, the virus data will get better, but we need to work as a team!  Let’s send the American bears back to the abyss where they belong.

Have a safe weekend!

Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.