On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the three possibilities for mortgage rates following the trade deal with China.
Related to this episode:
What happens to mortgage rates with more trade deals? | HousingWire
https://www.housingwire.com/articles/what-happens-to-mortgage-rates-with-more-trade-deals/
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
What happens to mortgage rates with more trade deals? | HousingWire
https://www.housingwire.com/articles/what-happens-to-mortgage-rates-with-more-trade-deals/
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the
00:10China trade deal and what it means for mortgage rates. First, I want to thank our sponsor,
00:14Rocket Close, for making this episode possible. Logan, welcome back to the podcast.
00:21Wow, what a weekend. We always say Sunday night tweets. There was a lot of action,
00:29of course, but I had actually got up, I think, at like two or three in the morning on Monday.
00:35And then I was like, whoa, we have a 90-day delay here with China tariffs. So, of course,
00:41the market responded accordingly. Stock market went up strong. Ten-year yield went up a few basis
00:49points. Mortgage pricing wasn't too bad because the spreads are improving from what they were
00:56earlier during the Godzilla tariff issue. But now the question is, what does this mean now?
01:03Like, you know, we went from everyone, and I totally understand. I do not hold a bad will
01:12to anybody that just went 100% into the recession camp because of the trade war. Like, I totally get
01:18that. If Godzilla tariffs stayed as is, and there's a lot of smart people. There's a lot of smart
01:24conservative people who just basically said, listen, you go this all the way, you're going
01:28to get a recession. I believe in progression models, not like, okay, this event here. Remember
01:33in COVID, before COVID hit us, we brought the chaos butterfly theory. Early February, we said that,
01:41well, if COVID hits us, you know, it's going to, stock market will go down, bond yields will go down,
01:47and the economy will go into, you know, a brief recession. But don't, you know, don't panic too
01:53much because of, you know, there are things we could do here. Here, I totally get what people
01:58were saying. If this, if Godzilla tariffs kept going, Q3 and Q4 would have had shortages, higher
02:06prices, you know, rates weren't going to go. There was all these variables that could have happened.
02:11But I always say that, you know, it's what we talked about earlier. It is something that can
02:15change. Now, of course, the tariff percentage as a total is still very high compared to what we went
02:22into the year with. But in this context, for now, the worst case scenario looks like it's not going
02:30to happen because when you play bully ball and all of a sudden you can't get deals really quick,
02:37you're going to have to change the strategy. And we talked about that, I think, two weeks ago in
02:41that podcast when we did in Florida together where we did paper, rock, scissors, because we're face
02:46to face and said that, you know, this is, did Trump really, you know, cave or is this, there has to be
02:52a change of strategy because nobody was dealing out. No one's dealing out. Okay. So the big question
02:58for the housing market is what, what happens to mortgage rates now? Right. We, I mean, I think no one
03:05wants a recession, but it was like, okay, but if we get a recession, then there's our mortgage rate,
03:09you know, drop. So let's go back in the last few years. What happens whenever the marketplace
03:16believes the economy is getting weaker, the 10 year yield heads down to 4%, breaks 4%. The Gandalf line
03:24in 2023, the Hordor line in 2024, here, Godzilla tariffs, we broke through 4%. They didn't stay there
03:33very long, but you know, two jobs reports ago, I, you know, looking at all the day, I said, listen,
03:37guys, if there's no Godzilla tariffs, the 10 year yield should be at 435. There's this nothing in
03:42the data yet. This is a perceived weakness. And we had this crazy market volatility, but
03:47there's a lot that we ejected into the economy that has been very uncertain and, and, and not very
03:55positive. But if we can skirt through that and not get a recession this year, then that case of
04:03the labor market breaking and jobless claims breaking and the fed getting more dovish, all
04:09that goes away. It goes to what we've talked about here is that the fed is going to go, well, we could
04:14do maybe two rate cuts and, you know, we need to be vigilant. That marketplace goes back to that,
04:22except we still have very high tariffs. We withdrew money from the economy. We've been firing federal
04:27workers. There's all these variables that are still in play, but just for today, um, the worst
04:33case scenario for the economy that it looks like we're going to do multiple deals and there's some
04:39de-escalation with China. I feel like if, uh, because you have a de-escalation with China, that's
04:46going, I mean, I'm not an expert obviously on, on trade wars, but it feels like there are other
04:51countries that can now go, okay, we have cover, right? Because we saw Japan didn't really want to
04:56say something until they figured out what was going on with China. Um, and so maybe this is
05:00like the, the break in the, in the dam. Well, you know, it's obviously the marketplace and nobody
05:09was ready for Godzilla tariffs. Cause we did tariffs on tariffs on. We, we, we were doing what we, we
05:15thought would happen, but the problem with doing the tariff on tariff off early in this, uh, uh,
05:22administration is that everyone's just going to keep thinking or bluffing until you have to pull
05:27the trigger. Well, they pulled the trigger and it was enormous, but if you look at it now, you know,
05:34the, the tariffs are still at a, at a very high percentage versus, uh, China before we went into
05:39this and there's still other, uh, we still have tariffs out there as a, as a percentage is still
05:44very eligible. So deals have to be made. It's just to me now we just have to focus on the,
05:50the economic data and what goes on or how, how the fed's going to really look at this now, because
05:54in theory, if the fed believes there'll be deals and then the shortages will stop, then,
05:59you know, kind of the one time inflation, uh, uh, uh, spike will kind of fade over time as supply
06:06chains get better. You know, when you think about the fed and COVID or shortages, they just came out
06:14with a paper and going back all the way to 1900 on shortages on the economy and what it did with
06:20inflation. And, and it was, it was wonderful, uh, uh, to, to look at the charts here, but one of the
06:26reasons why the fed doesn't want to cut rates in a shortage is because that allows that pricing to
06:35stay elevated, right? Because you have more buying power. So, you know, we saw that during COVID where
06:41the economy was booming rates were low, money was being injected into the economy and we have
06:47shortages. Uh, uh, then the growth rate of inflation fell down when supply chains started to get better.
06:52Here's a similar thing. Well, if ships start going back and landing and giving stuff out, whatever
06:59inflation that we see should be very kind of short term, the inflation from the shortages and then
07:05the disinflation happens. But back then on unemployment rate was so high here, the unemployment
07:10rate 4.2%, different backdrop. So, but the fed, if they see more deals could be done. And if the
07:18economy does soften a bit, they could sound a little bit more dovish than what they have in the last,
07:23uh, uh, a few weeks. Okay. So let's run through the three scenarios that you outline and you've,
07:29you've hit on them in different, you know, just in that, uh, just when you were talking, but like,
07:34let's outline it really clearly. First scenario, we avoid a recession. What does that do to mortgage
07:39rates? The, the, the whole labor driving the fed lower, the bond market lower. If there is no
07:45break in jobless claims, then, you know, the 10 year yield breaking below the corridor line and,
07:51and heading lower shouldn't happen, right? The hoarder line is, is there at three 80 saying this
07:58is, listen, we're not going to, we're not going to break this until the labor market breaks. We got
08:02below 4% very briefly, just to note that the, the 10 year yield and a two year yield never got to the
08:09low levels that we saw last year, right? Because the labor market, a lot of people went all into the
08:15labor market breaking theory. So the fed had to become more damaged. Even the federal reserve cut rates
08:20a little bit more aggressively now that we know Jerome Powell thought they were late in cutting
08:25rates. That's why they went a little bit more aggressive here. You know, everything was kind
08:30of intact for the first four months of the year. There was a lot of soft data was terrible because
08:36all people see these headlines and everything. And then all of a sudden government workers, you know,
08:39you see all these negatives. And so naturally you're going to feel, uh, worse on these surveys,
08:44but the hard data held, but if you don't have a recession, you need multiple rate cuts through
08:52time to get the fed funds rate, 1% lower to get to a 6% easier, but you, you lose that recessionary
09:00break that we've always talked about that, you know, the fed isn't going to pivot really, uh,
09:06like people want until the labor market breaks. So that, that is number one, that takes away that
09:12if it does occur, right? We still have a lot of things we have to do for the economy between now
09:17and the end of the year, but Godzilla tariffs, as it was presented on the day that drove the markets
09:24nuts has ended, right? Uh, the bully ball, getting them to deal out early didn't work. So as we talked
09:33about a few weeks ago, they got to change the strategy a bit and they did. Okay. Second, what's the
09:39scenario that could happen? Second scenario is kind of like what we would have, uh, had normally. Uh,
09:46a lot of people believe that the fed would have been cutting rates more aggressively, uh, uh, if
09:51there was no tariffs because the growth rate of inflation, man, they do not care that the growth
09:56rate of inflation has fallen. They were always like that. We had two handles on PCE inflation and
10:01they're just like, Oh, we're just going to take our time. And so I'm not in that camp that the fed
10:07would have been cutting more aggressively. Now they would just would have held it. They would
10:11have kept policy modestly restrictive as long as possible until the labor market breaks on them.
10:17Right. The only time they ever moved is because the labor data was like getting weaker on them than
10:22they more anticipated. So there's, Oh, we're going to cut 50 basis points and do these. Now they would
10:27have taken just, you know, we would have two rate cuts that are priced in right now. And then we're
10:32monitoring the situation. We're in that, we're in that category right now. We're just back to that
10:37because now it's, it's, it's the economic data. It's what we've done already and what the fed thinks
10:43and what their policy is, how they're going to handle tariffs now. Uh, um, but we're back to just
10:49to me, what we started the year off two rate cuts into the system and the 10 year yield channel
10:54still stays the same. But if, if, if the labor market isn't breaking, then, you know, you could get,
11:00stay in that upper range of that, uh, uh, mortgage rate, uh, uh, channel forecast 6.75 to seven and a
11:06quarter, uh, until you get more of the rate cuts in and more of the data, uh, to, to be in there.
11:12I think one of the asterisks, if, if you will, on, on that second option is with the, with the
11:19Godzilla tariffs off, or at least, you know, a pot, you know, a new thing for the next 90 days with
11:25China, um, then the mortgage spreads maybe can get better. So maybe we get, maybe we get a
11:30little bit better mortgage rates just from the spreads. We've already seen that as the, as the
11:35stock market and the bond market have behaved a little bit better, especially the stock market has
11:41the spreads have improved, right? So it eliminates the damage of higher yields already. Just like we,
11:48we went into 2025 thinking the spread should improve a little bit. So higher yields, we never
11:53really broke above seven and a quarter this year because the spreads were better. So the positive
11:58story with scenario number two is that the spreads improve. And like this is Monday morning. We're
12:03talking about the 10 year yield was up six, seven basis points. We had a smidge higher in mortgage
12:08rates, uh, because the spreads are improving. And that's traditionally what goes on with economic
12:13cycles in the past. You know, as the fed starts cutting rates, volatility compresses, there's no
12:17drama out there spreads improve. So it limits the damage to the upside. But again, scenario number two
12:22is that if the economic data is not getting weaker, uh, uh, consumption, right, real consumptions, uh,
12:28that's what the fed really tracks with the GDP data. Uh, the upper end of the range stays a little
12:34bit more intact with mortgage rates. You need the labor market to like start breaking noticeably.
12:40And remember the forecast, my forecast for job growth this year is 133 to 151,000. Uh, that was
12:46before the federal firings and the withdrawal of money, right? So, so far this year at 147,000 jobs
12:54per month, year to date, softening labor market, but not breaking, right? There's it's that, that's
12:59such a key thing. If the labor market was running at, you know, 70 to 90,000 per month, real softness
13:06is coming around. We're not, we haven't had that data line print. So who knows now the first, again,
13:12the first four months was different than what's going to happen in the last eight. So we got to,
13:16you know, be more focused with the economic data, but again, uh, with scenario one, the worst case
13:22scenario of letting Godzilla tariffs run the entire year, which none of us really believe what it would
13:28happen that way. But in this case, you've taken that out. And by the way, two key points, number one,
13:34the whole grift about, we are going to create a recession because we need to refinance our debt.
13:40Okay. That was, that was not a real thing. That was a made up thing by a bunch of conservative
13:45accounts and conservative podcasters that said, are the, we're the reason we're creating, you know,
13:51this is a chess game. We're going to create a recession so we can read, but no, the trade war
13:55itself is detrimental to the economy that would drive oil prices lower. That would drive the 10
14:00year yield and nothing to do with the refinancing. They didn't, they didn't sit there in a room and
14:05go, Hey, let's crash the economy to refinance. This is a marketing gimmick. Liberals have their own
14:10marketing gimmicks. They're kind of crybabies and conservatives have a lot of marketing gimmicks.
14:15They tend to be liars out there. So those two, you got to be careful, listen to what you are on
14:20the, on the internet. And also if you're not getting the tariff revenues X amount, you know,
14:26the tax cuts are going to be how that policy is going to go. This is why it's a little bit Trump
14:31in the first time when he did this, got his tax cuts first, then he went into the trade war. Now he
14:36kind of went into a trade war right off the bat and then God did Godzilla's air. So two different
14:41presidencies, two different tactics on how to, uh, uh, handle this, uh, uh, trade war tap dance.
14:47So the third scenario is the economy doesn't hold up and the fed gets more aggressive. Now you've,
14:53you've talked about some of those things. We're having those firings where, you know, we're having
14:57some things, um, on the federal level still, but from my perspective, it could just be like the data
15:03comes in. We have had this time period, even like just two weeks of like, okay, we had no orders.
15:09We don't have any ships coming in, whatever. Is there a scenario where the, the data could go
15:13lower just for a little bit and that affects something? Well, let's look at the third scenario
15:20in this light. Let's say a bunch of deals get done, but the damage that we have done to the economy
15:26really starts to weaken the labor market. But the federal reserve sees that there's deals going to be
15:32done and things are going to flow back. Right? So why, why did the growth rate of inflation take
15:37off so much during COVID global pandemics, very inflationary supply chains don't work here trade
15:43war, right? Nothing. We're not shipping anything, but now we're shipping stuff, right? So when you ship
15:50stuff, the question is at a higher price, are people going to buy it? Are you going to create an
15:53inventory glut or, you know, there's all these different variables that go into at this stage,
15:58but let's assume the federal reserve goes, Hey, we've done a bunch of trade deal. Things are
16:04working, but the labor market is breaking. We don't need to really wait and see anymore. We'll
16:11be a little bit more preemptive. The third scenario is a little bit more favorable for, for rates,
16:17because if the data gets weaker, the federal reserve won't have a, we'll wait and see the labor
16:24market break before we do anything. Now they're going to go, okay, supply chains are starting to come
16:28back. Uh, we're shipping stuff again. So whatever inflation we're dealing with, uh, um, uh, we,
16:35we don't want the labor market to break. Uh, that's our dual mandate. So they could be a little bit
16:39more diverse. The third scenario is, is going to be the most interesting one, uh, because clearly the
16:45federal reserve took a different approach going into it because of the tariffs. And then the Godzilla
16:49tariffs were much bigger than anybody had thought. So, uh, uh, that scenario becomes interesting
16:55because we are, we have done a lot of stuff, you know, to make the economy in a sense, grow less,
17:01create more labor supply as the white house economic team has talked about. Um, but, uh,
17:06with the trade war, we still have very high percentages of tariffs still the total still
17:12there. So it isn't a free and clear all we have done this weekend for at least 90 days is maybe, uh,
17:19take the Godzilla tariffs out of the equation and more or less about, Oh, we're going to do some
17:25deals here. This wasn't like what I've always said. I don't believe in the concept of tariffs.
17:29Like in, in this general sense, you just put them in, you don't deal with anybody. This is about
17:33deals, making deals here or there. Uh, it's a very awkward approach to do this in the first year,
17:38but that's what happens. And now we have to deal with the aftermath. So I think the third scenario
17:43becomes more interesting. Does the fed itself sound more dovish knowing that supply chains are
17:50going to start to work back because we're going to ship stuff, or are they going to simply say,
17:54we don't want inflation to stick because if we lower rates, demand will get better. And all of a sudden
18:00that price inflation is more sticky. What we saw with global pandemics, right? Very hard spike with
18:07inflation. Then the disinflation happened. So definitely. Oh my God. It's like, we had four
18:13different cycles in the first few months of the year, you know, uh, with tariff on tariff off,
18:18Godzilla tariffs, bully ball tactics didn't work. And now we're trying to make deals. And now we have
18:23the rest of the year. So again, for me, that 10 year yield range tries to encapsulate everything
18:28that's going in there. And so far, the range has stuck, the rate has stuck, but at least now people
18:33can maybe understand at least how I look at it. Uh, uh, if you take the recession, uh, premise away,
18:38like I talked about after that jobs report, the 10 year yield really shouldn't have been
18:42below 4.35. If the data is getting weaker and everything. Oh yeah. You can get down there,
18:47but where the fed funds it right, right now, where policy is with two rate cuts possibly
18:51having this year, you know, uh, this is the best that we can do with, with all the data
18:56that's given to us on all the crazy variables. There's no normal years anymore. Just let's have
19:03like a normal 2016, 17, 2012, 20, something like that. But here, here it's, it's still wild out
19:11there. Don't, uh, even with this, uh, uh, deal or talk about deal, we still have a lot of variables
19:16that we're working with. We really do. I mean, I, I feel for people out there who are like,
19:22you know, they feel like they're, it's just like watching a tennis match. Okay. This happened. No,
19:27this happened. This happened when they're trying to figure out, you know, where mortgage rates are
19:30going to go, which is why we have you. So I did want to, um, you know, just give, uh, an announcement
19:36for our, the gathering that is coming up so soon. That is in June. You're going to be a keynote
19:42speaker there. We have some amazing other speakers as well, but it's a great opportunity for people to
19:47come and not just hear you speak, but it's like this three day event. You know, we're going to be
19:51there for a total of four days spread out over the things they can talk to you on the pickleball court.
19:57They can talk to you at the different, um, you know, events we're having. And, and this may be the
20:02thing I'm most excited about. We are having a putt-putt competition and it is called putt-putt.
20:08So we are having an event. Somebody's trolling me. Somebody at Housing Wire is just trolling me by
20:12doing a putt-putt at the gatherings. Come on. It may or may not be McKenna, our, our amazing, uh,
20:20coordinator there. That's so funny. So, but we always, we have so much fun. I mean, I think about the,
20:25um, you know, the pickleball tournament we have, which is also a dress up com contest. People came in those
20:30giant, uh, blow up chicken suits last time. I didn't come with anything. I just came there
20:35and watch, you know, I pickle balls, uh, bubble to me still, by the way, there was a pickleball,
20:41uh, like a big facility for a pickleball that was supposed to generate like millions of dollars.
20:45And now it looks like it isn't. So people invested in your area, huge. I don't know where it is,
20:51but the huge pickleball and they just don't have enough demand. So the pickleball bubble is starting
20:56to burst, right. You know, uh, get me on a basketball court and we'll play ball, but putt-putt
21:03and pickleball. No, no. Well, the great thing about those is, you know, we can all stand around and
21:08watch other people do it and talk while we're doing that laugh. Um, it's a great time. So come for the
21:14amazing economic talks as well as the other industry leaders we have, and also stay for the, and, and
21:20enjoy some of the other things we're going to be doing in the beautiful Broadmoor in Colorado Springs.
21:25So would encourage everyone who can to come. We're getting really close on, on being sold out. So
21:31don't miss out. Speaking of which, um, we got 80,000 new listings, uh, in the weekend tracker.
21:39So yeah. So for me, that was one of the whiff calls I had last year where I thought we could easily
21:46at least get minimum 80,000 new listings in the previous decade from 2013 to 2019. The average base
21:53of new listings during the seasonal peak months were about 80 to a hundred thousand, uh, during
21:58the seasonal peaks, we got, uh, up to 110,000, uh, a few times in the last decade, but that would be
22:04normal. And I thought we could get normal last year. Uh, we didn't, I think the highest level was
22:1075,000. So getting again, getting back to normal, a good thing for housing, uh, uh, in the longterm.
22:17Um, and you know, we always try to teach economics through many cycles and what things used to look
22:22like in the past and how they're going to look like in the future. And again, we have a very,
22:25very, very extreme low sales base to work off of. And this is why I would constantly remind people
22:31we are working for the lowest existing home sales ever recorded history. When you take the tangible
22:36variables of the workforce household and everything. So it doesn't take much to move to Neil. We've seen
22:40this with purchase application data. Uh, we'll see if we could end the, end the seasonal heat months
22:45with a 100% positive year over year curve, uh, out there. And again, whenever you have this very low
22:53base, what we show it in, in the charts is you could take a look when a recession happens, rates go
22:58lower. You see the demand curve every time, uh, start to improve sometimes stronger than others,
23:04sometimes faster than others. I know that we talk about the 1980s a lot. Uh, mortgage rates went
23:10down two and a half percent. Sales started to climb back then. People said, nobody's going to
23:13buy a house. Everyone's a renter. And affordability was worse back to affordability was worse back then.
23:19We had two recessions, uh, uh, but the 10 year yield went lower. Mortgage rates went lower and
23:24the slow dance happened and the spreads improved. My God, the spreads were bad, like five to 6% gap on
23:29spreads. Uh, uh, so that's how you got 18% mortgage rates. So cycles work kind of, you know, uh,
23:36uh, they're, they're all different, but there's some baseline stuff that always stays the same.
23:41So, uh, I, I, again, I'm more, I'm more encouraged because price growth is slowing down. Inventory
23:46is growing the lower bases in new listings data is growing up purchase application to even with
23:51elevated rates or positive year over year. When the time comes, when rates do get a little bit lower
23:56near 6% and stay there, we have a better backdrop, not only to handle the price growth inflation. We don't
24:02have to worry about that. We're not going to get 2020, 2021 or early 2022 again. And we have a more
24:08healthier housing market. So that, that was, you know, when I, when I looked at that tracker, I was
24:12like, yes, this is what the doctor ordered and we're getting it in 2024 and 2025. And again, if you
24:19are a mortgage rate lockdown person who said inventory could never grow in America, as long as rates
24:25stay elevated, that has not been the case with the data for the past few years.
24:30And let me just say, that's not the way that everyone defines the mortgage rate lockdown
24:34position. So we'll just, we'll just leave that there. We'll fight about this later.
24:38Oh no, didn't, didn't you lose like a, a debate with me at one of our events where Clayton rose my
24:45hand up and said, winner?
24:46Yes, technically. But since that time, I can just tell you, I've had a lot of people be like, I totally
24:51agree with you on the mortgage rate. So they just weren't in the room. That's, that's what I'm going
24:55with. Sarah, they always say the brave are the first to die. So you're brave enough to take me
25:01on stage. I commend you. Most of these cowards and frauds that I deal with can't even show their
25:06names and faces, but you, you got up there. Good for you. I was, I tried. Okay. Well, we will see
25:12you again soon. Thanks so much for being on. Pleasure.