Jim Egan on the Mortgage Gap That's Dividing America

Summary

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

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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.

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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."

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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."

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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."

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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."

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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."

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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."

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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.

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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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For more insights and detailed discussions, visit Bloomberg's Odd Lots or follow their Discord community.

Transcript

[Jill Wiesenthal]

This is an iHeart podcast.

[Mark Reape]

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[Jill Wiesenthal]

News.

[Joe Weisenthal]

Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

[Jill Wiesenthal]

And I'm Jill Wiesenthal.

[Joe Weisenthal]

Joe, there's been this very long running now it feels conversation about the health of the American consumer. Yes, you've seen all that commentary, right? So you see these headlines that are like consumer debt at a record high. And you see some of the sentiment surveys which have for the past two years been coming in pretty bad. They started to look kind of bad when all the tariffs were announced again. They've improved a bit since then. And yet 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]

Well, they're spending for sure. But this is the thing. There's all this dismal sentiment data everywhere you look. And yet, by and large, you know, you read like CEOs, you look at the retail data, et cetera. It's not like that. Terrible. Companies seem to be doing fine. But there are pockets of the economy clearly that are softening. There is rising inventory of homes. This is like one of the huge stories in the economy. So there are clear areas where high rates and stuff are having an effect. But to your point, like, it has not been some sort of linear story of people are depressed and the economy is falling.

[Joe Weisenthal]

But you're right, we have seen some signs of softening. And so, you know, we have to ask, is it, is it going to be different this time? Is it the start of some sort of real deterioration in the health of the US Consumer? I have also seen some very interesting stats recently, specifically about consumer lending and mortgages and things like that. I've seen, for instance, that existing home sales are down 1.9% year to date and have recorded the lowest volumes by count at this point in the year since 2009. And when you hear those, you know, since 2009 dates, you start to get a little worried. Right?

[Jill Wiesenthal]

This is definitely the case. I saw something. I think it was from Redfin. They said there was a record gap between sellers and buyers in the housing market right now. Look, this is one area where the high rates environment, like, there's clearly something going on. We haven't gotten like, big, you know, when rates shot up in like, 20, late 2021 or what, whenever that was. Do you know what, by the way? 20. This occurred to me last night. 2021 is kind of a long time ago now. Like, no, I was thinking about this last night because it's sort of a cliche to point out that the pandemic, 2020, was a long time ago. But some of those really piv, where we got the surge of the rate hikes, we got the surge in inflation, even that's starting to fade into history a little bit. I don't know, maybe just last night I was thinking about getting old and.

[Joe Weisenthal]

Joe, time is a flat circle. That's all I'm going to say.

[Jill Wiesenthal]

But there's something like, you know, house prices didn't fall off a cliff when rates hiked dramatically, which was a surprise to some. Like, some people thought, okay, they're hiking rates dramatically. The housing market is going to be affected. The housing market is the US Economy. Therefore, the US Economy will fall off a glass that did not happen. But there has been this slowdown. And lately we've been seeing like, okay, like, rates are still high. Even with talk of rate cuts, et cetera, they're still high. And there's clearly this sort of accumulation of household inventory, these imbalances that are emerging. I don't know, maybe we will get price declines. What's going to happen?

[Joe Weisenthal]

Well, I'm glad you brought that up, because we actually do have the perfect guest. We're going to be speaking with someone who was very, very correct in calling that we wouldn't see a massive house price.

[Jill Wiesenthal]

I thought he was wrong. I didn't say it at the time, but he came on the podcast like, we're not going to see. And I was like, there's no way. I'm glad I didn't say, this is why I never get anything wrong, because.

[Joe Weisenthal]

I don't state predictions because you don't have opinions.

[Jill Wiesenthal]

But as a matter of professional accountability, when we were interviewing him, in my head, I was skeptical.

[Joe Weisenthal]

All right, well, that's a big mea cumblo from Joe. Okay, without further ado, then, we are going to be speaking with Morgan Stanley housing strategist Jim Egan. He's been on the show quite a few times before, and here's where I produce my disclaimer, which is that stat that I just quoted about existing home sales actually came from one of his recent notes. So, Jim, welcome back to the show.

[Jim Egan]

Thank you so much for having me back. It's an honor to be here.

[Joe Weisenthal]

I'm going to start, actually. I'm going to go back in time for a second. Let's just start. Why has the American consumer been so resilient? And it's kind of funny because you see people even talking about it still. So we just had corporate earnings and there was this funny comment from the Amex CEO where he basically said, our card members say they don't have any confidence in the economy, but they keep spending. Which is pretty funny to me. But why the strength?

[Jim Egan]

Yeah, so I think there are a number of different things driving the underlying strength in the consumer. We do a lot of work across our debt analysts in Morgan Stanley research with our economists to kind of try to tie these positive macro numbers to some of the things we're seeing on a more micro level. And look, the unemployment rate, we're at 4.2%, very low unemployment rate. It's been low for a few years now. And on top of that, you've had an incredible amount of wealth growth. There's been volatility in markets recently. But whether it's home prices at record highs and the record amount of equity that homeowners and 65% of Americans are homeowners, the equity that they have in their home or the wealth they've been able to gain from appreciating financial assets that's contributed to consumers ability to spend.

[Jill Wiesenthal]

This tracks completely with me because I'm anxious about the state of the economy. I read all the headlines like everyone else, but you know, like I owned a home, I bought a home, I have my retirement account. It seems to be doing fine. Despite my anxiety. I don't think I'm like changing my behavior in any way.

[Jim Egan]

And I think another piece to that, when we think about just the consumer balance sheet, one of the statistics that gets quoted all the time is the just debt service ratios. The debt service to income, it's above where it was in 2021, but it's still at some of the lowest levels we've seen in the past couple decades. The capital C consumer, the holistic balance sheet of the consumer, the. That still looks healthy. We don't think that the consumer holistically is over levered. There might be some pockets of pressure, but we don't think they're in aggregate over levered.

[Joe Weisenthal]

Yeah. So this is exactly what I wanted to ask you because one of the things that I've been sort of internalizing from recent years is this idea that the aggregate hides a lot of stuff happening in the tails. Right. And the question I guess is always when the tails start getting fat enough that they start affecting the whole. And this is one reason why your recent research really caught my interest and I actually wrote it up in the odd lots newslet. But you are starting to see some pockets of strain. Describe what you're examining right now.

[Jim Egan]

Yes. So thank you for writing that up. Visibility was very much no, thank you.

[Joe Weisenthal]

For producing it honestly.

[Jim Egan]

And I think what we're seeing, and this is something as part of my role at Morgan Stanley, I work on the teams that look at auto credit within asset backed securities, credit cards, all of those other consumer products. And one of the, I'll call it apparent contradictions that we were seeing was the macro consumer data that we were just discussing. Incredibly healthy consumer keeps spending. And then we're seeing delinquencies climb, delinquencies climbing. With the unemployment rate as low as it was, that was something that we had been asked to explain a fair amount of times. We're trying to find better data to explain. And so the impetus behind that report was to kind of say, look, subprime auto delinquencies have been climbing to a point where they're higher now than they've been at any point. I mean some metrics, they're above where they were in 2008, 2009 at their prior peaks. Now there are some apples to apples issues there, but you'll see those numbers prime. Auto delinquencies have started climbing. Unsecured consumer delinquencies are up. They're not at local highs, but they're up. And so from a pockets perspective, we are seeing a little bit of those delinquencies climb.

[Joe Weisenthal]

I just want to explain the terms really quickly, but what's the official definition of delinquency?

[Jim Egan]

So delinquency, as we're talking about it here is somebody who is 30 days past due on their loan. So we'll either talk about it in terms of 30 days or sometimes 60 plus days, but you've missed at least one or two payments on a debt instrument. Whether that's an auto loan, we'll look at it for mortgages, credit cards and so on and so forth.

[Jill Wiesenthal]

So this is really important though, because in the aggregate things are mostly fine. But we're seeing this rise across different categories, which is not entirely intuitive. What you're saying is that there are these tails, there are these sources of stress, but that they're not a function of credit worthiness. What are they a function of?

[Jim Egan]

Might not be a function of aggregate credit worthiness. And that's when it comes into looking at these statistics that we need to use to think about just kind of broadly how the economy, how the consumer is going to move forward. But I mentioned debt service ratios. When we think about what's brought debt service ratios down to kind of some of the lowest levels we've seen in decades, the mortgage market plays a big role. The largest piece of debt on any household balance sheet that owns a home is almost certainly going to be that mortgage. And the lock in effect that we've heard in the housing market, that's a function of the fact that a majority, an overwhelming majority of mortgage debt in this country, 30 year fixed rate mortgages, most of those borrowers were able to take out that mortgage at historically low rates in 2020, 2021. The effective rate on the outstanding right now, 4% prevailing mortgage rates, 6.8, 6.9% as we're in this studio today. So when you think about two thirds of the country are homeowners, their effective rates at 4% are dragging down that payment. Only 60% of homeowners even have a mortgage. So 40% own their home free and clear of any debt they're not contributing to the numerator. If you and the 35% of households that are renters, rents don't count as debt service in these equations. They're contributing to the denominator in terms of the income piece of this calculation. But they're not adding to the service piece. Right. And, or the debt service piece. And so that's all helping to drag this down and potentially missing a few pockets of specific borrowers that are under a lot more pressure than those aggregate numbers would suggest.

[Jill Wiesenthal]

Just to be clear. So is the story that the stress is building basically among the unfortunate people who have a mortgage but don't have a Zerbiro mortgage.

[Jim Egan]

I think when we started to see delinquencies climb, and this is two to three years ago, we started to see it subprime borrowers. And those tend to be borrowers who in this post GFC, past 15 years, lending standards have been tighter, more likely to be renters. We're not capturing rent.

[Jill Wiesenthal]

I see.

[Jim Egan]

And so their payments are getting tougher. But then to your point now, over the past 12 to 18 months now prime delinquencies are moving higher. These are households that are much more likely to be homeowners. And what we think we're seeing there is exactly the dynamic you're talking about. Right. If you bought a home prior to 2021, let's say you bought in 2016, median priced home, 20% down prevailing mortgage rates at the time. That was a 30 year fixed rate mortgage. Most homeowners who bought at that time refinanced at record lows in 2020, 2021. And if we just assume that their incomes have been growing along the levels that median household incomes have been growing for the past nine to 10 years, their monthly payment as a share of their income is 8 to 9% today. Anybody who bought before 2021, that median household, we think that payment is probably below 12%. If you bought in the past three years as rates moved materially higher, your monthly payment as a percentage of your income, median household probably 24 to 26%.

[Jill Wiesenthal]

This is like the most important state in the world.

[Joe Weisenthal]

Yeah. This is like you have the haves and have nots of renters versus homeowners, but you also have the have and have nots in homeowners themselves.

[Jim Egan]

Yes. And so we think that the Joint center for Housing Studies at Harvard, right, they have some great statistics on affordability and they will qualify 30% of your income as the threshold for are you cost burdened on shelter? So 24 to 26%. We're not saying that those homeowners are cost burdened, but they're spending two to three times more of their monthly paycheck on that mortgage than somebody who was fortunate enough to buy prior to 2021. Which you'd think has to be crowding out something. And maybe that's. It hasn't been spending. That's clearly been the case from the data that we talked about earlier. But maybe it's these marginal payments on other debt service.

[Mark Reape]

This episode is brought to you by Charles Schwab when is the right time to sell a stock? How do you protect against inflation? Are you taking the right risks with your portfolio? Financial decisions can be tricky, and often your own cognitive and emotional biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help join host Mark Reape as he offers practical solutions to help overcome the cognitive and emotional biases that may affect your investing decisions. [e-mail] FinancialDecoder in business, they say you.

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[Joe Weisenthal]

So one of the results of having a lot of people locked into mortgage rates that maybe they got before everything went up by Quite a lot is the lock in effect and the idea that people don't want to move houses because they'd have to get a new mortgage and then they would end up potentially being cost burdened. And I'm curious if we're still seeing an impact from that particular or as much of an impact from that particular dynamic, or are we at the point now where people are thinking like, well, maybe mortgage rates aren't going down anytime soon and so I'm just going to bite the bullet and do something new.

[Jim Egan]

So if I were to take a 10,000 foot view and answer your question, the lock in effect is clearly still playing a role. Right. If we look at overall inventory levels as a share of the outstanding housing market, the chart still looks like there is a typo given how low inventories are. But I can't sit here like I have been able to in the past and say we're at historically low inventories. Right. We are starting to see to the point that you're making. We are starting to see for sale inventory volumes move higher year over year. Inventory volumes are up almost, almost 18 consecutive months now. Almost a year and a half. They're up almost 20% from those lows. And while that's still below where we were in the fourth quarter of 2019, below where we were when rates picked up massively and inventories kind of retrenched, that's still a pretty healthy increase. We're starting to see a little bit more supply come on the market here. Despite the fact that the lock in effect remains 250%.

[Jill Wiesenthal]

Who's selling? Is it just eventually, like what is the source of the inventory? Is it that people who have needed to sell for a while are finally capitulating? And you know what? I finally gotta sell this house. Is it that there are some marginal buyers who have dropped out because they've been waiting, I don't know, like what is the source of this inventory? And this is the longest inventory growth since the gfc, Right.

[Jim Egan]

It's the highest percentage change. When I look at year over year growth, what we just saw with the most recent data that came in, it's now the biggest. It's been on a year over year basis since the gfc. It's also the second largest it's been in the history of the data, which goes back to the early 1980s. What streak a year over year growth?

[Jill Wiesenthal]

Oh, okay.

[Jim Egan]

Like just in terms of how much we're up now, the question as to who is selling, I'd argue probably one of the more Important questions in the housing market right now. So it's a question we're trying to answer, but it's one that's a little bit more difficult to answer. We can identify at this point where the inventory is picking up more. Right. You look in states like Florida has some of the steepest increases. Texas has had some pretty steep increases. And we get a lot of questions. For instance, in Florida, cost of insurance increasing, are the ancillary costs of homeownership, Is that forcing inventory? We don't know if that's the case. We can't empirically prove that right now. But I think you combine that with 2021 was a long time ago.

[Jill Wiesenthal]

Yeah. This was my realization last night that actually 2021 was not yesterday.

[Jim Egan]

Yes. And these people have been the lock in effect has had people stuck in their homes in a lot of instances for probably longer than they wanted to be. Growing families, both in terms of number of children as well as larger children, just growing needs for more space, for lack of a better word. If those dreams have been delayed, maybe the realization that rates might not come down all that much, maybe it's time to do that. And home prices are up 50% since March of 2020. Like over the past five years, you have a 50% growth in home prices.

[Jill Wiesenthal]

That's insane.

[Jim Egan]

Perhaps those homeowners with that equity might be just a little marginally more willing.

[Jill Wiesenthal]

To list the economics, make a little bit more sense. Yeah, this is right. Yeah.

[Joe Weisenthal]

Wait, can you talk a little bit more? Since we're all about digging into the aggregate and finding the different tails here, can you talk a little bit more about the different pockets and geographical differences between what you're seeing in supply and home prices?

[Jim Egan]

Yes. So we've been trying to figure out what are the most. Because we talk about home prices nationally, the housing market is so hyper local that those national numbers are helpful, but they don't describe the dynamics that are going on at the ground level at any individual place in the country. Right. And so when we look at the growth in inventory, looking at it year over year, looking at it since the fourth quarter of 2019, before the pandemic started, you're seeing the sharpest increases in the South. Right. Like you've seen it in Florida, you've seen it in Texas. A couple states that show up a little bit more on the year over year numbers are Colorado, North Carolina. When we look at the implications from a home price perspective, what we've seen to be more at least statistically significant for now are places where either those inventory levels are higher, highest compared to the fourth quarter of 2019, which you have New Orleans. 11 of the top 14 MSAs from that perspective are in Florida or Texas. And that's where you're seeing softer year over year home price growth or in some instances where you are actually seeing prices come down on a year over year basis. The other side of that coin is the Northeast. It's New York, it's New England, it's the northern Midwest. Those are places where inventories are still falling. Inventories are far shy of where they were in the fourth quarter of 2019. And to put all of these percentages into context, nationally inventories are down, I believe it's 28% from the fourth quarter of 2019. So to talk about places where inventories are actually up relative to 4Q 2019, that is an outlier relative to national numbers.

[Jill Wiesenthal]

This conversation wasn't on the record, but I'm going to quote him anyway. I was talking to my friend Connor Seng. He writes for Bloomberg Opinion. Hopefully he doesn't mind me quoting him. We were talking about this phenomenon of the fact that inventories are very tight in the Northeast and one of the things that he said was that and again, I don't think he told this to me for publication, but maybe he's written about it. So I'm just going to take a risk that it's okay to quote him from a chat that I had with him. But I want to give him credit but that there's this natural long standing migratory pattern in the US of people moving essentially to the Sunbelt from the northern. And that the way he characterized it to me is like imagine a university town in which suddenly for a few years no one moves out of the town after graduation, how inventories would rapidly diminish and that because of the lock in the mortgage, lock in you're not getting the same sort of migration out of the cold areas to the southern areas. And so people are stuck in the cold areas basically. And that is does that resonate as a reason for why vacancy rates would be very low or inventory rates in the Northeast would be very low right now?

[Jim Egan]

So from the data that we've looked at his comment around the migratory patterns, they didn't start in Covid when people moved to the Southeast. They were happening before that. That makes sense to me. I don't have the specific numbers to completely agree with that as a research analyst on air, but what I can say as well, which could be contributing to that we've talked demographics in the past. And one of the underlying trends in the housing market has been the fact that we're now at a place where one out of every three homes over 33% of the housing market is owned by people over the age of 65. And when you look at where, yes, there's Florida and there's Arizona and there's South Carolina, but when you look at where they're more concentrated as a percentage of the housing stock, in particular, it's in the Northeast, it's in New York, it's in New England. And we've rerun this analysis post the pandemic, their tendency to age in place has continued to get more and more prevalent. So I think you combine some of these trends and this is what you're left with.

[Joe Weisenthal]

Yeah, the Northeast is nice. I'm just gonna put that out there. Nothing wrong with the Northeast. Okay. So we're talking about an increase in delinquencies, a slight pickup even in prime borrowers. But we're not seeing foreclosures yet. And I think that's an important differentiator. But what would you expect to be a sort of catalyst, I guess, for, for things getting worse. And since we keep bringing up the great financial crisis in this conversation, I mean back then people were too indebted, too over levered, and when house prices started to fall, they couldn't keep up and everything basically collapsed. But to your point earlier, we don't really have that level of indebtedness anymore. So what's the catalyst?

[Jim Egan]

Right. So I think there are a few things going on. Another piece to the different levels of leverage today versus back then was the fact of the types of leverage we were giving borrowers. According to data from, I believe it's the FHFA, 92 and a half percent of mortgage balances in the country right now are fixed rate. Most of those are 30 year fixed rate back 2005, 2006 option ARM era and all of that adjustable rate mortgages. And not just adjustable rates, short reset arms with teaser rates, option ARM mortgages that could negatively amortize so the balance of your mortgage could get bigger over the first couple of years of that product. Those were payments that as we hit kind of an economic hiccup, unemployment rate picks up, money becomes a little bit more tight, and then your mortgage payment ratchets higher. That makes it even more difficult for you to make that monthly payment. We don't have that this time. Not only that, the homeownership rate back Then was over 69% today, I believe it's 65.1 as we walk in here. 4 percentage points does not sound huge given how big the United States is. From a household perspective, that means that we have 4 to 5 million fewer homeowners than we would have if the homeownership rate was over 69%. So your marginal homeowner is a lot cleaner from that perspective. They're not necessarily going to see, certainly not going to see that changing mortgage payment that's going to drive things there. And because of our experience 17 years ago, now mortgage servicers have a much more varied toolkit at their disposal to prevent, we'll call them foreclosure mitigation options, modifications and the like.

[Joe Weisenthal]

Loan workouts basically.

[Jim Egan]

So it's difficult for us to foresee a place where mortgage foreclosures pick up too significantly in the forecast horizon.

[Jill Wiesenthal]

Could we see national home price declines?

[Jim Egan]

We could. We're talking about inventory increasing. Demand has not increased alongside inventory, affordability is still very, very challenged. And we mentioned 1.9% decrease year to date from an existing home sales perspective as supply increases and demand stays flat. Sometimes it's just as simple as looking at the supply and demand piece. We've started to see home price appreciation decelerate 4.1 to 3.4% just over the past two months. 25%. A quarter of the largest hundred MSAs in the country are already seeing home price declines. I don't think it's out of the realm of possibilities for this imbalance of supply and demand to take us through 0%. I think that what we're talking about from how healthy mortgage credit is, the locked in home buyer doesn't need to sell at lower prices. I don't see a true home price correction. That's not in our base case, that's not in our bear case. But we do have a bear case of negative 3% home prices by the end of this year. Base case is plus two. It's still, it's decelerating from here. It's slowing growth, but it's still positive on the national level. But I think there is a realistic bear case where we go below 0%.

[Mark Reape]

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Near you I'm Shonali Basak and I have a new show. It's called Bullish and it's about the future of Wall Street. Join me and Ken Griffin, Boaz Weinstein, Melody Hobson, Jane Fraser and others as I explore Wall street south, the rise of finflancers. Oh, and I learned how to count cards.

[Jill Wiesenthal]

Another black die.

[Jim Egan]

Oh my God, this is amazing TV.

[Unknown]

Watch Bullish Tuesdays on bloomberg.com or tune in live at 6pm Eastern Eastern on Bloomberg TV and 8pm Eastern on Bloomberg Originals.

[Joe Weisenthal]

Can you talk maybe a little bit about the wealth effect? Because if we're talking about like how important it is that people have locked in mortgages at low rates or maybe they have big portfolios of stocks and bonds, maybe they're a baby boomer and kind of lucked out in their wealth building lives. That seems like a big factor. And in the current environment we've had some volatility, although things are looking better as we record this on June 12th. So I'm just curious, like, how do you start to look at how people feel about their actual financial assets and financial position when it comes to making decisions about home ownership or whether they should move and things like that?

[Jim Egan]

Yeah, and it's that piece of it. The wealth effect in particular is something that our economists have been talking about a lot to talk through, just how confident the consumer has been in spending over the past quarters over the past couple of years. And so when they think about the consumer's ability to keep spending going forward, whether it's smaller purchases or larger home purchases, durable goods, they are looking more at the financial aspect piece of this, when we look at the growth in wealth in this cycle, it's been more on the financial asset side than it's been on the real estate side of things. Which as the housing strategist with home prices at record highs, took me a couple seconds looking at those numbers to see that that's what that is kind of what's going on underneath. And so when they think about the borrower's ability or the borrower's willingness, and by borrower I should say consumers willingness to keep making those expenditures, they are looking at equities, they're looking at financial assets, and they're looking at the volatility there. But they do think we need a pretty healthy correction for it to really impact that in a material way.

[Jill Wiesenthal]

It's interesting, when I think about wealth effect, sometimes I think of it psychologically. It's like, oh, people look at their investment portfolio and it's green says, I feel good. I'll go out to dinner or take a vacation or whatever. But listening to you, it's just crazy. If you, they have a 2019 or 2021 vintage mortgage and you've been investing in the market for some time, regularly putting money in a 401k or maybe some taxable account, you have a very strong inflation hedge because you have this recurring payment that has not gone up, assuming it's fixed and you're just sitting on this boatload of capital gains that is just. That's not psychological, that's real. Now, whether the degree to which you can monetize it is obviously questionable because if everyone's trying to monetize it at the same time, that could shrink. But just on your paper, that's great. That class of person who has that situation is just an extraordinary large cushion and margin and are sort of winning on every front right now.

[Jim Egan]

Yes, the households that were homeowners before the pandemic hit in March of 2020 or made what was probably a pretty scary decision to buy in 2020 or 2021. Those are the households that, on the perspectives that we're talking about to the points that you're making were really big winners here.

[Jill Wiesenthal]

Huge winners. Payments have stayed flat even at a time of galloping inflation. They're sitting on all these capital gains. Their wages have probably just assumed they have a normal job have gone up marginally. So just the nominal payment of the mortgage relative to how much they're pulling in has probably fallen over the last four plus years or however many. I mean, it's pretty nice Wait, since.

[Joe Weisenthal]

We'Re talking about people who lucked out in their wealth building, I want to go back to baby boomers for a second. One of the narratives that we hear when we're talking about housing is this idea that one day the older generation is going to pass away and eventually a big segment of the housing market is going to become unlocked and available for sale, maybe at lower prices, who knows? Is that still something that you're sort of incorporating into your longer term forecasts or have you seen anything change on that front, I guess in the year or so since we last spoke to you?

[Jim Egan]

So it is something we're still incorporating when we think about housing not over the next two to five years, but this is really a longer term, this is a 10 year plus aspect to this. But we very much subscribe to the narrative that we are underbuilt and under supplied from US housing holistically. And we get asked the question, well, how do we fix the underbuilt aspect of this? Or how do we fix the aggregate undersupplied aspect of this? And we do come back to this, right? The point I made earlier, more than one out of every three homes in this country is owned by somebody over 65. From 1980 through 2012, that was 25%. It was effectively flat. It's increased pretty significantly. It's very regionally concentrated where those homes are owned. And eventually we do think that that's the supply that starts to help fix this, but it's an eventually thing, not in, not nearly in our two to five year forecast horizon.

[Joe Weisenthal]

And then the other thing I want to ask you is, do you speak to home builders at all to try to get like a read on maybe new supply of hous coming onto the market. And I would be really curious what I guess the atmosphere is like right now, because on the one hand, you know, things seem okay, but on the other hand you have a lot of uncertainty over the long term outlook, lots of policy questions and things like that. And I guess I'm wondering like how they feel at the moment.

[Jim Egan]

So I don't want to attribute what I'm about to say specifically to homeowner commentary, but we do have to look through all of this when we think about are pillars of the housing market, the supply aspect of that, which is both existing listings, which we've talked a.

[Joe Weisenthal]

Lot about, but the new home builder commentary, right.

[Jim Egan]

I don't want to ascribe this to homebuilder commentary, but what I do want to say when we look at the New supply of homes, single unit housing starts building volumes. Look, we work closely with our economist as I've been talking about and our policy team. Tariffs, right? Effective tariff rate now elevated versus where it's been historically. Even if it isn't as high as we might have feared earlier in April. The primary way that's going to flow through the housing market is in our view, home building. The cost of goods to build homes going higher, immigration policies. When we look at different sectors of the economy, the sector with the largest percentage of foreign born workers, construction. So the cost and availability of labor also going to be contained. Home builder confidence has been coming down this year. And when I look at all of the housing statistics that we forecast, what has been weakest in 2025 is single unit housing starts over the first four months of the year. We're down 7% versus where we were in the first four months of 2024. And we think that we are significantly underbuilt. So if we're going down and we're under supplied, we do think that that from a home price perspective provides a little bit of support.

[Jill Wiesenthal]

So we have widespread view that there are not enough homes either in the short term and the long term in America and the trends are going in the wrong direction. Awesome.

[Joe Weisenthal]

All right, well, on that happy note, Jim, thank you so much for coming back on Odd lots. It was great as always.

[Jim Egan]

Thank you so much for having me.

[Jill Wiesenthal]

Thanks, June. That was fantastic.

[Joe Weisenthal]

Joe, that was such an interesting conversation and I always enjoy hearing from Jim. One thing I really like is that he has all the numbers like in his head. He's not looking anything up when we talk to him. He's just, you know, I guess he thinks about them all day, every day and so he remembers them. But I gotta say, like 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 and I guess it's 8% versus 26% of their housing costs. Something like that. That is just insane.

[Jill Wiesenthal]

Tracy. I'm on the website knowyourmeme.com right now because I am looking for the source of that meme of the girl whispering in the ear of the other girl. And I just keep imagining it.

[Joe Weisenthal]

It's like he has a mortgage rate that he bought in 2016.

[Jill Wiesenthal]

He has a Zerbiro mortgage. But like I always knew that intuitively by the way, it came from the movie Aquamarine, which I had literally never heard of. And the one actress I didn't know that Yeah, I didn't. And an actress named Jojo, no last name is whispering to Emma Roberts. Anyway, I just thought I would say that now since I'm on the page and maybe people would find that to be useful. But I did not appreciate quite. I mean, yeah, of course I sort of intuitively understood that if you had locked in a mortgage at some point in the 2010s or really nailed the timing in 2020 or 2021, that was great. But I don't think I had, like, quite appreciated just how massively that gap is. What is the prospect of that going to change anytime soon? Like there's going to be these two, you know, this sort of division in society where it's like a lot of people living in homes and they don't have a mortgage because they're old and they've aged in place B. Then the lucky people who have this mortgage hedge and then everyone else, everyone who rents or because they had to buy in 2024 or 2023 because for whatever reason, and now they're paying a massive amount of their income in their mortgage payment.

[Joe Weisenthal]

But I do think this is also a really great example of why it's important to look beyond the aggregates and the sort of, you know, single average number and kind of dig into the tails.

[Jill Wiesenthal]

Well, just to. On this point too, a lot of like scare headlines or scare posts on Twitter. It's like, look at this surge in delinquencies or whatever, or worse since 2008, 2009. And we sort of touched on this. You know, one of the things that I do think is important to note and Jim mentioned, you know, you have to be careful with apples to apples comparisons is that like, some of these effects can be magnified not because there's like a massive deterioration in credit worthiness, but because there was so much extension of lending during the boom time, etc. Like, you sort of have to be careful with some of these statistics because things can change a lot for different reasons at different times anyway.

[Joe Weisenthal]

No, I mean, the home ownership market is structured very different to what it was in 2008. Oh, we should have asked about the GSEs and Fanny and Freddy. Oh, well, maybe next time.

[Jill Wiesenthal]

We'll do that next time.

[Joe Weisenthal]

Shall we leave it there for now?

[Jill Wiesenthal]

Let's leave it there.

[Joe Weisenthal]

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me. Raceyallaway And I'm Jill Wiesenthal.

[Jill Wiesenthal]

You can follow me at the Stalwart. Follow our producers, Kerman Rodriguez, Ermenarman Dash o' Bennett at dashbot and Kalebrooks Albrooks. For more Odd Lots content go to bloomberg.com oddlod we have a daily newsletter and all of our episodes and you can chat about all of these topics including housing24.7 in our Discord, Discord, GG.

[Joe Weisenthal]

Oddlots and if you enjoy Odd Lots, if you like it when we talk about the lucky homeowners versus the unlucky homeowners, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcast and follow the instructions there. Thanks for listening.

[Unknown]

I'm Shonali Basak and I have a new show. It's called Bullish and it's about the future of Wall Street. Join me and Ken Griffin, Boaz Weinstein, Melody Hobson, Jane Fraser and others as I explore Wall street south, the rise of finflancers. Oh, and I learned how to count cards.

[Jim Egan]

Another black die. Oh my God this is amazing TV.

[Unknown]

Watch Bullish Tuesdays on bloomberg.com or tune in live at 6:00pm Eastern on Bloomberg TV and 8:00pm eastern on Bloomberg Originals.

[Tracy Alloway]

This is an iHeart podcast.