Demographics Crushed The Housing Bears In 2020


My entire housing work for many years has been based on this principle. We would have the weakest housing recovery from 2008-2019. This means housing starts, new home sales, and the mortgage demand recovery would be light. Five years into the record-breaking expansion, purchase application data hit an adjusting to population all-time low when the 10-year yield rose toward 3%. However, the years 2020-2024 would have the best housing demographic patch ever recorded in history. This is the time where purchase application data would get over 300, and housing starts would finally start a year at 1,500,0000. Our demographics for housing were too old and too young to get real net demand back to over 300 on the purchase application index. However, this year, we finally got there.

Years 2020-2024 have a healthy number of replacement buyers as our most significant housing demographic patch ever recorded in history ( Ages 26-32) comes into their home-buying age. If you think of these Americans as replacement buyers, then 2020 makes a lot of sense right now. Personally, the housing bears for many years never talked about demographics coherently, and all had a bond market bubble conspiracy theory. These people are wild; we don’t have any other way to explain this kind of logic with the bond market after 40 years. I look at them as older men drunk at a bar going on their I phone typing in the word bubble.

Today purchase application data showed 33% year over year growth, creating the best year over year four week growth average of 2020. Remember, this looks out 30-90 days regarding demand. Seasonality has kicked in here but the last four weeks are showing the growth of 33%, 27%, 22%, and 22%.

From Calculated Risk:
https://www.calculatedriskblog.com/2020/08/mba-mortgage-applications-decrease-in_26.html




The U.S. housing market just needs 4,000,000 mortgage buyers a year to have a stable market because it does have 15%-20% cash buyers as a % of sales. It’s rare to have any existing home sales print under 4,000,000. This has happened only 3 times since the start of this century

– The tail end of the housing bubble crash year, right when the bad demographic patch started.

– The aftermath of the home buyer tax credit.

– One month of Covid19 induced sales.

From Advisor Perspectives:
https://www.advisorperspectives.com/dshort/updates/2020/08/21/existing-home-sales-soar-in-july



So when people tell me how are Americans buying homes with 20-30 million people unemployed. I pause to think how crazy this statement is because they simply neglected to count the 133,000,000 Americans that were always working during the worst days of the crisis.

More on this subject here:

https://www.housingwire.com/articles/are-existing-home-sales-showing-a-housing-bubble/


Be the detective, not the troll. The housing data can’t stay this hot forever. High-velocity data can move wild up and down, but in reality, we might end the year up just slightly in total existing-home sales. Yes, I just said that total existing-home sales should be positive for the year with how the trend demand data is doing, which means a lot of running around to end the year slightly higher than 5,300,000. Context is always critical to my friends.

If you want a more workable thesis on when demand can get hit, here is one that I wrote for Housing Wire yesterday.

https://www.housingwire.com/articles/what-can-cool-down-housing-demand-the-10-year-yield-above-1-94-might/


My September 1st AB economic model date is coming up soon. We have V shape economic recovery data lines in a lot of sectors now. Remember, the last four months of 2020 is going to be wild and intense. Buckle up, wash your hands, and get ready for some drama.


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.