Mortgage rates explained: Logan Mohtashami breaks down the data

HousingWire

In this episode of Ten Minute Talks, HousingWire’s Managing Editor Allison LaForgia sits down with lead analyst Logan Mohtashami for a fast-paced, mortgage rate 101 deep dive. Logan unpacks how mortgage rates are determined, from the 10-year Treasury yield to the mortgage rate spread, and why that matters to lenders and borrowers.   Logan breaks down which economic indicators he tracks daily, including jobless claims, labor data and inflation reports. He explains why weekly purchase application data tells a more timely story than traditional monthly housing reports. If you want to understand how to interpret the real-time housing market, this is a must-watch.    #HousingMarket #MortgageRates #EconomicOutlook #LoganMohtashami

Transcript

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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