Economists, I think they're right. I think it's
thawing and the dinosaur is not going to come
out of the amber just yet, but it's starting
to thaw, right? And I think once that T -Rex
starts running around, there's going to be a
lot of pent -up demand. Real builds, real decisions.
You see the finished houses and we uncover the
steps it took to get there. I'm Krista here with
Michael and this is Trust the Process podcast
where we chat about construction, real estate,
and development. We pull back the curtain on
the new home industry, the real estate market,
and the trends shaping it all. Discover the stories,
insights, and expertise behind building a new
home. In today's episode, we look ahead to 2026.
Why the end of 2025 felt like a turning point
and the latest data and what it says about sales,
inventory and rates. We're also going to talk
about the recent housing headlines and how that
could help to shape our year ahead. Thanks for
joining us. We're glad you're here. Let's jump
right into it. Welcome back to trust the process
podcast. We're now in season two. This will be
our second episode of season two and wanted to
do a quick launch into 2026. So we are still
waiting for numbers to come back on 2025 when
we know kind of how the how the year ended, but
without any factual numbers. We don't really
have anything that we can trend on or that we
could discuss. But as soon as that data comes
back to us, we'll be sharing a 2025 wrap -up.
But in the meantime, kind of where are we at?
I mean, we're into the first couple of weeks
of January 2026. A lot of economists and analysts
and speculators on the industry have some ideas
about what they think will be happening in 2026.
feels like some really promising news and thoughts
about where we could go so Michael's done some
research and Would love for you to share that
with all of us and sure see where we're at and
what we think might Might come to fruition this
year. So yeah, I mean Thank you first I mean
25 was a really kind of year of malaise and It
was our last of you know, the three years. So
25 24 and 23 were malaise era in real estate,
right? I think we were arguably in a housing
recession. And it felt like it, we felt it. Anyone
in the brokerage business, lending business,
anyone at escrow, title escrow, builders like
us, even small builders like us feel the market
and feel the malaise. But we kind of ended it
with a little bit of a high note. So our pending
sales from October 25 to November 25, there's
a 3 .3 % jump. And that represented the highest
level in three years of pending contracts. So
we kind of ended 25 with a little bit of a bang,
believe it or not. And it has yet really to bear
out in the numbers, but you could, you know,
I watch the neighboring zip codes around where
I live. And then I also watch the zip codes where
we build. And I felt it there too. I felt inventory
slowly start to dry up. About 6 % of sellers
nationwide are pulling their homes off the market
if they're not getting the number that they wanted.
And that's because they're blessed with those
very low interest rates, which is why the fear
monger online and a broken clock is right twice
a day. So a bear is always going to be right
at some point because things are going to correct
and pull back. And they were relishing in 25
and saying, see, this is the beginning of the
end. Look how many of these homes are underwater.
Even if you bought in 22, which you could argue,
If you look at certain markets, I follow the
Denver market really close just because I like
that city. They definitely have seen true equity
loss from 2022 to now. Vegas has not as much,
Phoenix has not as much. Growth zip codes that
are farther out have suffered more than the inner
kind of more established zip codes in most of
those sprawling metros. But even if you look,
a lot of those people were at... four and a half,
five percent mortgage rates. And right now for
the majority of 25, they were in the middle sixes.
So those people were able to still hold on because
effectively, let's say they bought a house for
650, that's now we're 625. They couldn't buy
that same house at 625 at six and a half percent
rate with the same payment. So you really only
the market equilibrated and said, well, I'm not
going to lose money unless I absolutely have
to. I got divorced, had a kid, I came into the
money and I wanted to get out of this and move.
You found only the most motivated sellers. So
what that 6 % represents are the people that
are pulling back that either didn't get their
number, were in markets that were heavily affected
by the flood of inventory that we saw in 25.
And it kind of equilibrated. Buyer demand picked
up by the back quarter of the year. Sellers started
pulling off. investors decided to, how many homes
didn't hit the market? Once the news is out that
the market was really soft, because I feel overall
spring of 25 was the worst real estate market
I've ever functioned in. Because even though
objectively on paper it was better than 2015,
2016 in terms of number of homes, it just felt
fundamentally broken by high rates, high prices,
not enough inventory. No sales. We are at the
stalemate standoff that I've never experienced,
but I've only been in the business for 12 years,
so I haven't. There was a lot of fear in the
market. A lot of fear in the market. And we also
had the stock market drop about 18%, depending
on what index we were looking at, which is something
that we didn't, we've never seen all that together.
So quarter two of 25 was a dark quarter for me.
It felt ominous. Stock market is falling apart.
Buyer demand fell off a cliff. Interest rates
were actually coming down. I'd been the lowest
they've been in about two years, but they didn't
put a dent in the real estate market Didn't put
a dent in the rising inventory and buyers just
got fatigued and they just really you know what?
I'm not doing it. I'm not doing it Sellers right
people to their home of the market You know claims
that that we know who to have their home on the
market at the time Like you said pulled it off
because it just I'm not gonna get what I want
and I can't make my future plan until this is
sold even so you just read you know, re -evaluate
what you really want to extend, take your own
market. That's right. Or if it means what I can
buy is, you know, my budget actually goes farther
now, then they reduce their home accordingly,
and the market kind of breaks loose again. And
it just takes a few of those things to kind of
thaw the market. And it felt like it started
to thaw in quarter four of 25. And the numbers
do bear it out, which is funny. So 6%. amount
of them, what should I call it, seller withdrawal
rate, 6%. Highest it's really ever been since
it's been recorded. Pending sells the highest
they were in three years. Rates the lowest they
were in 2020, the whole year, the end of the
year was the lowest they'd been in the whole
year. So all those factors kind of converged.
Builders stopped with their starts in most growth
markets like Las Vegas, Denver, most of Florida,
inland California. Uh, those growth markets,
Texas saw sharp declines in their permit issuance
and those production builders can build homes
in four to six months. So decisions made in April
have effects in that calendar year in inventory.
So suddenly, builders are not sitting on 15 inventory
homes. They're sitting on three. And then that
might make that buyer go, well, I don't like
where they bagged it back the street, blah, blah,
blah. They back a power line. Let me look at
some resales. And then it just thaws the resale
market. So I think that all those things together
kind of are leading up to a favorable 2026. It's
interesting to have some numbers and some data
on that. Because you and I, at the time, we...
talked about it a lot. I can feel there's a buzz
in the energy of what's happening in the market
right now. You did feel a shifting and after
such a slump coming through spring, getting a
little bit of an uptick and a little bit of just
energy in the market. So we knew that there would
be some sort of a change to the numbers, but
having that data to actually compare that against
what we were feeling is interesting. It's satisfying
because it does show that we do. I'm making the
word. It's good. Yeah. And we have the tapes,
so we can prove that we were predicting this.
Right. We knew something was happening, but having
those numbers now to make it more tangible, it's
like, yeah, we knew that. We knew it. Yeah, exactly.
We knew. Everybody who's in the industry really
felt, in conversations that we had with colleagues
and other people in the industry, it was sort
of the conversation being that this is different.
Not sure what that means. Something feels different,
yeah. Yeah, exactly. It was really just launching
pad to what we hope we'll see further in 2026.
And that leads me to kind of the next point,
which is a lot of the economists now are predicting
a good year for 2026. So some economists are
saying could be up to 14 % higher sales volume
this year versus last. If we had a 3 .3 % jump
from one month to the next, you could, I'm not
going to say that's every month, but that was
also from October to November, notoriously slow
seasons, which are Christmas closings in most
markets that are 30 -day escrows. So that's telling.
14 % passive. It's big, yeah. We've seen to hit
a floor of about 4 million units transacted,
4 .1 million units transacted nationwide. healthy
market equities were between five and five and
a half million. So if we do see a 14 % increase,
we're still not where we were. But it will just
shows you how low we were in terms of transaction
volume, that a 14 % increase would not we would
it would take a 25 % increase to get back to
where we want to be. So 14 % would indicate that
we might see, let's just call 4 .6 to 4 .75 million
transact units transacted. Where would that put
us? Is that back to 24 or do we have to go all
the way back to 23? It's about like 22. 22, okay.
To get to those numbers because we're in a three
-year low. We've been hovering around 4 million
transactions for the last three years. 23, 24,
25. So, and it follows rates. So economists,
I think they're right. I think it's thawing and
the dinosaur is not going to come out of the
amber just yet, but it's starting to thaw. Right?
And thank God, once that T -Rex starts running
around, there's going to be a lot of pent up
demand. And if you look at, I love watching financial
analysts and they're projecting not just in real
estate, but in consumer goods period. We've been
in a bit of a consumer goods recession, right?
Everything, cars, everything has been way down.
kind of mirror image of what the pandemic, post
pandemic, 2021, 22, it's like a mirror image
of that. As much as they were elevated, they're
depressed now from normal. So it's almost like
we pulled all that demand forward, but now it's
kind of lasted longer than that boom lasted.
So that was like a two year boom. Now we're in
a three year lull. So they're saying this last
year was actually just a reflection of deferred
purchases. So we're going to see a little bit
of an echo boom. And most of 20 was not pulled
forward demand. Most of 20 was shut down. So
really was end quarter four, 2020, all of 21,
all 22 rates started spiking on cars, homes,
everything short -term credit cards, everything
in the latter half of 2022. So really the boom
lasted about 20 months, 24 months. So, um, I
think that, for the most part, the boom lasted
about 24 months. They're right when they say
there could be a boom. The feds project another
two drops. Maybe it's 500 basis points over the
course of a year, which is the feds funds rate,
which kind of dictates more closely your credit
card rates prime. Auto loans are more closely
tied to those rates. Long -term mortgage rates
are more tied to the yield curve, which we're
seeing a lot of relief in the treasury yields.
hovering around four. I would love to see a three
-handle on treasury yields. There's usually a
2 % to 2 .5 % premium from 10 -year treasury
yields to the mortgage rate, which brings me
to a nice little segue. What's that? We're due
for that. We're due. Yeah. Everybody would like
to see. Yes. Brings me to my next segue, which
was this second week of January was very newsy
for real estate on the federal level. So there's
executive direction that they want to prohibit
institutional purchases of single -family homes.
There's no legislation, it's a tweet at this
point, but it's showing that the mood and the
sentiment is, probably need to do something with
housing affordability. This feels like something.
And a lot of people say, well, wait a minute,
how do you dictate that? How are you going to
police that? They could just form a shadow LLC.
You can't prevent an LLC from buying houses.
So how do you know that that LLC? So it's better
to either play with the tax shelter that real
estate is or pull other threads on the housing
market. And I think within two days, you know,
that news got back to the administration that,
Hey, that's sounds good on paper. It's a good
campaign rally and a good rallying cry. Um, but
it's really not going to do anything. And if
it. If it overall gives builders less confidence,
it's actually going to hurt the long -term viability
of the real estate market. So I went down the
rabbit hole on that, and it's very zip code dependent,
as I found out. But even in the most obscene
corporate ownership of single -family homes outside
of Atlanta, some parts of Vegas, outside of Colorado,
Charlotte has huge institutional presence. It's
only at the highest percentages. You're only
going to find about 7 % of the real estate market
held by an LLC that also owns a hundred houses.
So it's hard again, hard to find it because you
have to find an LLC that owns a hundred houses.
How do you even find that entity? And it's about
5 % of high presence markets. So in markets where
it's high presence, that whole real estate market
is about 5%. So Charlotte's about 5%. Las Vegas
is about 4%. If you look at there's a map and
the darker blue it goes, the higher percentage
of institutional ownership there are. You looked
at the entire map was broken down by county.
There were only about seven counties that were
really dark blue. We were a shade lower, Clark
County, Maricopa County and Phoenix was our shade.
So, and those were three to 4 % ratios. So it's
not a huge. It's more symbolic to say, hey, we're
trying to tackle housing affordability. We're
trying to tackle corporate landlords. But there
are a lot of people that like corporate landlords.
There are a lot of people that will be forever
renters or they need to rent for one or two years.
And they'll pick an invitation home or an American
homes for rent home over a mom and pop landlord
because there's a maintenance portal. There's
usually lower deposits. There's more standardized.
features, stainless steel appliances, let's just
say, their yards are all done. There's no threat
of the landlord. If we need another six months,
we can talk, there's no threat of the landlord
moving back into their home or selling their
home or whatever. So there were equal and opposite
rallying cries in the reverse saying, wait a
minute, this represents, there's like 1 .3 million
homes owned by institutional. investors. So there's
1 .3 million renters that would, what does that
look like? Do they, if they can't acquire more
and there's been nothing to say that they would,
you know, force you to sell them. But the thought
is, is that if you can't buy more, a lot of those
companies work only on scale and they'll maybe
only hold a property for three years and sell
it or take as much of the depreciation they can,
1031 exchange it, kick it down the road. So there's
a lot of factors there that it became unpopular
in a matter of a couple of days. Um, doesn't
mean that it won't happen. It would need congressional
approval. If it does happen, I think there's
either 101 workarounds or it won't even make
it past Congress. Um, but there are way too many
workarounds on that. You could, it's cost you
$400 to form an LLC. And let's just say the threshold
is 10 houses that you can hold. Okay. Your LLC
can't hold more than 10 houses. Okay. Well, if
you want to own, I think they own about 4 ,000
housing units, corporations like that. But what's
a single, I think Blackstone owns. I want to
say 2 ,900 or 3 ,900 houses. So they would own,
what, $400? At the end of the day, they're not
going to stop them. That's just their cost of
doing business. Even if it doesn't come to fruition,
or if nothing comes of it, it's holding up space
in the environment. It's taking up some sort
of a bandwidth within the industry as a whole.
And so it recreates a climate around that, that
whether you like it or not, or whether it ever
becomes anything, it's still hold it becomes
a placeholder that keeps people on some sort
of a question. Yeah, I completely agree. And
I liked it. I mean, I don't think it's the smartest
thing to do. I also don't love corporate ownership
of a single family homes. I know that it's probably
good for the investors. I know it's maybe good
for those tenants that want to rent in a single
family home and they feel more comfortable with
a large corporation with a maintenance portal,
with standardized everything. I just wish that
it didn't. I wish that that didn't have to be.
I wish we didn't need corporate landlords. I
wish homes were affordable enough in relation
to wages to not require that, to not have a market
for that, I should say. So anyway, so on the
heels of that, the administration announced that
it's going to use some of the money that Fannie
and Freddie is sitting on, the GSEs, that are
nationalized, basically mortgage -backed security
traders. you know, Fanning Friday does, we could
have a whole episode on that. He's going to take
some of that cash, which is about $200 billion,
and buy mortgage -backed securities. So none
of that's happened. It's going to happen. It's
been announced as of yesterday. It was pretty
late in the day, actually, on East Coast time.
And just on the heels of that, or, you know,
the next day, mortgage rates dropped. 0 .15%,
which is huge. So they went from 6 .2, which
they've been hovering around for the latter half
of 2025 to just over six. And we're really close
to a five handled. But the funny thing is the
10 year treasury yields didn't drop by the same
percentage. They didn't drop hardly at all today.
So the spreads, which are usually two and a half
between a 10 year treasury, you know, and a 30
year fixed are now down to about 2 % today. So
there's a big compression on those yields, maybe
because the feds are signaling that they're going
to start buying mortgage -backed securities,
which makes people say, I should buy some mortgage
-backed securities now, buy some bonds now because
I want to lock in that pricing at 6 % so that
when I turn around in six months and mortgage
bonds are trading at 5%, so then that has a cascading
effect the same way that when people pull their
money out of bonds, the yields go up. So the
same math works in the other direction. And I
think we saw a little bit of that today, a little
bit of a rally with mortgage bonds, which is
great. We want rallies on mortgage bonds. That's
how mortgages get cheaper. We have more people
competing for that debt. But before you get too
optimistic, the mortgage -backed security market
is about $11 trillion, $9 .5 to $11 trillion,
depending on who you ask. And about $1 .6 trillion
of new mortgage -backed security debt gets generated
every year and sold. Daily trading volume is
about 200 to 300 billion daily trading volume.
So it's probably not going to put a huge dent
in it. But if it's part of a bigger plan, it
might put a dent in it. And it might help signal
that, hey, we're going to start pulling some
other levers to bring down. We pretty much out
of tricks to bring down the long -term yield
curve. We're having a really hard time. with
them on a national debt we hold to see 10 -year
treasury yields go any lower than where they
are now. It seems like they're really resistant
to the threes. And then Japan will have a debt
crisis or Japan will have bonds spikes and then
makes everyone nervous about bonds. And, you
know, I know that China has stopped buying a
lot of our bonds because they're kind of in a
recession. So I think that we're a long ways
out from seeing 3 % treasury yields, 10 -year
treasury yields. So we're going to have to start
pulling some other levers to see. mortgage rates
in the low fives. Either the spread gets lower,
maybe we do see rates go, 10 -year treasury yields
go to three and a half, but then the spread is
only two, so we're at five and a half, rates
go to three. That's conceivable. Lowering the
short -term rates, the Fed's funds rate will
have downward pressure on the long -term yield,
we just don't always know what kind of yield.
So that's... Kind of the newsiness of the week
We're only you know couple weeks in yeah, we're
about two weeks into the year Yeah, and we were
only a few days into the week before we started
seeing some big news coming down It's a midterm
year midterm cycle and I think that there's a
lot of disenchantment in in the economy Especially
among you know the middle to lower middle class.
Yeah You know, mentally, I hadn't really considered
what it's kind of enough that we'll have. It's
creeping up. It's creeping up. I mean, it is
January 2026 and we're going to be, you know,
we're starting seeing ads probably in the next
three to four months. So I know. So we've got
an election in about 10 months and I think housing
and just cost of everything and rates and we're
going to have a new Fed chair in a few months,
a new one probably announced in the next couple
of weeks and. Again, the feds can't control the
long end of the curve, feds can't control mortgage
rates, but if you can get a, you know, the prime
rate, let's say the feds funds rate is two, mortgage
rates aren't going to be six, right? It's just
not. Banks have to balance their books. It will
eventually put long -term pressure on rates,
downward pressure. We're all just heading in
that direction. We have a lot of goods. We don't
see a lot of inflation. Job growth has been pretty
good. no matter how you look at it. It's not
overheated, but unemployment rates still, I think,
4 .4 as of yesterday, 4 .4, 4 .6. It came in
right around expectations or right at expectations,
I want to say. For the year, yeah. For the year.
And wage growth was 0 .3 % month of - No, we're
still at the close throughout the year. But I
think over all the, yeah, not huge swings, but
yeah, it was - But it's the market, the job market,
it's a low hire, low fire job market. That's
that much we know. And with that, We love stability.
The market does love that stability. And I think
people are going to feel a lot better in 26.
Sentiment is going to go up. And again, people
can only put off large purchases, moves. It's
only so long they can put those off. So that's
where we're at. And I think I'm very optimistic.
Right? I mean, they held in 2025 those people
who, you know, who maybe thought they wanted
to make a move in 2025 and it just didn't feel
like the right climate to do that. They're ready
now, you know, so whatever it was that had them
interested before that they just weren't quite
ready to pull the trigger on. They're, they're
tired of waiting. So we can already see in this
first couple of weeks, um, you know, the mortgage
pulls are up and, you know, I mean, we're all
of those things that really trend or, or appear
to initially trend us on a better sales year.
Um, they're all, all of those moves are in place
and we're already seeing early indicators. I
agree. And inventory begets sales and sales beget
inventory and. As long as the market's thawed,
listings are still about 20%, but we're still
not where we were pre -pandemic. And rates are
ticking down and there's a lot of deferred moves.
I just feel like it's going to be hard to imagine
another Malaysia. Could be, but I just don't,
I don't see it. And builders have inventory.
I think builders are tired of sitting on that
inventory and so they're making some bigger incentives
or buy, you know, greater buy downs that they
can offer too. So I think that. then that will
create a surge in sales creates a surge in sales
that you know it it's that it begets sales we
get sales and i think the more people that are
jumping into the market the more people see that
as a stability that they could also enjoy exactly
i agree i agree good economic data good gdp growth
I think it was over 6 .5 or something, the total
GDP for the year, which was insane. And the overall
consumer price index, I believe, was a little
over three, which is great. We had GDP growth
without a lot of inflation. Wage growth is outpacing
inflation by a little bit, but at least it's
not falling behind. It's 20 -25 overall. We had
turmoil, but I don't know. I think we kind of
- Yeah. predicted to now continue and accelerate
as the year goes on. I agree. Love it. It's not
stopping us. Right on the right foot. Ideally,
yes. If you had asked me in March of this year,
or 25, I was very nervous. You didn't know. We
didn't know. But we'll take a step in the right
direction and hope it continues. And obviously,
we'll be here to walk that through with you guys.
So as we see how this all unfolds and what it
looks like. And again, as more numbers come back
from 2025, we'll do a bit of a wrap up or a more
significant year. Yeah, we'll do a bit of a post
-mortem on 2025. Exactly. I've been throughout
the year or how the numbers play into what we
saw at the time. So yeah. Thanks for being here.
Appreciate you joining us. Anything else you
want to add, Michael? I have. That's all I have.
All right. Yeah. Great. Well, thanks. Appreciate
your time and your knowledge. And we'll see you
guys back on the next episode of Trust the Process
podcast. Bye -bye.