Promising Demographics for Near Term Home Values

[Michael Smith]

Despite a COVID created recession people are buying homes like crazy and according to housing analyst Logan Mohtashami were in the beginning of a housing boom which has been developing for the past decade.

CNBC's Josh Brown interviewed Mohtashami on his podcast where the two of them broke down the current housing market, what’s driving the boom in housing and what future outlook is. This is a brief review of what was discussed on the podcast, I highly recommend that you listen to the whole thing and follow Josh and Logan for their financial commentary.

As many of you know there is a lot of demand for single family homes and not a lot of supply. Currently total housing inventory is down 18% year over year causing a deficit in housing, leading to a forecasted 3x increase in housing starts in the third quarter compared to the second quarter of 2020.

Despite the recession potential borrowers have a very healthy loan profiles, due to increased personal savings rates (people staying home because of the pandemic) and increasing equity in their homes, home prices are up 8% from last year. The US MBA Purchase Index, which counts all mortgages applications for the purchase of a single family home in America on a weekly basis, has been over 300k every week since early June, compared to 250k last Summer.

Mohtashami cites the greatest demographics and lowest rates in history as millennials are entering their “home buying years”. In Brown’s words “..we have a bull market in 30 year olds” 🤣. I can personally attest to this myself as a 33 year old with one young son and was recently in the market for a house, and this is the same story for many of my friends.

According to Mohtashami this boom is only getting started, stating that the current activity is only replacement demand (see chart above), meaning that buyers who were priced out in the last ten plus years since 2008 are beginning to purchase homes. Although the pandemic seems to be driving people away from cities as remote work is increasing and there is a demand for larger homes which include space for offices, classrooms and gyms, Mohtashami feels that it has actually hurt the housing market more than helped it, saying that existing home sales would have been up an additional 3-400k without the pandemic.

Simply put, excellent demographics, low mortgage rates and plenty of demand for the American Dream from Millennial couples with young and growing families will continue to drive the housing market for the next 5 years. One question mark is whether or not the price of homes will outpace the growth in wages, continuing to challenge American’s ability to save for a down payment, not to mention the rising rents around the country. This was only a brief review of Brown’s 55 minute interview with Mohtashami where they discuss these topics in greater detail as well as the new home market where they had some very interesting points.