Odd Lots Podcast Summary: Jim Egan on the Mortgage Gap That's Dividing America

Podcast Information:

• Title: Odd Lots
• Host/Author: Bloomberg
• Description: Bloomberg's Joe Weisenthal and Tracy Alloway explore the most interesting topics in finance, markets, and economics. Join the conversation every Monday and Thursday.
• Episode: Jim Egan on the Mortgage Gap That's Dividing America
• Release Date: June 16, 2025

Introduction

In this episode of Odd Lots, hosts Joe Weisenthal and Jill Wiesenthal delve into the complex dynamics of the American consumer and the housing market. Despite negative sentiment indicators such as record high consumer debt and declining existing home sales, consumers continue to spend, particularly on housing. To unpack these seemingly contradictory trends, the hosts welcome Jim Egan, a housing strategist from Morgan Stanley, to provide expert insights.

Resilience of the American Consumer

Key Points:

• Contrasting Indicators: While sentiment surveys and consumer debt figures paint a grim picture, actual consumer behavior shows continued spending on significant investments like housing.
• Consumer Spending: Despite economic uncertainties, consumers remain active in the market, purchasing homes and maintaining consumption levels.

Notable Quotes:

• Joe Weisenthal [02:44]: "Consumers seem to, you know, pretty much keep doing what they've been doing for a long time, which is spending, buying houses, things like that."
• Jill Wiesenthal [02:51]: "There's clearly something going on. We haven't gotten like, big, you know, when rates shot up dramatically… but there has been this slowdown."

Insights from Jim Egan on Consumer Strength

Key Points:

• Low Unemployment: The unemployment rate stands at a historically low 4.2%, contributing to consumer stability.
• Wealth Growth: Significant wealth accumulation from rising home prices and appreciating financial assets empowers consumers to continue spending.
• Debt Service Ratios: Despite slight increases, debt service ratios remain at some of the lowest levels seen in decades, indicating overall healthy consumer balance sheets.

Notable Quotes:

• Jim Egan [06:04]: "We do a lot of work across our debt analysts in Morgan Stanley research with our economists to tie these positive macro numbers to the micro level… wealth they've been able to gain from appreciating financial assets that's contributed to consumers' ability to spend."
• Jill Wiesenthal [07:06]: "I'm anxious about the state of the economy. I own a home, have my retirement account. It seems to be doing fine. Despite my anxiety."

Emerging Pockets of Stress

Key Points:

• Delinquencies Rising: Increasing delinquencies in subprime auto loans and unsecured consumer products indicate emerging stress in specific consumer segments.
• Definition of Delinquency: A delinquent account is defined as being 30 days past due on a loan or credit obligation.
• Prime Borrowers: Recently, even prime borrowers are experiencing higher delinquency rates, signaling broader financial strain.

Notable Quotes:

• Jim Egan [08:05]: "Subprime auto delinquencies have been climbing to a point where they're higher now than they've been at any point… auto delinquencies have started climbing."
• Joe Weisenthal [07:36]: "This is exactly what I wanted to ask you because one of the things that I've been internalizing from recent years is this idea that the aggregate hides a lot of stuff happening in the tails."

Housing Market Dynamics and Inventory Trends

Key Points:

• Lock-In Effect: Homeowners with low fixed-rate mortgages are less likely to move, reducing housing inventory and maintaining their financial stability despite rising rates.
• Rising Inventory: Inventory levels have increased by nearly 20% over the past 18 months, the largest year-over-year growth since the Global Financial Crisis (GFC).
• Regional Variations: Significant inventory increases are observed in the South (Florida, Texas) and some states like Colorado and North Carolina, while the Northeast remains tight.

Notable Quotes:

• Jim Egan [11:35]: "We don't think that the consumer holistically is overlevered. There might be some pockets of pressure, but they're not in aggregate overlevered."
• Joe Weisenthal [16:50]: "We're seeing for sale inventory volumes move higher year over year. Inventory volumes are up almost 18 consecutive months now."

Wealth Effect and Consumer Behavior

Key Points:

• Equity and Financial Assets: Home equity and financial asset growth play a crucial role in sustaining consumer spending.
• Generational Wealth: Baby boomers holding significant portions of home equity contribute to market stability but also create future supply concerns as they age.
• Psychological vs. Real Wealth: The perceived wealth from financial gains translates into tangible spending power, not just psychological confidence.

Notable Quotes:

• Jim Egan [32:03]: "The growth in wealth in this cycle has been more on the financial asset side than it has been on the real estate side."
• Jill Wiesenthal [33:06]: "It's not psychological, that's just crazy. They have a 2019 or 2021 vintage mortgage… that's an extraordinary large cushion and margin."

Future Outlook and Potential Catalysts

Key Points:

• Home Price Trends: While current projections show continued but decelerating home price growth nationally, some regions may experience slight declines.
• Underbuilding: The housing market remains underbuilt, with single-unit housing starts down by 7% compared to the previous year, exacerbating supply shortages.
• Long-Term Supply Adjustments: Demographic shifts, such as aging homeowners eventually selling, are expected to gradually alleviate inventory shortages but are not immediate solutions.

Notable Quotes:

• Jim Egan [25:04]: "We do think that from a home price perspective, provides a little bit of support. We're significantly underbuilt."
• Joe Weisenthal [34:14]: "We are underbuilt and undersupplied from US housing holistically… eventually we do think that that's the supply that starts to help fix this."

Conclusion

The episode highlights the nuanced state of the American consumer and housing market. While aggregate data suggests resilience fueled by low unemployment and wealth growth, underlying tensions such as rising delinquencies and increasing housing inventories reveal a more complex picture. Regional disparities and demographic factors further contribute to the housing market's current state, indicating that while overall consumer health remains stable, specific segments may face significant challenges ahead.

Final Insights:

• Aggregates vs. Tails: The importance of examining detailed segments rather than relying solely on aggregate data is emphasized to understand the true state of the economy.
• Future Recommendations: Continued monitoring of delinquencies, inventory trends, and regional housing market movements is essential for anticipating potential shifts in consumer behavior and economic stability.

Notable Quotes for Reference:

• Jim Egan [07:36]: "We don't think that the consumer holistically is overlevered. There might be some pockets of pressure, but they're not in aggregate overlevered."
• Joe Weisenthal [33:43]: "People who have locked in a mortgage at some point in the 2010s or really nailed the timing in 2020 or 2021… just have a mortgage hedge and are winning on every front right now."
• Jill Wiesenthal [38:16]: "The number that sticks out to me is that variation between someone who bought their house in like 2016 versus someone who bought it in 2024… that is just insane."

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