00:00I'm Alison LaForgia, the managing editor of HousingWire's content studio, and I'm with
00:08HousingWire's lead analyst, Logan Motoshami. Logan, thank you for sitting with me today.
00:12It is wonderful to be here.
00:14So I'm going to ask you a bunch of really mortgage 101 questions today. So for people who are new to
00:21the HousingWire audience or new to the mortgage and real estate industry, we're going to get
00:26the man, the mortgage rates man himself to answer all of the basic questions. Are you ready to jump
00:33in? Absolutely, 100%. So let's start with the first question, which is what should we expect in the
00:40back half of the 2025 housing market? So obviously there are some really good news about the housing
00:46market that's not being told about. And one of them is that purchase application data for the
00:50first time in many years is actually positive year over year for 18 straight weeks, where last year
00:56that wasn't the case. So because sale levels are at historic low levels, everything in July to
01:02November, the reports that we get from June to October, even if home sales just stay flat, we're
01:08going to have year over year growth. So the fact that even with elevated rates, elevated property taxes,
01:13prices, everything, people are applying for mortgages, that is a positive sign to say, usually we don't see
01:18that until mortgage rates get towards 6%, but this year has been different. New home sales purchase
01:23application data just hit a post-COVID high. They just had one of the highest sales prints in years.
01:27So there's a little bit of better backdrop to show some growth on a year-over-year basis going out for
01:32the rest of the year. So let's talk a little bit, going back a couple steps, about mortgage rates.
01:39How are mortgage rates determined and who sets them? So I always say that there's a lovely couple
01:44in the economic world. It's the 10-year yield and 30-year mortgage rates. They've been slow dancing
01:49really since 1971 and really if I wanted to take this back 100 years. What goes into the mortgage
01:54rates, I believe, is 65% to 75% of where the 10-year yield can range is really Fed policy.
02:01And then the 10-year yield and 30-year mortgage rates tend to move together. Then there's the
02:06mortgage spread, the difference between the 10-year yield and the 30-year mortgage. We like intimate
02:12slow dancing, you know, very close. 1.6% to 1.8% is the historical norms. But lately in 2023, it got
02:19very high. This does happen in economic cycles. We had over 3% spread. So spreads are coming in
02:24lower. That means mortgage rates are acting better. Again, if the economic data gets weaker and the
02:30bond market thinks that the Fed's going to cut rates more, 10-year yield goes lower, mortgage rates
02:35tend to go lower with it. So it's really long-term debt borrowing, 10-year yield, 30-year fixed, Fed policy,
02:41mortgage spreads all put together. That's how mortgage rates have worked since 1971.
02:47So that's the secret sauce that we're talking about going into all of our daily mortgage rate
02:51update videos. Absolutely. We see how the economic reports are taken by the bond market. Where the
02:56bond market goes, the 10-year yield follows in terms of yields, and then mortgage rates typically go in
03:01that same direction. And then we work off how the spreads are acting on the day. So let's talk
03:06specifically about what economic reports you look at that we mention in the Tracker and in the
03:12Housing Wire Daily podcast that Logan's now on three days a week. Yes, three days a week. We're
03:16going to get it to four eventually. Yes, for me, it's always been more about the labor market than
03:21inflation. The growth rate of inflation has fallen on a year-over-year basis from the highs of COVID.
03:26But the labor market is still firm enough to where the Fed policy is still elevated. So
03:31jobs Friday that comes in, the job openings data that comes in every single month. Jobless claims
03:38is a data line, very key to economic cycles. That happens every Thursday morning, 5.30 a.m. Pacific.
03:44And the ADP report is also, those are the labor datas that actually move the markets. Then there's
03:49the CPI and PCE inflation reports that happen once a month. Those are other data line sets that come
03:56in to play with rates. Retail sales, car sales, these things are things that we track to go with
04:02economic cycles, right? Economic cycles, each cycle is different, but the economics behind it typically
04:07aren't. So we always keep an eye on the labor data because what traditionally happens is when a
04:12recession happens, bond yields go down, rates go down with it, and then historically housing demand
04:17picks up. So this has been a topic that you and Sarah have revisited in all of recent episodes of
04:26Housing Wire Daily, but also comes up cyclically. And that you guys talk about Housing Wire tracks
04:32purchase applications. So talk about that specifically and how there's different people
04:37who track different things, just so our audience understands what we're talking about.
04:41So mortgage demand is the big driver of housing demand. If you look at purchase application
04:46data going back to the 1990s, it typically leads sales about 30 to 90 days. So when purchase
04:51application data volume rises, usually existing home sales volume rises. This is why we track it,
04:57but we track it on a weekly basis and then tell everybody if this means 30 to 90 days out,
05:04if it's growing on a year-over-year basis, it's a positive. And then our weekly tracker,
05:09we also have our weekly pending home sales data that gives us an idea of homes that are going into
05:13contract. And we also have our total pending sales data. We incorporate them all together to see how
05:19demand is going as of today, instead of waiting two to three months to get it from the existing home
05:25sales report. And how is that different than how other people look at it? Other people use old
05:30traditional media models where you actually have to wait 30 to 60 days to get the report itself.
05:35We look weekly, fresh and forward, which is much different. If you're waiting for the existing home
05:41sales report, you're about two, three months behind our data line. And that's just how traditional
05:46monthly reports go. We believe on following fresh weekly data to tell us what's happening at the end of
05:52the week and then what's going to look like going out in the future. That's much different than waiting
05:57for stale data, as we call it.
05:59Well, Logan, thank you for taking us through Mortgage Rates 101. If you have any questions,
06:05drop them in the comments below on YouTube, and we'll try and make another video soon.
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