Another Great 'Mortgage Meltdown' in Residential (w/ Logan Mohtashami)
ASH BENNINGTON: Logan Mohtashami, senior loan officer at AMC Lending, contributor at HousingWire Housing Blogger. Welcome to Real Vision. LOGAN MOHTASHAMI: My pleasure to be here. ASH BENNINGTON: We've been trying to connect now for years. You're in Southern California. I'm here in New York. Now, through the magic of virtualization and social isolation, here we are connected having this remote interview. You've been writing about the mortgage market meltdown. Where are we right now? How did we get here? What's going on? LOGAN MOHTASHAMI: We're still in the chaotic stage right now. When March 9th came in and the 10-year yield got down to about 32 basis points and mortgage rates fell with it, the first thing that came to my mind is early payoff risk, which means that refinances would accelerate, it would cost the industry a lot of money, because if you're providing-- a good example is if you're giving $10,000 to give somebody an interest rate, you need to keep that loan on the books for at least 18 months to break even or make money. Basically, all the loans in 2019 and even 2020 were at risk of having an early payoff. That is a financial burden. Then the mortgage rates are moving so much that you had margin call risk, and these are things that aren't really familiar to the general public. You had two hits right now on the mortgage side of the equation. Then as always, whenever a recession is here and as of March 12th, you can see that was the last day we had good jobless claims data, so credit tightens up as well. You're getting hit on multiple sides. Just to add another layer, the fourth one is that the servicers are going to be at risk because of the forbearance, the forbearance was open to the public in general, and they don't really have enough capital to take that money, that much payment that they have to give to the bondholders on top of that. You have four significant factors all coming into the mortgage market in a matter of weeks. This is why we see this credit stress, this is why mortgage rates went up. That first week of March 9th , rates actually went up 1% that entire-- those five days. There's just a lot of stress right now in the mortgage market, and some of these things are going to be with us even if the economy recovers in Q4 and people go out and can walk the earth again. I still think the credit tightening is going to be here for a while. ASH BENNINGTON: Yeah, you played a bleak picture. Let's walk through those one at a time and just explain a little bit about what the context is and why it matters so much. LOGAN MOHTASHAMI: Well, first of all, the non-QM side, non-QM loans are basically loans that aren't guaranteed by the government. They're a little bit out of the box. Now, they're nothing like what we saw during the housing bubble. These aren't 80-10-10 option arm loans, loans that are going to recast on you and create a foreclosure. These are just a little bit out of the box in terms of bank statement loans, those things especially in the jumbo market are gone for the most part. It's very little. I think that market gets hit, FHA lending which below 620, which isn't that big either, the credit standards have gone up so that market for a short time is gone. That's where the credit tightening which would happen in every situation when you're going to a recession, I estimate about-- ASH BENNINGTON: Just real quick, for context, what's the percentage of total loans that are non-QM? LOGAN MOHTASHAMI: I would say that this is actually just about, say 3.7% to 4.3%. Roughly. That's basically the non-QM alone. It isn't a significant portion of the mortgage market. Some of these buyers are actually very well qualified, they just don't show income, they have to do bank statements. Some of these are what I call a rich man's loan, but that's gone. That portion of the demand is going to be out for a while. You're looking still at a 6 million total home sale market, you're looking at a couple hundred thousand homes that just aren't going to be back until credit gets better and Wall Street wants to come in and support some of these markets. That aspect is out of here and no matter what happens with the economy, until you see credit get better, this part of the housing sector just won't come back quickly. ASH BENNINGTON: It's interesting, you're talking about a percentage of the market that's less than 5%. When things like this happen, there's the swings at the margin. Does that have a potential impact, have a more significant impact on general price levels in the housing market? LOGAN MOHTASHAMI: Well, here's the interesting aspect. The first two months of the year, not only the economic data was better, housing for the first time in the cycle was breaking out so much that if we didn't have the virus, I would be writing about home price growth 8% year-over-year on a nominal basis is way too hot at this stage of the cycle. Typically, housing gets softer when the 10-year yield is above 2.62%, which is roughly 4.5% mortgage rates higher. This is a little bit different. Housing has accelerated the first two months of the year. 13-year highs in existing home sales, inventory is down year-over-year to the lowest level so this notion that there's no homes to buy twice in the cycle, cycle highs in demand with inventory at cycle lows. The housing market was doing really well. What we see now is this is not like a typical recession where demand just basically fell off because of the economy itself, people aren't going out and looking at homes, people aren't having traditional open houses. Just like all economic data, purchase application data has the ability to drop 54% plus on a year-over-year average. The first eight weeks really of the heat months, the heat months I've talked about for many years, it's the second week of January to the first week of May, we had double digit year-over-year growth every week up until March 18th. That was the last one. The last two weeks, we saw negative 11% year-over-year and negative 24% year-over-year. That's not because demand has just simply fall off or the homes are too expensive. It's just simply people aren't going out and buying homes at this time. The next 90 days, we have to look at housing data with a little bit of a grain of salt because I think sometimes we might get overly too bearish and inventory levels are just going to skyrocket. Delistings have fallen off. I think Redfin had an interesting data line where 148% year-over-year delisting because some of these sellers are just going to, hey, I'm just going to wait till this lockdown is over before I sell the house where in 2006, monthly supply was already above six months. Home sales were falling noticeably in 2006 on a year-over-year average. We're also working from a very extreme level. Here, it's not that case so it's going to be a little bit tricky looking at housing data for the next 90 days. ASH BENNINGTON: To what extent is this market regionalized, and do we see major differences or is this something that because there's a systemic transmission mechanism, we're seeing some level of homogeneity across the country? LOGAN MOHTASHAMI: It's basically California, New York, and then everything else is different. Whenever the 10-year yield increases-- in 2013 to 2014, we saw that happen. In 2018 and 2019, it's the coastal areas that get hit, pretty much everywhere else is the same. It's not like we ever had a crash in demand in this cycle for housing, but you definitely see that the coastal areas that are tied to mortgages, when mortgage rates get to even 4.5 or 4.65, even though on a historical basis, it seems very low, those sectors get hit. Now, obviously, it's not the case now. Mortgage rates are lower, but it's always the coastal areas, Seattle, Los Angeles, San Francisco, San Diego, New York, that get hit and that's because of higher mortgage rates and I think everywhere else is okay. We've seen that in the data, but also new home sales. New home sales to me is the area that gets impacted. It's the most crucial area in terms of housing to GDP because it's construction jobs, it's housing starts. What we saw in 2018 when mortgage rates got to 5% is that we saw a spike, a recessionary spike in monthly supply of new homes. That basically meant 2019 total housing starts were flat even though historically, they were still low, that is the area to always look up because that's the most important area for housing for the economy and higher mortgage rates have impacted new home sales always. Again, even new home sales were accelerating the first two months of 2020. We really have to be mindful that what happens in the next 90 days might not happen when people are able to go out and walk the earth, because demographics for housing is the best right now. A lot of my work is that this housing cycle from 2008 to 2020 would be the weakest ever recorded history because demographics were more favor for renting. Years 2020 to 2024, ages 26 to 32 are the biggest in US history. Your first time homebuyer age is 33. The existing home sale market should do fine, but we should always be mindful of the new home sale market because that is prone to drastic hits when mortgage rates are higher, because it's a very small marketplace competing against this massive existing home sale market that are cheaper homes, geographically spread out all over. The new home sale, to me, was always something we have to be mindful of for the next five, 10, 15, 20 years, because it's at a disadvantage versus the existing home sale market. ASH BENNINGTON: Logan, two questions. First of all, what's the total proportion of new home sales on a number of sales basis, and also on a dollar basis relative to existing home sales? Second, what's the macroeconomic outlook for new home sales going forward in terms of construction? LOGAN MOHTASHAMI: The best way for me to showcase this is that the existing home sales market, the last data line was showing that 5.77 million and the new home sales market, the last sales was 765,000. Now, there's always a one to six model new home sales versus the existing home sales market. One of the reasons why new home sales have really underperformed for many years is that this is a much more expensive home. We've been building bigger and bigger homes, really, since 1975 but when mortgage rates started to really perk down lower, 1996, if you look at the median square foot of a single family home where roughly we're at 2000, we got as high as 2700 during the previous expansion. ASH BENNINGTON: That's just square feet. LOGAN MOHTASHAMI: Yeah, square feet, so meaning square feet, but if you look at the size of families, they've been falling. We've been building bigger and bigger homes for the new home sales market while family sizes have gotten smaller. You can see the advantage of the existing home sales market, which if you look at housing in general, it's a $30 trillion industry. That sector always has an advantage over the new home sales sector. Going out for many decades, now, the builders have gotten the memo after 2014, I think 2014 when they had this big sales miss, and if you were looking for 20% sales growth that year, we barely finished a positive working from a very extreme bar. They're trying to provide smaller homes. I just think it's going to be difficult for them going out for decades, because they're always competing against a massive existing home sales market. Whenever you hear economists over the last few years always talk about well, we have to produce more homes, we have to produce more homes, the key is that the builders never purposely oversupply the market. They're basically always keeping in line to their supply/demand models and their profit margins. You're never going to see an oversupply of new home sales marketed and sold unless the government comes in and basically, it starts building on their own. I think that's the thing going out for many decades is that the new home sales market is always going to be at a disadvantage. Every decade that we progress on, there's just more and more existing home sales, or existing homes out there, so it's difficult for the building because that's their main competition. We're not talking about-- we produced almost 2 million housing starts in the last cycle. There's homes out there that are just cheaper, smaller, and there's more of them in any city. I think that's the difficult part that the builders have to work with because new home sales have had this weakest cycle ever recorded in history. They're just working off a lower bar. That's the advantage of new home sales market has over the existing home sales market is that underperforming for many years, you just have a low bar to work with. ASH BENNINGTON: Another thing that you watch very closely and that you do a lot of charting on is employment and employment cycle related information. What's the potential impact or the feedthrough of a decline in new home constructions? What's the outlook look like? What does it portend more globally from a macroeconomic context? LOGAN MOHTASHAMI: Well, a lack of production definitely means construction jobs go down, big ticket items go down. Now, on a historical basis, when you have an overheating housing market or housing starts above 1.5 million, you're always at risk of production coming down. Except now, we've never oversupplied the market, we're underproduction. If this recession is a few quarters, you'll see us, a production cut maybe for just a few months and then we just go back to trend because we're not working from any hits. If you actually adjust it to population, housing starts are still very low. They're not that much higher than what we see after a recession. Housing, because it's underperformed the cycle, won't get as hit as hard as let's say the car market. We've had the best five-year car sales, and now, we see 43% decline year-overyear, the car sale is more at risk than something like in the housing market because new home sales and total housing starts are still relatively low versus the population. ASH BENNINGTON: Let's talk about something you touched about a little bit earlier, which was the transmission mechanism between the 10-year rate and mortgage rates. What is the function of that transmission mechanism? How does it actually work, and what's happened here that's been different from in past cycles? LOGAN MOHTASHAMI: What I tell people right now is-- I did a Twitter live talking about a mortgage market meltdown, margin called really early, and people didn't understand, and I think for me to tell viewers that mortgage rates should be below 3% right now, if the 10-year yield is below 1%, mortgage backed securities actually get some purchasing, mortgage rates to be under 3%. If you look at the historical average of the 10-year yield from 1981 where mortgage rates were at 16%, 17%, 18% that chart has gone all the way down. Personally, for myself, recessionary yields are about 62 basis points, and negative 21 on the 10-year yield, so mortgage rates should be a lower but because of the mortgage market meltdown, whatever you want to call it, mortgage rates are still much higher than what they should be. Rule of thumb is that if the 10-year yield is below 1%, mortgage rates should be under 3%. ASH BENNINGTON: Yeah, I think a lot of people were perplexed about those two moving in the opposite direction. LOGAN MOHTASHAMI: Yeah. That's just the stress. Just because I work in the industry, I could see that within hours, that week of March 9th, there were things that were done that were similar to what I saw in 2008. I remember in 2008 in August, Wells Fargo basically printed 8% mortgage rates, their rate sheet and that's just basically saying we're out of business. We're not doing anything right now. That's some of the actions that I saw-- now, it's a much different situation this time than it was in 2008. We don't have a massive wave of defaults about to happen, home prices coming down and overleveraged credit cycle, but you can see the stress happen within hours, and that by the end of the week, by March 14th , the chaos actually started in the mortgage market. We're still dealing with it right now. One thing I always try to emphasize with everyone is that we should be very grateful that Freddie and Fannie were not taken out a conservatorship and they're publicly traded companies on their own. Because if that was the case, and we ran into this, first of all, those stocks would be pennies right now and we would have to require the government to take them back in. The one benefit of all this is that that process of taking them out of conservative did not happen. If that was the case, we'd be talking about much bigger problems and the government coming back and taking Freddie and Fannie into conservatorship. ASH BENNINGTON: I know it's an imperfect metaphor, but one of the things we often default to with new crises is comparing this to the 2008, 2009 cycle. You talked a little bit about that, in a little bit more detail in terms of the durability of the risk and downside that we saw then versus what we see now and the outlook. LOGAN MOHTASHAMI: Here's the biggest difference. From 2000-- well, I would say from 1996 to 2005, the loan quality was not great. The cash out boom really accelerated from 2003 to 2006. This cycle has the best home loan profile I've ever seen in my career in 24 years and our family's been in banking since the late 1950s. We have very high FICO scores as homeowners, there's no exotic debt structures. That's the main thing. That's the biggest difference between this cycle and the previous cycle. Your previous cycle was rotted with exotic long debt structures. That means if you had two people working, and those were loans re-casted, nobody could afford those homes. Here, we have a lot of nested equity. Nested equity means that people that bought homes from 2010 to 2017 have a lot of equity built in so they have selling equity. The stress right now goes back to traditional FHA homebuyers in 2018 to 2019 because these are 3.5% downs with upfront mortgages added to the balance. They don't have any selling equity, and especially those that got loans with FICO scores below 620, that's the stress market. That is where we could see a job loss recession actually become a legitimate foreclosure down the line. I know the government is going to do whatever it can to keep foreclosures from happening anytime soon, but that's the marketplace that you should see the stress. Outside of that, it's been a very clean housing profile in terms of the loan quality, and we are going to benefit from that demand coming from legitimate homeowners that do not need what I call non-owning capacity debt to own the house and that's the big difference between 2006 to 2008 to 2018 to 2020. ASH BENNINGTON: To engage in a little bit of a counterfactual here, it sounds like if we hadn't had this terrible virus, you would be very bullish about the US housing market. LOGAN MOHTASHAMI: You know what, for myself, I am-- all my work was based on years 2020 to 2024 housing getting better. Even for myself, the first two months of 2020, outperforming. Housing starts, up almost 40% year-over-year, purchase application at cycle highs, existing home sales, 13-year highs. It is not an overheating market. Existing home sales were at 7.26 million during the peak of the housing bubble, but it's a little bit stronger than I thought. If there was no virus, I'd be writing about well, home prices are accelerating way too fast right now. Maybe we should look to curtailing credit to stop this from accelerating because the demographics of housing, the bread and butter of the housing market in these next few years has the best demographic patch ever seen in US history in mortgage rates are low but if mortgage rates ever increased, even 4.5% to 5%, you've always seen a hit on demand. There's a fine equilibrium to work with but yeah, the first two months of the year, even for myself, surprised me. ASH BENNINGTON: You mentioned something earlier about the impact of mortgage rates on coastal regions more so than the rest of the country. Why would that be the case in New York and California, when obviously, it's the same mortgage market? Why is it so much more sensitive here and where you are than everywhere else? LOGAN MOHTASHAMI: For example, my neighborhood that I live in is in Irvine, California, 92603. Median home price is 1.2 million. Whenever you get to these coastal areas, the median sales price is much higher, which means you need bear down payments, which means that mortgage balance is stretched to a degree so that marginal homebuyer is always going to be at risk. This is something that's very odd for people because back in 2013, in May, I remember writing about, hey, listen, mortgage rates are going to go up, it's going to impact housing, people started to say no, payments are only going to go up $120. It doesn't matter. The marginal homebuyer will always be at risk when mortgage rates go up, and it's these coastal areas. We saw that, I think 2014 is a really good example. 2014, purchase applications were down 20% yearover-year on trend during the heat months. We really haven't had any negative downtrend with duration, but now, we're going to see it mostly due because people aren't going out to buy but yes, the coastal areas, just because the median sales prices is much higher than the Midwest, and even in the south, there's marginal homebuyers that simply cannot afford the house. That's where we've always seen the demand hit when the mortgage rates are higher. It doesn't mean that the entire total home sale market is going to collapse, but those areas always see the demand hit. ASH BENNINGTON: Two questions sorted together and first is what's the role of internet cash inflows in those two markets and what's the impact of international cash inflows or rather, what's the impact of the virus to the international buying now? LOGAN MOHTASHAMI: Well, this is a great question. A lot of people always thought that international cash buyers were a much bigger portion of the market in general but definitely in coastal areas, I remember here in Irvine in 2013 and 2014, there's like 80% of the new homes were being bought by the Chinese here in the city. Cash buyers is roughly 250 to 300,000 homes bought per year out of a 6 million total home sales market. That gives you a rough idea. The Chinese homebuyer has fallen last year actually to the lowest levels of the cycle. That cash buyer, but in general, cash buyers themselves have been falling during this cycle. We've had a record breaking level of cash buyers, 20% to 30% of the market in general have been cash buyers, not so much all international but you see real estate investors buying homes to rent them out or buying homes to flip them. Even recently, the cash buyers are about 16%, 17% of all the homes bought for the existing home sales market. That is extremely high still on a historical basis. If that isn't the case for the new home sales market, and that's one of the reasons why new home sales market always gets hit with higher mortgage rates because that's roughly a 90% to 93% mortgage marketplace. It's not like the existing home sales market that's benefited from 20% to 30% cash buyers. In a low interest rate environment, real estate investors are always going to be there to try to grab deals just to rent out homes, because there's always going to be a portion of the marketplace in general, demographics that are always going to be lifetime renters. They're just simply never going to be homebuyers. It'll be interesting to see how the real estate investor acts in this in the next few months. They think they can get deals where they want to put some of that cash into the marketplace, but in general, you're looking at 250 to 300,000 homes that were bought every year in the cycle from international buyers. Russians, Brazilians, Canadians were all part of that process, and definitely, we saw the Chinese, when capital controls were put in, limit their buying cycles last year, we should see that again this year. ASH BENNINGTON: While it's relatively small on a unit by unit basis, it has to have an outsized impact on a dollar basis, as I wander around here on the Upper East Side, the nicest apartments in this neighborhood are empty 50 weeks out of the year because they're bought by international buyers who come into town or just use them purely as investment vehicles. What's the impact of that? LOGAN MOHTASHAMI: The very, very high end marketplace gets impacted by that. I remember when I was helping my parents sell their house in Nellie Gale Ranch and it was a $2 million house and I see Chinese buyers coming in-- this was back in 2016, and just majority of them were Chinese looking in and looking to see if they just wanted to put cash in, so the high end marketplace, that is where you see the biggest impact with international money not coming. In areas in New York where you have-- relatively to the total marketplace, it's small, but definitely for sure, when the cash buyer is drying up, you see those areas where homes are empty. We should expect that in the future, we're not going to have 20% to 30% of all home or existing homes being bought with cash. When the cash international buyer dries up, there are certain marketplaces that you will just see the impact like this. This is why you've probably seen that in New York. We've seen that here in California, especially you can see that in Seattle, that some of those markets, some of those high end money is not there anymore. ASH BENNINGTON: You mentioned the rental market. One of the things that got really out of whack during the Great Financial Crisis and something that I think laymen could follow was in certain areas, for example, Las Vegas, the Inland Empire, you saw these ratios of the price of rental to purchase get dramatically skewed. Are we seeing anything that looks like that happening right now? LOGAN MOHTASHAMI: We're seeing some of that skewed marketplace, but I think the thing about when you look at those data lines, we saw an explosion. The best way for me to explain it, real home prices really went too hot from 2002 to 2005. You see the rent equivalence from 2002 to 2005 really take off. If you look at now, the duration is longer, the trajectory is smaller, but we still have this where the rent price to homes still not to the level to where it was during the housing bubble, you still see that gap out there. The thing about rentals is that we literally do not build enough low rental construction in our country. The rental inflation story will always be there for that marketplace and that takes income capacity away from low wage renters always and until we actually massively overbuild, and that's like which we're still never doing, we're just trying to build this marketplace for rental units as possible. That type of inflation is hurtful because relatively to their incomes, they're going to get impacted always unless you have 3D printing just build really cheap homes, the rental aspect is just going to still have that inflationary factor. ASH BENNINGTON: Logan, what's the cause of that distortion and what's its impact more broadly on the society and on the market? LOGAN MOHTASHAMI: We're always told that we need to build more homes. For the last eight years, the housing market never agreed with anyone. It just simply builds off demand. The multifamily construction, while it has had its best cycle in many, many decades, still is always going to be underbuilt because it's simply too expensive to build rental properties in coastal cities. It's cheap, in the Midwest and the South, rent is cheap but in these areas where we have a higher wages relatively to home homeowners versus rental capacity people, it's just simply, we simply do not supply the marketplace so that it's very difficult to move up in society, when that much of your liability cost is going to your shelter costs. I think that's something, after this crisis, we need to really look at how do we produce cheap rentals that the private sector and the public sector can work together because it's very difficult when people say, well, let's just increase wages. Well, okay, that helps except that landlord is going to get some of that capacity and then raise rents as well. It's a very complicated problem, because even if you raise wages on the lower end, the rent inflation is simply going to eat it because there's not enough supply there. ASH BENNINGTON: Right, and we see this especially in the New York market. This is something that's a particularly acute problem here. LOGAN MOHTASHAMI: Yeah, in Los Angeles, 50% plus of the working population are dual renters in one household. You have a lot of roommates, in a sense, just because even renting for yourself is too expensive. You have a lot of people renting rooms in homes. ASH BENNINGTON: Yeah, New York City is one of the few places where you meet people in their 30s who are doctors, lawyers, and have roommates. It's not something that's-- LOGAN MOHTASHAMI: Yes, and it's the same in Los Angeles, even in Orange County too. Home prices. I think that's where a lot of people have asked me the question, where are home prices going to go? I think one thing that home prices, real home prices were negative last year on a year-over-year basis, something not a lot of people knew about. I always thought that is bullish. I even wrote about that. The fact that real home prices on the Case Shiller Index went negative shows that we don't really have an overheating housing market. We just have an expensive one for certain household incomes. The fact that people are thinking this is a housing bubble, that home prices are going to fall 38% to 65% within a very short amount of time, I 100% disagree with that thesis because it was never an overheating demand cycle. It was never an overheating production cycle. It was never an overheating home price cycle on a real home on a year-over-year basis. When supply increases, and I think that's the thing going out for the next few months, a lot of people are taking their homes off the market because they don't want to even try to sell their homes. Because supply might stay here for a little bit longer in terms of homes are going to take longer to sell, and you're going to see increases of inventory, don't think of that as a housing bubble crash about to happen. I think that's one of the biggest mistakes I've seen in the last six or seven years, people are thinking just because nominal home prices went back to 2006 levels that we are prone to a massive decline. Really, anything that's a bubble means that it has to go back to trend. That means home prices have to go back to 1996 levels, similar to what we saw during the housing bubble crash. We don't have that overheating demand cycle, but home prices at some point, will fall. It's how do you get there with the inventory, because the biggest thing in this cycle for housing is housing tenure doubled. What I mean by housing tenure, people from 1981 to 2007 were living in their homes about five years. In this expansion, it's gone to 10 years and going up a lot longer. Why are people doing that? It goes back to one of my original theses years ago that we've been building bigger and bigger homes for decades, and family sizes have been getting smaller. That single family home of 2000 square foot or 2100 square foot is acceptable for people that that have two kids. Unless you're building a massive condo market, a lot of the homes out there are fine for people. They're just staying in their homes longer. A lot of people call it the mortgage rate lockdown thesis. This is something the housing industry has created. I 100% disagree with that thesis. They say that Americans are sitting at home with their low mortgage rates and once it goes lower, inventory is going to be released because people are going to move. I don't believe in that concept. I think people are just sitting in their homes because they don't need to move. You move because of your job. You move because you have more kids. You move because you want to go to a better school for your children, if you lost your job or divorce, but people aren't sitting there thinking, I got a 4% mortgage rate, I'm going to wait till three and a quarter and then pull the trigger. No. I think housing tenure is the story now going out for many, many decades, how long do people stay in their homes? Because if that's the case, production might not ever come back to what people want it to be. ASH BENNINGTON: You cautioned against too much focus on absolute nominal dollar values of housing, other than housing tenure, what other metrics do you look at to get a sense of where we are in the cycle and what the risk factors are going forward? LOGAN MOHTASHAMI: Two key data lines that everyone should track is mortgage purchase applications on a year-over-year basis. When we set that low in 2014, and we're not talking about the lows in 2006 and 2008, adjusting to populations, the lowest level of the mortgage purchase application had was in 2014. We've had an uptrend always intact since then, that uptrend is going to break now, we're going to see much higher year-over-year declines. After the virus is over, and people walk the earth, you always want to keep an eye on year-over-year purchase application data from basically the second week of January to the first week of May. That gives you a good idea because if that comes lower, then inventory levels should increase. Inventory levels for the existing home sale market hasn't really gone anywhere too much, except in 2014, we almost got to six months or one year. Inventory levels and purchase application data, that gives you an idea of where the demand and especially with home prices and nominal dollars, where we're going. Because purchase applications are down and inventory increases, then definitely home prices have to fall because simply it's too expensive for the market, it's going to take longer to sell a house and then going out in the future, job loss recession, how many homes are going to be on the market distress sales? That'll increase the inventory out there. We've never been able to get to six months post-1996 unless we had a job loss recession or a housing bubble crash. This is why it's difficult because people are staying in their homes longer. ASH BENNINGTON: I'm more pragmatic or individual level, if you were unfortunate enough to be someone who listed your house on March 1st , we hear all kinds of advice about this that people are saying lowering prices isn't good. Pulling it off the market isn't good. What's your advice for people who are in that unfortunate position right now? LOGAN MOHTASHAMI: Everyone has to have their own game plan of why are you trying to sell? If you're selling because you have to move up to a bigger house, then you can leave your home on the marketplace and see what happens because I know a lot of buyers are saying, hey, listen, I'm not going to get outbid here. I'm going to go into the market right now. A few home buyers, I don't know, just said it's actually refreshing that I wasn't outfitted this time. If you're concerned about price, and you don't need to sell, a lot of people have already done this, they've taken their homes off the market. They're just going to go listen, I can't have an open house. The process of buying a home has changed completely and I know everyone is doing these virtual open houses, but nothing comes close to actually having buyers come in your house and looking at the home. For those people that are concerned about price, maybe you take your home off the market, wait until lockdown protocols are taken off, give it about 30 days even. Then I would put my home in the market and that's if you're priceoriented. If you need to sell your home because you have to because you have to move, then you got to take your chances in this type of marketplace. Just know that it's just not a functioning economy as long as lockdown protocols are in place. ASH BENNINGTON: What else are you looking at right now, Logan? When you look to the future, what are you thinking about and what are you looking at for potential events that could move this market? LOGAN MOHTASHAMI: Well, first of all, the bond market will lead you-- it led us down, the 10-year yield started to break much lower before jobless claims started to take off. For me personally, the 10-year yield credit, the St. Louis Financial Stress Index was at an all-time low in February and it has gone parabolic. If you want to know when the economy, and especially for the housing market will get better, that 10-year yield should be getting above 1.33%. In fact, the 10-year yield today, though it's 75 basis points, is still too high relatively to the economic damage that we're seeing right now. The bond market is already telling you, hey, listen, Q4 is going to be better than Q2, which isn't saying much as Q2 is going to be horrific. Keep an eye on it. When the 10-year yield goes up, and yes, that means mortgage rates have gone up, that means we're starting to get the process back to where we get back to just a normal economy where people could walk the earth. The St. Louis Financial Stress Index will start to come back down, we saw this in 2008, and jobless claims as parabolic and as horrific that data line has gotten-- those three things, you want to keep an eye on them, jobless claims, the St. Louis Financial Stress Index, and if a 10-year yield heads up higher, it's a good thing. That means the bond market is looking for growth to happen again. Right now, we're still so far away for anything. I look at it from my data points is separating this economy into three different stages. The BC, before coronavirus. The AD, after the disease which we're seeing right now some of the most horrific economic data we'll ever see in our lifetimes, but there's going to be an AB stage, America's Back. For America to come back, you've got to get lockdown protocols off, you got to see the bond market, bond yields rise, you got to see credit get a lot better, high yield index, financial stress index come down, and jobless claims comes down. When that happens, believe in it, after 2008, when we saw those data lines get better, a lot of people who didn't believe in that missed out on the longest economic expansion ever recorded in history, the longest job expansion ever recorded in history. Those three things are what I'm looking for, because I think that benefits the housing market, which was looking really good the first two months of 2020. ASH BENNINGTON: Yeah, we're outside of the domain of finance and predictability here and we're into the domain of biology, which none of us are experts in. It's a bit of a frightening-- LOGAN MOHTASHAMI: It is. That's a really good point. For myself, virus modeling is just like, oh boy, this is a brand new world. For myself, I've always talked about two dates, May 18th and September 1, why? Because before we had even 1000 cases, just looking at other countries that started to do testing and lockdown protocols, I thought once we get to 27,000 cases confirmed six to eight weeks after that, our data should look better. I know in New York, some of the data lines are starting to look a lot better, but by May 18th, or even before that, the curve should get look a lot better in terms of new cases. That is the first step because I think the summer heats, June, July and August, it buys us some time to get ready for the second wave and then-- we can't have this happen over and over again. We can't have this shutting down the economy. Even if we put in six to $10 trillion disaster relief in this, it's simply we cannot function that way. We've got to use that time, that summer to prep for the fall and winter so we don't have a reoccurrence where we say, hey, everybody go back at home, because again, that is the biggest risk as we can see. Shutdown protocols are the biggest risk to any economy out there. Those summer months are really key for us to prepare for the virus coming back in the fall and winter. ASH BENNINGTON: When you mentioned governments and government responses, what are you looking at in terms of policy action from the federal government that could ameliorate or potentially dampen the recovery? LOGAN MOHTASHAMI: Send more checks out because right now, this isn't-- the economy is shut off so basically, the fact that we've enhanced unemployment benefits and we're sending checks out, it'll stabilize this and when I look at how much money is being thrown out, if you look at people who make $46,000 and less, if you take weekly unemployment benefits, the average, take about $100 off of that, then you add a $1200 check to it, they're not going to have what we call depressionary loss in wages, because they're going to get some incomes. Send checks out, help fund small businesses, because right now, the crisis is what are we going to look like in four or five months? Because some companies just aren't going to make it. No matter how much the SBA loans are, some companies are simply not going to make it. Small business, whether at 15 days on cash on hand, you lose 70%, 90% of your revenue, you're done. Whatever it takes, you throw as much money as you can to keep people as solvent as possible. Even with the $2 trillion fiscal stimulus and the 4 trillion monetary, I would be doing much more to just keep as many people solvent to get back to the AB where people start to walk the earth again. I think it's excellent to see that we just went to that route right away, but don't let up. I expect for more fiscal stimulus and more monetary operations to try to keep as many companies and people as solvent and possible until they could start working again. ASH BENNINGTON: Talking about sending checks from a slightly different angle, what's your thought about loan forbearance, mortgage forbearance, the potential impacts, the potential risks and also the potential upsides? LOGAN MOHTASHAMI: The main risks that I see right here is that they made it open-ended. When you make anything open-ended, some people might take that advantage when they don't need it, which puts stress into the service market. Hopefully, right now, the FHFA and Mark Calabria and Mnuchin and everybody's trying to think of a way to mitigate the damages because you can't just open-ended say nobody, call it nobody, mortgage payments go all the way and rent goes all the way. There's a financial aspect behind that. I think for every American, call your servicer and see what the plan is because some people don't realize that some of these plans, you got to lump your payment, after three months, you got to pay it all at once. Some of these other plans, you read every single line of what forbearance is, but if you don't need to do it, my advice is don't take it. There's no benefit for you. If you are struggling, you lost your job and you can't pay, then absolutely take advantage of the situation but if you could keep on making your mortgage payment and your rent, do so because we don't know what the implications are after that process. It's just that when we just made a basically an open-ended call that anybody can miss their mortgage payments, and there isn't an efficient process like the loan modifications that were actually terrible back after the financial crisis in 2008. You still had to qualify for it, you still have to show stress. In some cases, you don't even have to do that. Just be mindful, nothing is really free. If you're definitely stressed, if you definitely lost your job, you definitely have even if one dual household income, if one of your spouse lost income, you definitely want to look into that and see the best benefits but make sure to read everything first. I think there's this notion that it's just basically free, and when they will take back to the loaner, it's not that simple for every servicer. ASH BENNINGTON: Logan, if you have a few more minutes to join us, we'd like to ask you some questions called the intersection. They're a little bit more personal questions about the way you view the world. Logan, is there one person living or dead who you'd want to interview and if so, why? LOGAN MOHTASHAMI: Genghis Khan. Because when you look at-- my degree was actually history. If you look at one person that infected the world in terms of velocity as horrific as Genghis Khan and the style of his leadership, it'd really be interesting to see what he was like personally, because the models were historic in every way imaginable when you look at the history of data. It would be interesting to see what he was like personally, because you have to be just a very unique person to do that damage around the world. ASH BENNINGTON: Anyone living? LOGAN MOHTASHAMI: Personally, this is just for me because it was always Magic Johnson. I was a basketball player growing up, I was a high school basketball coach before I got into finance. He was such an integral part of my life, just because of his leadership skills. It was a real turning point when I followed Magic and realize what it meant to be a leader and what it meant to always be positive for the people around you. Because when you take that role, and it would just be wonderful just sitting down and chatting with him and just going over all of the stuff that he's gone through on the basketball front and the personal front. ASH BENNINGTON: Are there any books that have changed your outlook on the world, the way that you see your profession and the way that you see things more broadly? LOGAN MOHTASHAMI: No. There's not any books. Honestly, I am such a chart guy that the way my mind works is that numbers are more valuable to me than reading words. Numbers are, and I believe this, numbers of the closest thing we have to the handwriting of God. Looking at data in itself is more impactful for me than any book because it tells me the story in a more proficient way where a human being can interpret history or an event with their own bias, so charts of course. ASH BENNINGTON: That's a great answer. Talking of breakthroughs, are there any key successes or experiences in your life that you think of as a tipping point in your career? LOGAN MOHTASHAMI: Really, for me, was being a high school basketball coach at age 18. I was like an old soul but general leader anyway, and when you get to have a leadership role at such a young age, and I was like the baby of my high school class too, so I'm literally coaching kids that I'm not too much older on, you learn the aspect of what it means to be a leader and how you need to always 24/7 show that class, show that positive attitude, avoid negativity and the dark aspects of humanity. At age 18, and I only did it for five years, having people look up to you, that were young kids and then you see them grow up, you realize that every single day, you need to have that mindset with yourself. Coaching high school basketball at such a young age taught me that because what you teach kids or what you tell people, it's going to follow you for the rest of your life. Now, a lot of my kids are grown up and they have kids of their own and just to having them conversing, oh God, you're always so positive. I always remember when you always made us try to work hard and be your best, that to me was the tipping point because I learned it at a very young age and use that throughout the rest of your life. ASH BENNINGTON: Conversely, have you had any key failures that really made you reappraise or reevaluate your life that set you on a different trajectory? LOGAN MOHTASHAMI: Yes. The financial crisis, faith in humanity can be blinding. Back then, just seeing the greed and what was going on, and not doing enough to try to spread the word was my failure back then, and we didn't have-- I wasn't even in the financial blogging but I learned from that to always make sure that-- humans are greedy always and no matter what it is, the history of humanity have shown us that when money is involved and speculation evolves, societies can go to that very quickly. One of the reasons I wanted to write, be a financial blogger, was to make sure that lending never eases ever again. In fact, I've always take that stance in Britain, many articles I wrote throughout the last 10 years that tight lending is a prepper tales of myth. There's nothing-- we have no tight lending in America, we are actually still, even today, at very liberal lending standards, because if you facilitate debt and speculation and money, it could turn a society apart like this. That's what the history of the world has shown us that when money is involved and speculation evolves, people jump in, and always, the failure of not reading that in terms of getting out there and trying to explain that this is not a good thing haunts me to this day. That is why for the rest of my life, I'm always going to focus on making sure that lending is adequate and safe, and to go against any single person that tries to facilitate debt speculation for housing, because that is something that is so impactful for any economy and for any household. ASH BENNINGTON: Finally, what belief do you hold that is the most controversial opinion in your professional life? LOGAN MOHTASHAMI: That the US economy is the most prolific economy in the history of the world, and that a lot of these takes on the US economy are more ideological based. If you look at the history of data, you look at the history of demographics, inflation, everything the US economy has been able to do, such wonderful things. Because the world has made so much progress in the last 200 years, that if you look at the history of the world in how bad things used to be, how hard things used to be in the days, the US economy, just generally the progress the world has made, it's been a miracle, especially in the last 200 years. I, myself, is always to go after the extreme right and left and say, hey, listen, things used to be a lot worse 100, 200 years ago. Let's put things in perspective, and I always get attacked on that front. I expect that to be the case to the very last day I live. ASH BENNINGTON: That's a great note to end on. Thanks for joining us. JUSTINE: If you're ready to go beyond the interview, make sure you visit realvision.com where you can try real vision plus for 30 days for just $1. We'll see you next time right here on real vision.