A few weeks ago, I had a live debate with Mohannad Aama, the Managing director of Bean Capital, on the topic of is the current savagely unhealthy housing market in a housing bubble. Here is a full version of the debate.
I have written about this topic often; however, for those who aren’t familiar with my work. In the previous expansion, I had a very long economic tail call that we would have the weakest housing recovery ever from 2008-2019, but the years 2020-2024 would be different; we would have good replacement buyer demographic demand during this period. This was a big reason I believed in my America is back recovery model written on April 7th, 2020 https://loganmohtashami.com/2020/12/09/america-is-back-the-final-economic-update/. The risk in this period is if inventory levels break to all-time lows, home prices can overheat.
The housing market was fundamentally in a much different spot than the housing bubble years of 2002-2005, and demographics were different, as I talk about here in 2020 https://loganmohtashami.com/2020/08/26/demographics-crushed-the-housing-bears-in-2020/. I did write about the housing bubble topic in detail in 2019, proving my thesis that demand never warranted the housing bubble talk from 2012-2019. https://loganmohtashami.com/2019/07/07/housing-bubble-2019/.
I also talked about how the Homeownership rate should reach 66.21% by 2022 in 2019. Currently, we are currently at 66% https://loganmohtashami.com/2019/04/25/the-state-of-homeownership-in-america/.
However, home prices have now gone gangbusters, not because of recorded breaking demand. As we can see below, the credit boom market of 2002-2005 never happened once during the one-year growth period of 2020. Yes, purchase apps in 2021 never got back to the 2020 highs.
Housing broke out before Covid19 hit us; people forgot about this because we got the data in March 2020, when we were dealing with Covid19.
Americans had to bid against each other because, for the first time since I have written about housing, we had an authentic housing inventory shortage, something that I never believed in with the previous expansion. The average inventory since 1982 has been between 2,000,000 to 2.5 million. I am happy with just 1.52-1.93 million; the 2018/2019 housing market was perfectly functional. However, once we broke below 1.52 million and stayed there since Covid19 started, the days on the market collapsed, which isn’t suitable for the housing market.
As you can read above, this period, 2020-2024, means something different to me than others. I believed housing would be ok if prices only grew at 23% over these five years, well that didn’t happen; in two years, my price growth model broke, and even in 2022, my price growth forecast, which had a significant deceleration in price growth due to my affordability model, didn’t even get hit as my price growth forecast for the entire year of 5.2%-6.7% was too low.
This was also based on my summer 2020 premise that the housing market can change if the 10-year yield can break over 1.94%. Well, prices have escalated a lot since the summer of 2020. Even with 7% mortgage rates my price growth forecast was too low in 2022.
As you can imagine, not a big fan of this price growth. It got so bad this year in February that I coined the phrase Savagely Unhealthy and was explaining why we needed higher rates to cool things down, something I mentioned about even back in February of 2021
With all that said above, I hope you enjoy the debate because I sure did and people should show Mr. Amama the respect he deserves for coming on air and having a valid premise for a housing bubble crash.
“We have always held to the hope, the belief, the conviction that there is a better life, a better world, beyond the horizon.” Franklin D. Roosevelt
Logan Mohtashami is a Lead Analyst for Housing Wire, a financial writer, and a blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, spends his days and nights looking at charts and nothing else