- 4 months ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about how better mortgage spreads have brought mortgage rates to their lowest level of the year, and where rates are headed next.
Related to this episode:
Better mortgage spreads lead to the lowest rates of 2025 | HousingWire
https://www.housingwire.com/articles/better-mortgage-spreads-lead-to-the-lowest-rates-of-2025/
Enjoy the episode!
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:
Better mortgage spreads lead to the lowest rates of 2025 | HousingWire
https://www.housingwire.com/articles/better-mortgage-spreads-lead-to-the-lowest-rates-of-2025/
Enjoy the episode!
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 modashami to talk about mortgage spreads
00:12which are now at the best level of the year and how better spreads can positively impact mortgage
00:17rates first i want to thank our sponsor optimal blue for making this episode possible logan welcome
00:24back to the podcast it is wonderful to be here sarah it's wonderful to have you here okay we have
00:31so much to talk about do you want to talk about waller first or you want to talk about mortgage
00:35spreads well let's talk about mortgage spreads so um you know it's thursday morning and mortgage
00:43spreads this is like the lowest print in in many years right and uh you know it's it's one of these
00:52topics that you know i i just always i always love to talk about but you know i think it's so
00:57important and it's something that not a lot of people in the industry know so we were really
01:02trying to harp on this over the last uh two years and for everybody that follows a tracker there's a
01:08there's a better spot now on housing wire's website that could actually you know you can get to the
01:13tracker faster i know a lot of people were looking for that and you know we always talk about the
01:18spreads every single week we give everyone updates but because the spreads have improved
01:24so much we're starting to get to the point to where we could possibly talk about sub six percent
01:34mortgage rates um that uh something i haven't really been able to talk about i mean even though
01:41the low-end forecast for me for the last uh two years have been or this year last year was 5.75
01:47because i needed to see the spreads get better and the spreads getting better looks normal at this
01:54period it's it's it's a very positive trend because you don't need the 10-year yield you know to get to
02:00the gandalf line in 2023 that was 3.37 percent and mortgage rates got to six percent with a 3.37
02:11percent tenure we are so far from that so hopefully that gives you all some perspective
02:16that if the spreads didn't improve we are nowhere you know close to a six percent because we need
02:24the 10-year yield to you know go roughly uh almost 80 90 basis points lower for this to work so
02:33very very positive thing this year in 2025. Okay so i have a couple questions first off um you go over
02:41this every week in the housing market tracker um that we do on the weekend and you talk about where
02:46the spreads are and where they would be if they hadn't improved where they would be if it was normal
02:52so maybe walk us through that right now like is this getting to where spreads normally are coming
02:58coming off of that really uh big level so we're getting closer to two percent um now it this is a very
03:08nerdy discussion what what a lot of people think about is mortgage spreads are normally between 160
03:15and 180 that's true in recent history but if you go back decades you know we've had spreads one and a
03:22half percent and lower we've had spreads 50 to one and a half uh a percent in the in the in the 1970s
03:29uh as high as you know 2.3 percent even with inflation but recent history 1.6 to 1.0 my my forecast for this
03:40year was for spreads to get better just 27 to 20 27 to 41 basis points using how we track the spreads
03:49on a 2.54 average of last year uh so we're getting close to that uh level and it's just like shocking
03:58people because a lot of people were told that mortgage spreads will never go lower ever again in the
04:04history of america because the federal reserve you know um it needs to buy mortgage-backed securities
04:10and without them buying back mortgage-backed securities it's not going to happen and the also the other
04:16impact is that they're gonna you know uh sell mortgage-backed securities so mortgage rates will go up
04:21to eight nine ten percent these are all anti-central bank people by the way but in this case
04:25if you study the history of spreads what's occurring right now makes sense it made sense going into
04:332024 it made sense going into 2025 so such a positive story because you know the best example i could
04:40give in 2023 we only got to i think 5.99 percent for like a day but it needed like you know the a lot
04:48of people were worried about the uh uh silicon valley banking crisis recession and everything and the
04:5310-year yield got to the gandalf line and i'm telling everybody we're not going to break this
04:56we're not going to break this and everyone's like we're going to break this i'm like no we shouldn't
05:00and things were versed up higher so uh a year for the spreads a year for the spreads okay so um looking
05:09at the specific places they're going because when you say i mean we would be thrilled just to get to
05:14six percent right because that is the level that you're like this is where we see housing demand you
05:18just wrote an article about that yesterday but if it could go below six percent i feel like you would
05:24be drawing a lot of people off the sidelines just from a like oh it so many more people would be
05:29qualified lots more people are like yes i'm i'm willing to jump in i don't ever talk about sub six
05:35percent rates because a lot of things have to happen for that some of those things are in works
05:40you know a great cases for a reversal is that the uh inflation data starts to pick up and the
05:47economic data improves which could send yields higher but but when yields run higher the spreads
05:54get better now so it's it's a positive in that sense that the days where we see these kind of uh big
06:02moves in the 10-year yield the damage was limited you know so um you know the builders have been able to
06:10keep their new home sales levels uh at 2019 for for a long time because they work in a sub six
06:16percent mortgage rate so you obviously got buyers that are in there to keep sales that high versus
06:22the existing home sales market but i'm only going about what i've seen in the last two years is that
06:27the duration of rates going towards six gets things a little bit more and again we're working from the
06:33lowest levels of sales ever it's the third calendar year and we don't have underwater mortgages we don't
06:38have credit getting uh hit or tighten in any meaningful fashion or anything like that you know
06:45so uh as scott beset said you want to unfreeze the housing market right uh so you need kind of the
06:53lower rates with duration the duration is the key uh and every time we've gotten near this level
06:59things reversed up higher so it's just so fascinating because with the spreads being where it is it's been a
07:06while it has been a while for everyone to see good spreads and for a lot of people they still don't
07:11know what we're talking about no it's true like um when whenever you speak you ask hey how many people
07:17here know you know know know about mortgage spreads or know what i'm talking about and just a few hands
07:22i mean we'll be in a in a ballroom with hundreds of people and it's like less than six will will raise
07:27their hands i do think this is confusing it's also confusing to people what what moves these so you
07:33mentioned the silicon valley uh banking crisis on a negative side you know market volatility but when
07:41rates rise up i mean the simple way is this uh epo risk early payoff risk you investors need to be
07:48compensated you know for uh uh this kind of uh investment because you know as mortgage rates go
07:55i mean just a very quick simple you paid x amount for a mortgage rate if it's likely to get
08:00refinanced sooner you lose that money so you need compensation when the market gets volatile you
08:05know spreads get a lot so we saw that with the uh um godzilla tariffs but the the spreads only getting
08:11worse was only 20 to 25 basis points 2000 uh 20 23 the spreads got really bad after the silicon
08:18valley breaking crisis but you know in this case you know you're looking at if we had the silicon
08:24valley banking spreads you're looking at you know 70 75 basis points higher but if you have
08:30normal spreads right now you're sub six percent today right now with the 10-year yield where it's at
08:37and it just it just it makes some of the things a little bit more workable uh on the modeling side
08:44i'd encourage everyone follow the tracker because really um that's what you're looking at all the
08:50time look it's one of those data points that you're doing and we are uh about to unveil an easier way
08:55for people to get to the housing market tracker so stay tuned for that you guys yes and always remember
09:00the housing the housing uh the tracker article is to show you how we track everything on the national
09:07side but our bread and butter are states cities zip codes and they're done in a much more prolific way
09:16we give you a taste of you know the chart daddy breakfast you know that we have we give you an idea
09:22of what to think about in national economics because housing and economic cycles tend to
09:26stay similar but if you really really want the juicy stuff altos research uh you go to the website
09:33you could get a free zip code uh and just to see how it is and uh we'll be doing our uh webinar uh on
09:40august 20th if you get a registration link where i kind of talk about the uh uh how we how we track the
09:46inventory demand data and remember we're not what we call third-party regurgitators we don't take
09:52like another company and just give you the basic information and say this we like to show you
09:57multiple data line sets and how we interpret it what could happen between you know the economic
10:02cycle right that's that's my thing i'm more of an economic cycle person first so in that sense it
10:07becomes a little bit more clear but you can break it down to your zip code this is why wall street likes
10:11us real estate investors and kind of prolific realtors we really give it because it gives you
10:16a little bit more clarity and especially in areas where you know it's becoming more of a buyer's
10:21market when when your sellers get to see it they're like oh okay you know because we all know sellers
10:27sometimes have a false sense of reality okay so now let's talk about the fed we did a whole episode
10:34yesterday um about mutiny at the fed and after we got off not that long after we got off we had
10:40another uh fed member talk about yes joining the like we should be cutting rates chorus so tell us
10:46about that tell us the latest because of course we would love to see some rate cuts there so the
10:53interesting part is after we were done with our podcast yesterday uh another fed governor came out
10:58and kind of like you know uh said said something uh more dovish so you're starting to run the numbers
11:06here and there's a lot of uh dissents coming in but uh today's news is that uh chris waller is now
11:14leading in charge and we're like oh my god everybody was like you're having the week and i'm showing the
11:19video of me djing you know and getting smoke thrown at me and i'm like this is great if i could get
11:25waller and neil dada we're throwing a party we're throwing a chart daddy nerd party you know um so that's
11:31very good and that to me makes it seem that beset is you know really telling trump hey listen this is
11:38the best guy because not only was he advocating for rate cuts before any of this stuff he's got a
11:46more coherent way of maybe rallying the troops together you know in that context so i think that's
11:52um uh that's a positive we'll see what happens and it should happen soon right who knows maybe by the
11:58time this podcast ends you know we might know know who it is but there's a lot going on and to me it's
12:04it's it's again remember like two months ago when jerome powell said that hey it's really hard for
12:12people to find jobs you remember it was it's a really tough market for people to find jobs and
12:17we're like wow he's just flat out admitting it well now that you know the labor market isn't as
12:23strong as they thought you know waller was always ahead of that you know that's the thing i think
12:31beset is telling her hey listen he knows how to you know get the troops and what what waller would be
12:36saying hey listen we've had really negative revisions and we're not seeing hirings and we're
12:42it's very very narrow right now and of course when manufacturing and residential you know there's all
12:48these things that he was right and i trust me the fed people do not want to be late if they see
12:55something breaking they turn on a dime all right and and because of that i think he's he's a little
13:01bit more can't work kevin warsh everyone hates kevin warsh so you can't rile him up kevin has said is
13:06better than warsh but he's still a yes man so it is positive that you know his name is out there
13:12uh because if you get somebody like that that is that is already dissent against powell and he is
13:18on the opposite side of him he could get the troops going so uh i hopefully that's the case
13:24hopefully by the time this podcast airs they announce him so we'll see announce him as the
13:29next fed president which would make him the shadow fed president which would you know then everybody
13:33starts listening to him because he's the one who's going to be setting setting i think after that
13:38jobs report man it's it's powell's just losing more and more you know validity on that and it it was
13:46it was it was the tone and dismissiveness in the last fed remember i said like oh if trump understood
13:52what powell was doing here he'd probably be fuming you know because that that's how that fed presser was
13:57so again we'll see you know if the economic data firms up and inflation firms up we have a whole
14:03different kind of discussion here but for now the mortgage spreads are good you know waller is
14:10coming here maybe neil dudek it's i mean i'm having i'm having a good week you know in that sense
14:16so we got jobless claims today what do you make of those so this is interesting when we look at
14:22jobless claims there's kind of two uh big data lines there's the initial claims and there's the
14:28continuing claims the initial claims picked up a little bit uh but the four week moving average
14:33and headline is still very low the continuing claims on the other side on the other hand
14:38had a big pop it's at a three-year high and what does that mean is that it's not a very it's not a
14:45great labor market like powell said months ago if you're looking for a job tough it's really hard
14:51you know and the continuing claims are people basically you know who are still filing for
14:56unemployment benefits but past kind of like two weeks so with that elevated it just shows what
15:02we've talked about the labor market has been getting softer for some time now it's 19 months
15:06um softening is not breaking we don't i don't want to be right i don't want i don't want the fed to wait
15:15till this breaks right because a lot of people say well it's breaking look how low the job creation was
15:20and you see multiple sectors falling they can change and this is why it was encouraging to have
15:26a bunch of fed people say hey boy that labor you know uh um it it's good in that sense because
15:36now when the jackson hole meeting comes powell can basically uh talk about it but we have to always
15:42remember all these discussions that we're having right now is just neutral policy how to get to neutral
15:50we're not talking about an accommodative or anything like that we're just trying to get now i know
15:55trump wants three percent rate cuts and you know whatever but we're just talking here is how do you
15:59get to an accommodative policy easier um if you start getting into the i mean how do you get to
16:06neutral policies but if you start getting to an accommodative policy you know then this whole
16:12discussion we open another box right and i'm not i'm not opening that box until we you know until
16:18they say you know fed policy needs to be an accommodative stance not a neutral stance right now
16:24they're modestly restrictive right so we said this in 2022 they will stay as restrictive as possible
16:31until the labor market breaks we're right at that thing where people can make that statement but i'm
16:35hoping that this is the turn if the economic data gets better you know love it i'll take that 24 7
16:43but at least now there's a everyone's in the playing game or playing field right now on this and the more
16:49conversation the better rather than having powell go up there and said hey listen i could be raising
16:55rates right now you know and uh just kind of having that tone and what a change what i mean talk about
17:02what a flip in just a few days you know where people like oh he sounded very uh hawkish and it doesn't
17:10like now all of a sudden everyone's oh wow the labor market is not as good as people think you know
17:16it reminds me that um when you gave your um presentation at the gathering you're like
17:20everything's changed in the housing market and now we're looking forward to your presentation at the
17:25housing wire imb summit in october and you uh the the name the tentative name is what the bleep is going
17:33on with the housing market um and i'm just i i encourage everyone y'all should be there because it's
17:38going to be an incredible talk by logan and he's going to be accessible you can ask him questions you can
17:43talk to him in the cocktail party and you know get all his uh chart daddy download whatever
17:48there so um i i'm really looking forward to that session and it's going to the the market everything's
17:54going to change between now and then but i know you are going to be absolutely on top of it and it will
17:58be a very fresh conversation did you get a little texas on me when you said y'all oh did i i don't know
18:05you didn't get you didn't get texas on me when i was on that bull at billy bobs you're just sitting
18:13there laughing at me because i look funny yes we thought we saw uh people bull riding that was a
18:20fun event um yes okay sometimes the texas just comes out i don't even mean to so anyway everybody
18:27look at the imb summit come if you can it's going to be amazing logan thank you for keeping us up to
18:32date on everything can't wait to talk to you again soon and who knows what will happen between
18:36here and there y'all better watch out because we might get a mutiny on our hands i apologize in
18:44advance for that okay thanks logan
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