- 4 months ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about where mortgage rates are headed for the rest of year given Fed policy, economic headwinds, tariffs and more.
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Related to this episode:
Mortgage Rates | HousingWire
https://www.housingwire.com/mortgage-rates/
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about where
00:11mortgage rates are headed for the rest of the year, given Fed policy, economic headwinds,
00:16tariffs, and more. I want to thank our sponsor, Optimal Blue, for making this episode possible.
00:22Logan, welcome back to the podcast.
00:24Happy Jobs Friday. What a week we survived. And I got to bring the Red Hulk and Trump and Powell out
00:34this way. This AI stuff is just wonderful. I'm going to have so much fun.
00:40You're dangerous with this AI stuff. I'm telling you that you're hilarious social media things on
00:45this. It's very entertaining. Now, of course, I'm not a political economic theory guy. I hate
00:50talking about it. But because it's the Fed and mortgage rates and housing, I'm obligated by duty
00:55to do this. I'm going to have fun with it. And it's been an interesting week. Now, of course,
01:02by the time people listen to this podcast, Jobs Friday is out and who knows where the 10-year
01:08yield is doing there. But with everything said, it's Thursday morning. And what happened Thursday
01:15morning? Jobless claims is good. Nothing bad there. The inflation data, the personal consumption
01:22expenditures, that's where the Fed really puts their weight on, more than CPI inflation.
01:27That showed goods inflation picking up. So the Federal Reserve told everybody they believe,
01:33starting in June all the way for the rest of the year, that they're going to start to see some of
01:36the goods inflation. So the total report itself wasn't anything too dramatic. But you could see the
01:42underlying curve of stuff coming into the inflation data on the good sides. And PC, the service
01:50inflation isn't as big as it is for CPI data. So it's something to think about going out. So we had
01:57a hawkish Fed. We had Powell basically empire strikes back against Trump. Trump went ballistic this
02:04morning. That's why I did that video of me with super blonde hair screaming like a lion, because that's
02:09probably what Trump did yesterday. And he went out and just bombarded Powell again, Thursday morning.
02:15And with the inflation data underneath it, a little bit hotter, 10-year yield is down slightly today.
02:23Not much. It's around what? That 435 level around. That's what we talked about. That's been our main
02:30focus all year. With Fed policy, it looks about right. And a lot of people say, well, the Fed doesn't
02:38control mortgage. Oh, yes, they do. 65% to 75% of where the 10-year yield. Now, what do we always say?
02:44We teach people this way. The 10-year yield and 30-year mortgage rates have had a slow dance
02:49relationship since 1971. It goes back further, but my charts only go there. And then they slow
02:56dance with each other. And that's really driving about Fed policy, nominal growth, inflation data. But
03:02the spreads is literally the number one mortgage story of the year now. Because the spreads,
03:10there's no volatility that much in rates. And this is tested. So I'm waiting to see how Friday's
03:15pricing does. But the question is, let's go out in the future. What do we look for now?
03:20Okay. Well, first, what is that 430 rate on the 10-year yield? How does that translate to mortgage
03:26rates? What does that normally mean?
03:27So this is why I talk about that 435 on a 10-year yield a lot. When Godzilla tariffs came and stocks
03:35were down 20%, money went into the bond market like crazy. And it took the 10-year yield down to
03:423.87 overnight trading or trading early in the morning. My whole range on the 10-year yield was
03:50almost met because of that. It was like 470 to 380. But the spreads weren't that great. Mortgage rates
03:57got down to 6.55%, I think, at that point. But I even said on that day, it was April 4th. It was
04:05jobs Friday. I said, we don't belong here. We belong at 435. If Godzilla tariffs are off, we're
04:09belonging. And what happened, 90-day rules, they set some exemptions. We're doing some exemptions
04:15or some delays with Mexico today. 10-year yield got up to 435, went up a little bit higher.
04:21So where we are with Fed policy right now, the 10-year yield looks right. But mortgage rates are
04:29acting better because the spreads are better. And if the spreads didn't improve, we're 7.5 to 7.75
04:36around there and the housing market acts worse. So instead, where are we with mortgage rates right
04:43now? About 6.75. Right now, today, as of this second, I just saw the pricing right. So there
04:49it goes. And because the spreads are good, we get better housing data when it's 6.64 down to 6. We're
04:58not that far off. We're so close. And the spreads have room to improve. A lot of people said that
05:05mortgage spreads could never get down to 2% ever again in history because they overweight the Fed's
05:10involvement in that. We have decades and decades, I stress to everybody, we have decades and decades
05:17without the Fed buying mortgage-backed securities. And the spreads are somewhat acting normal. They're
05:23a little bit slower to go down, but also the Fed rate cut cycle has been a little bit slow. But
05:27if you look back at the history, there's nothing abnormal. We are not that far from getting on 2%
05:34on the mortgage spreads down there. So 3.10 was the highest level in 2023. That gave us 8% mortgage
05:41rates. So when you look at the spreads, normal is 160 to 180. We're 2.28 at that one point. We're not
05:49that far from even getting closer to normal. So all of this is a positive because you just get a little
05:54bit better 10-year yield and better spreads, 6% mortgage rates. Things act a little bit better in
06:00that. And that's why we always wanted to highlight the spreads discussion in the tracker. Because if
06:05I was right, starting in 2024, they should improve. They have improved. They stayed improved. And
06:11whenever yields go up, they get better. So it's giving the mortgage rates a kind of a cushion
06:18on higher yields days. That's a positive because demand could even be worse. So going out in the future
06:25though, what do we want to see and how does a bond market react to what? Okay. So first question is,
06:31has anything changed in your forecast for rate cuts coming up? Do you see it in September? Where are we
06:39going to be? So for myself in 2025, it was always two rate cuts. Of course, because of Godzilla tariffs
06:47and everything, things are delayed. I'm just going to stick with the two rate cut camp always. I don't
06:54like to change my forecasts ever. If you've noticed that I just kind of move with the data
07:00because I rather teach people what can change something. Rate forecasts, hikes and cuts and
07:08everything is a very fast moving variable. And today is a really good example. In any other
07:16circumstances in the last three years, bond market yields would be rising and mortgage rates would be
07:20rising. But what is the big difference? The personal consumption expenditures, I'm going to be nerdy
07:26here, six month annualized inflation injustice spending went negative today. That means the
07:33spending for the first half of 2025 was very slow to the point that that data line showed a negative
07:39number. It's really rare for that to happen. What do we talk about GDP? The GDP data, the consumption
07:46data that the Federal Reserve has basically focused on and said, this is what we hold our hats on.
07:52That was weaker in that. Going out in the future, why do you think Trump wants emergency rate cuts?
07:59Because he knows that if goods inflation picks up just a little bit, right, it's easier to deal with
08:07a trade war with lower rates. We went on CNBC, what, four months ago or a few months ago,
08:12and on live camera said, the cure for tariffs, because what Trump wants is lower rates. Why?
08:19When Trump saw what happened during COVID, we had all this inflation, right? And people were buying
08:25homes and stuff and everything. Why? Because rates were lower, right? So it wasn't the inflation that
08:30was scaling. When rates are lower, buyer capacity grows. So that's kind of what he wants for housing.
08:36This is why he keeps on pounding on housing, because it's the Trinity effect. If you could get,
08:40if you could get the mortgage rates sub 6%, he would be just thrashing every country in the world
08:45and everyone in the economy is super duper wonderful. But right now, I'm just going to go
08:50with two still. And if the consumption data gets weaker, those two are solidified. But the fight
08:58becomes, if goods inflation starts to pick up and total inflation doesn't really get out of hand,
09:04what does the Fed do in that context? Because if I would tell you this, if there were no tariffs today,
09:11and they didn't cut already, they would have done a 50 basis point cut yesterday.
09:17Wow.
09:18That is what would have happened yesterday, because the consumption data is slowing down,
09:26and they are modestly restrictive. Because they are modestly restrictive,
09:31and that consumption data, they would have cut half a half a percent, if they didn't cut before
09:37already, because they're playing catch up. But because the labor force growth is slowing down,
09:44the unemployment, they're using all their usual tactics to stay as restrictive as possible,
09:48until the labor market breaks, and they're going to go, Oh, I've got my cover. Now I've got my cover,
09:55my dual mandate, dual mandate, we do dual mandates differently, two guns, walk five feet,
10:00turn around, boom, who shoots who first? Labor or inflation? Dual mandate, what guns?
10:07Who would you take? Alexander Hamilton? You know, but that's where we are right now. It's going to be
10:14this crazy battle between goods inflation, consumption data, the labor markets. What is Powell going to say,
10:22going out for the rest of the year? I mean, if I was Trump, if I was President Trump today,
10:28you know what I would do? I'd be like, Christopher Waller is the next Fed president,
10:34Fed chairman right now. I would just name it right now. Now, I've always told people wait until October
10:40until this, they're really pushing this out later on. But Besant came out and said, they're going to
10:46give some candidate names toward the end of the year. So it's not anything, but that's what I would do.
10:51If I was Trump, I would just say Christopher Waller. So he becomes the shadow Fed president. You're not saying
10:56he should appoint him and like fire Powell and appoint him now. No, no, no, not fire Powell. Let Powell stay all the way.
11:03Don't fire Powell. Forget this construction stuff. Get with something that can material do something, right?
11:12A shadow Fed president is something that can actually somewhat work to a degree, but you can't put wars.
11:19You can't put, just put Waller in and then the market's going to go, Powell's done. Do I really
11:26want to listen to a guy that I know is not going to be there? That was the whole concept of the shadow
11:30Fed president. If you're going to talk about it, pull the trigger. What are you waiting for? You know,
11:37come on. New York wall, get into it. All you all talk about this for like six, seven months. What's the
11:44point if you're not going to pull the trigger? So if you're hearing this, if anybody in the Trump
11:50administration is hearing this, pull the trigger, stop talking about it. Stop wasting time on this
11:56construction, whatever. Powell is not going to quit. Powell's not going to leave. You can't fire him.
12:02Get to the next stage.
12:03And you can, you started writing about the shadow Fed president, uh, based on what the treasury
12:10secretary, Scott Bessent had written about the shadow Fed president in the fall. So this is not
12:15your idea. This is just you, you know, shining a light on it saying, this is the strategy that
12:20they've already laid out. Do you know when this all really started was when, uh, Steve Mnuchin,
12:26who was a treasury secretary and Trump, Steve Mnuchin, I wish he was still on the team. Um,
12:32he basically talked about, well, we don't want the 10 year yield to go above four and a half percent,
12:37you know, yield control. He, it was, it was some geeky stuff, but if he's talking about that,
12:43that in 2024 and Bessent was talking about a shadow Fed president in October, you know, before even
12:50Trump won, you could say there was a game plan set. Now, nobody knows what the shadow Fed president is.
12:56We were talking about this for like six, seven months and everyone's like, what the hell are
13:00you talking about? It sounds like some sinister project or something or some, you know, uh, some
13:04spy movie, but that was the game plan. But man, it's, it's August. When are you going to pull the
13:11trigger here? If you're going to talk, pull the trigger. If you're not, if I, this is why this whole
13:17reconstruction thing is, you're not going to fire him. He's not going to quit. All you did is made Powell
13:23more resilient. He's needs, the man is literally going to rather die than leave the federal reserve
13:29now. Okay. This is what happens when you try to play bully ball and somebody is going to fight back.
13:34Right. So, um, do it. Why, what are you waiting for? At least let the market say, okay,
13:42I got a guy who was voted for rate cuts. You already got it on record. Right. So move it to the next
13:49place. Now, of course, this isn't going to be what Trump, Trump wants 3% rate. No, that's not
13:56going to work. And I think Bessett, Bessett knows that, but you know, if you want to get down to
14:00neutral, it does not matter. It does. We're so close to getting to that next level. The spreads
14:06are better. So there's things that can happen out there. So it's just, it's very exciting. As you can
14:12see, I'm very excited right now. This is fun. This is what I was just like nerdy Superbowl time.
14:18You know, halftime is over. Let's go. So, you know, yesterday, so we're, we're recording this
14:24on Thursday. So on Wednesday, when the GDP came out, Trump was like, GDP is great. We should cut
14:29rates. It's like, I don't think that's the way that works. And, and lots of people, I saw lots
14:35of people being like, if the economy is doing well, if it's outperforming, that's not when you cut
14:40rates. Correct. If to cut rates, you need to see things getting worse. It depends on where the fed funds
14:47rate is. Okay. So the reason I say this is because the federal reserve said modestly restrictive,
14:55we're not at neutral. Okay. So they gave themselves leeway to cut rates to get to neutral. Now,
15:03when you looked at that GDP number, the internals weren't that great. Now we look at the personal
15:09consumption spending numbers. So this gets into the nitty gritty. Of course, Trump is such a
15:17polarizing figure that of course, when he says, it's the best economy ever cut rates, same thing
15:22he did in 2018 and 19. Right. But back then in 2018, 19, there was actually a case to be made for,
15:27for, for cutting rates. You know, business investment went to zero. We have talked about
15:31this for a long time. When you went back to, uh, uh, uh, first Trump presidency and the trade war
15:38tap dance, that was a very, very small trade war compared to what we're doing now. And business
15:43investment went down to zero, right? And housing was slowing down because rates went up. The dollar
15:48was too strong. Now I just wonder how frustrated Trump must be because he got the dollar lower.
15:55The dollar is finding a bottom right about here now too. Um, also energy prices are lower. He's,
16:00he just needed that 10 year yield and spread to get better that you, he could have ran with it.
16:04But, um, uh, my thing is this is, this is the political economic thing that I hate because it's
16:12all, you know, it's a show, right? It's a circus, right? So you don't say it's the greatest economy
16:19in the world and why we need emergency rate cuts. That doesn't make sense. You know, poor speaker
16:24Johnson goes on TV and says, uh, to CNBC, the economy's hot and the CNBC actors, and why do
16:32you need 3% rate cuts? So we get into this and this is where political economic is just like, I, I,
16:38I have to like step back. It's like none of the stuff would make sense to me, but I understand why
16:44they do it. I'm just, I can't operate that way. So I'm just trying to get people to realize we are
16:49talking about going to neutral because we have never, ever once talking about accommodative policy
16:55that has never been any of the subject, right? That's when the labor market breaks. And what
16:59does the labor market need to break? Jobless claims, 323, four week moving average. It's
17:05August, 2025. All those recession calls have been wrong since 2022. When we had our six recession red
17:12flags up and we said, okay, we're going to keep an eye on claims and, and, uh, residential construction.
17:17And then the 10 year yield went down and single family permits rose. That was it for that, right?
17:21That, that thing was null avoid, but now, Ooh, Oh, it's going to get fun. Oh, the AI game is going
17:29to get even better. Sarah Wheeler. I am glad that you're here to witness this because it's going to
17:33be a heck of a time for the next five months of the year. Okay. So put yourself in the LO position
17:39though. Not as much fun. If you're trying to figure out what's going on for the rest of the year,
17:43you're keeping your forecast the same as it has been, but I have never changed my 10 year
17:50yield channel forecast ever in my life. And I never will. My 10 year yield channel takes into a
17:55lot of things that could happen within a year and gives a reasonable range this year. Didn't matter
18:01what the fed fed was doing. 380. Hodor. The Hodor line was a bottom and then 470. Okay.
18:11435 to 470 looks right with fed policy. Now, if you start to get more discussion of rate cuts,
18:16you can go a little bit lower. Everything kind of looks right in that, but this is a range.
18:20What's the mortgage range for that? Seven and a quarter to 5.75. So right now we've got seven and a
18:27quarter to I think six and a half was the low point. So the bottom half has not happened because
18:33the labor market has not broken yet. Last year, it's really interesting. Last year, same range,
18:39seven and a quarter to 5.75. We had seven and a half down to 6%. But last year, the markets were
18:45hell bent that we were going into a recession. And all it was, was job growth was slowing down.
18:51We tried to tell you guys that last year, that, you know, mortgage rates were really priced in for
18:57a bad economy and, you know, quick reversal. It's like the Gandalf line and the Hodor line,
19:02quick reversal. So keep an eye on this because, um, you, you have room to go lower without the fed
19:11getting, uh, uh, any kind of aggressiveness for two things. If the economic data starts to get weaker,
19:16bond market has told you they'll go lower and the spreads are better. Now the spreads are better.
19:22Now means we don't need the 10 year yield to go below 4% anymore to get 6% rates. You know,
19:29if the 10 year yield can just head down there with better spreads, we're not that far off from the
19:33year to date lows today. As we talk, it's a little bit different portion of the economic cycle. So
19:39very exciting. I hope all my nerdy friends that are listening to me could understand why I'm so
19:44excited. I think y'all get me. This is really fascinating stuff right now with the economy,
19:50the fed and tariffs and everything. It's been decades, decades, you know, that we've had
19:54high percentage of tariffs and, and how that works. So we, we all get to test run a new economic cycle
20:00for us, which is very fascinating. Watch jobs Friday and look for Logan's, um, analysis of that.
20:07He always writes that up. Um, look for that today when this airs and Logan, thank you so much for
20:12being on. Appreciate you. Pleasure.
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