Mortgage rates drop after Friday's shocking jobs report

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Friday's shocking jobs report and how it drove a sizable drop in the 10-year yield and mortgage rates.   Related to this episode:   ⁠Shocking jobs report sends mortgage rates falling to new yearly lows | HousingWire⁠  https://www.housingwire.com/articles/shocking-jobs-report-sends-mortgage-rates-falling-to-new-yearly-lows/  ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠   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.

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about that

00:10shocking Jobs Friday report and the silver lining, which is a sizable drop in the 10-year

00:16yield and mortgage rates. Logan, welcome back to the podcast.

00:20It is wonderful to be here, Sarah. Wow, wow, wow. Jobs Friday. It's Friday morning. What

00:28a week it's been. What a week it's been. We're actually going to release this early on Saturday

00:33just because we don't want to have people have to wait for your analysis of what happened.

00:39And let's just say for the fact that you called this labor overinflation, have said that for

00:46several years today, I feel like, you know, validated that entire thing. You know, for

00:51those that don't know what we're talking about, in late 2022, the Federal Reserve, Jerome Powell,

00:57personally changed the game plan. Earlier that year, he said, we would like the Fed funds rate

01:04to be, you know, matching three, six, 12-month PCE. But then, eggnog. Someone spiked the eggnog

01:14on Christmas and everything changed. And I said, okay, we have to change this idea that the growth

01:20rate of inflation is going to be the main driver. It's going to be the labor market. And no matter

01:24how much the growth rate of inflation falls, it doesn't really matter. The Fed funds rate,

01:3165% to 75% of where the 10-year yield and mortgage rates grow is still Fed policy. So they're going

01:36to be up here for a while until the labor data gets better. Well, last year, mortgage rates fell

01:422% from the peak in 2023 all the way down to the low point of 2024 with no rate cuts. But that's

01:51because the market was anticipating weakness in the economy and was well ahead of Fed policies. So the

01:57day that they cut rates was the day that the economic data started to firm up. So lots of upside to get

02:04back toward Fed policy. And this year was different. You know, we've already got 1% of rate cuts in the

02:12system. Jerome Powell went on TV and said we were late in cutting last year. But the labor market's

02:20fine. Remember a few job reports ago, we said that if it wasn't for government jobs blowing out the

02:27numbers, you know, we wasted an entire month on this whole labor discussion because government jobs were

02:33the big drivers there. And, you know, it might be, it might take a little bit more time for the Federal

02:38Reserve to realize that the labor market is really softening up. But here we are today,

02:44jobs week, we had a soft job openings, we had a soft ADP, and we had a soft jobs print with

02:53the revision was negative for one month. It took one month to have negative jobs reports. So

03:00something went wrong here. And it's again, if you listen to what we try to say, they don't care.

03:08They need the labor market to break for them to get cover. And then they will feel comfortable,

03:14just like Beth Hammock, the Cleveland Fed president literally told the New York Times,

03:20the labor market's fine. If something happens, we'll play catch up. They basically, they use a

03:26Mollie Puppet and they've told everyone this. But I think it's just hard to get people to understand

03:30that this is by, this is their choice. Because there's so many data lines that, you know, we can

03:36use as example as this is not really a solid labor market like they talk about. We've given those

03:43examples and that just hasn't occurred. Yeah, we've been on high alert all week because, you know,

03:48we knew we were having these four jobs reports, everything leading up to today. And it's just been like,

03:52oh my gosh, what's going to happen? But it was even worse than maybe people thought. 22,000 jobs

03:59created. So, you know, that's worse than last month and the last three month revisions, which were

04:03what, around 35,000 a month. So from your perspective, is this it? Is this the labor market

04:09breaking? No, because the Federal Reserve looks at jobless claims. And unfortunately, you know,

04:16it'll be this Fed meeting. Oh, Sarah, remember how arrogant Powell was the last one? Oh, the labor

04:23market's solid. The unemployment rate is. And I know the Federal Reserve is watching because you

04:28all got housing wire subscriptions. And I know the Fed staffers in two cities are, let me tell you guys,

04:32go back in history since the Peloponnesian War. When you have sectorial weakness in data lines that are

04:38losing jobs, the aggregate total economy is not a solid labor market. That has never been the case since

04:44the Peloponnesian War. So shame on you, data scientists. And I know you're listening because

04:51you chose to ignore that. Sorry, I had to give that rant out. Again, they, if some Fed presidents

05:01will probably come out today and say the labor market's solid, the unemployment rate is still

05:04historically low. 4.3% is a good unemployment rate. We're not seeing jobs being lost in a big

05:10matter. You're going to hear that because they've stuck to that. And we're sitting here today. The

05:1510-year yield is at 4.08%. The last two years, the 10-year yields got as low as 3.37, 360. The Fed

05:23policy is still modestly restrictive and the bond market is still treating it as, it's not like last

05:28year where we just saw this huge dive below 4% and people were going recession. But here, again,

05:35this is still by choice to stay modestly restrictive. We don't make the rules. They

05:41come and tell us this all the time. We are modestly restricted. The labor market is solid. We don't agree

05:47with that, but still they kept with it all the way to, oh wait, now what? Labor over inflation. Now they

05:55have the cover. Right. If they don't use this cover, then, oh Lord, Trump, get all of them out of

06:04there. Get every single one of them out of there. If they don't use this cover now, I don't know what

06:11else, but you can say they could come and go, the unemployment rate is historically low. Population

06:16growth is slowing down. Jobless claims has not taken up. They can say that still because they've

06:21been using that for the past few months. But in this case, I'm hoping that if they're following what

06:27they did last year and they waited until things got worse and then they use it, then at least the next

06:33Fed meeting because they have time to change. You can go to therapy and understand that the labor

06:41market is not as solid as you think. We have institutions to help Jerome Powell, help Beth

06:46Hammock. There's other Fed members too. So once again, Team Waller, the civil war between the Fed who

06:55said, yeah, the labor data is not looking as good as people think. And this is the conflict between

07:02the Federal Reserve members. One group said, hey, listen, we need to change. The other group said,

07:08no, the labor market is solid. The unemployment rate is low. So again, we have an economy that's

07:16still growing. We have an economy that's still in consumption. But now for how many months we've

07:20talked about, you don't usually see residential construction workers lose jobs and manufacturers

07:25lose jobs at the same time and tell America that the labor market is solid. So hopefully something

07:32changes. You have one sector of the economy that's in a sense been in a recession since 2022.

07:36You can pull triggers if you want to. And because mortgage rates hit a new year-to-date low, 6.29%,

07:44the labor market is being weighed more by the bond market, which should be the case,

07:50than inflation, which a lot of people thought 7.5%, 8% mortgage rates. I had no idea what the

07:55spreads were to these people. But in any case, they were in the higher camp that thought inflation is

08:02more important than the labor market. And what did the bond market do? By the way, Sarah, do you

08:06remember the debt downgrade earlier in the year? Oh, by the way, somebody I know is listening who

08:14told me that no crazy person on planet Earth will ever buy the 10-year yield at 5% because we are a

08:21broke country. It's going to be October soon. It'll be a two-year anniversary. The 10-year yield was

08:26always below 5% your entire time. I cannot wait to light that guy up. In any case, debt downgrade,

08:33$37 trillion in debt. No way bond yields could go lower or mortgage rates go low. Voila. There it is.

08:40The Logan Chart Daddy special. Friday night dinner. Take it for what it's worth. Economic cycles have

08:47moved a certain way. This one looks pretty normal still with a Federal Reserve that is modestly

08:53restricted. Okay. So I think I hear you, what you're saying that Powell was pretty arrogant,

09:01whatever, or at least very, very solid in what he was doing. And then we had that Jackson Hole meeting

09:07where he came out kind of humbled and said, gosh, I mean, that jobs report, those revised numbers were

09:13pretty bad. And you even said if he'd had those in hand before the last meeting, he probably would

09:19have cut. So given that, do you think it's an absolute given 25 basis point cut? That's what

09:25people are saying on the internet. The internet, Logan, you have to tell me. It was a 25 basis point cut as soon

09:31as that last report came out. So that's, and again, the bond market has already gotten ahead of that,

09:37right? The bond market was correct. Remember, the bond market always gets ahead of the Fed. The Fed plays

09:41catch up. So that's just how the economy works here. The Federal Reserve cannot move fast enough with data

09:48because they meet six day. They could do emergency rate cuts or emergency rate hikes, but the bond

09:53market is, is, is constant and instant. So pricing is getting it. And, and, and you could still make a

10:01case though. The, the, the bond market is still pricing a modestly restrictive Fed with a 10 year

10:05yield above 4%. So again, by choice, there were, there were indicators that said this. And Sarah,

10:12I just want to add, there are Fed presidents that still, before this report came out, still said no rate

10:18cuts. Labor market solid. Population growth is a problem. Even with the aggregate manufacturing

10:23data and residential, these people would be fired if they worked for me. They would be fired. I'd be

10:29like, no, you are a terrible analyst. Oh, how can you miss this simple data line? We've worked with

10:37cycles for decades since the Peloponnesian war. We knew this was the case, but the eggnog, Sarah Wheeler.

10:46The eggnog, something changed. Okay. Okay. Okay. Okay. But so, so tell me this 25, uh, basis points

10:52cut already baked in. So now is it going to be 50 with this report on top of that report?

10:57Until the federal reserve says, we apologize. The labor market isn't a solid and we would like

11:04to get to an accommodative stance faster. Their rules, I don't mind.

11:11I know. So my question is, you don't think those rules are changing right now. You don't think

11:15this is until I hear it out of his mouth. I am never going to say this guy's behind the curve.

11:21He's always going to be behind the curve because it's by purpose. They are doing this by design.

11:26That was the whole point of labor and inflation. I wouldn't have started that entire monologue

11:31and the end of 2022 until they cry uncle. They have not cried uncle. I need to hear them all say

11:39we're crying uncle because we're only talking about getting to neutral policy. We're not talking

11:44about an accommodative stance. So here it is. I mean, that, this is why for me, it was different

11:51for me. I would never have hiked rates over 4% because the disinflation that was going to happen

11:55was pandemic disinflation. This is how global pandemics work. I wouldn't have put myself in

12:00this position, but they did. So I'm, I don't trust them until I hear them say it. When they say it,

12:07then everybody goes, okay, we're all on the same page, but they still, even before this report came

12:14out, were like, the labor market is solid. It is a 4.3% unemployment rate. Population growth is

12:21slowing down. Economy is growing. The unemployment rate is low. There's nothing wrong with the labor

12:26market. It is solid. I need language changed before I could say, okay, I can take the eggnog,

12:35reverse it and go, oh, they had a Gatorade. They had a Logan coffee. They had something that changed

12:42their minds, but this was always by design, Sarah Wheeler. This is why we created this labor

12:46overinflation. This is why we have cups and hats and everyone wants merch. We have to have a merch

12:52website with all the Logan isms out there. We'll get working on it. We'll get working out. Okay.

12:57So let's talk about the labor market. You famously called it the honey badger labor market. A couple

13:03years ago, we've been working down from that. When you look at this report, did anything surprise you

13:08or this whole week, like what has stood out to you on the labor report? It's just, it's just been the

13:13same thing. It's just a slowing, slowing trend of job growth. And if you don't have manufacturing

13:18jobs growing and residential construction jobs growing where you're getting your labor, you

13:23well, you take the government out of the equation, right? That's what we did. We, we, we, we withdrew

13:29money from the government. We don't have the government jobs helping us this year, like we did last

13:33year. So when you take that away, you have what healthcare services. Okay. Outside of that, where's

13:41the beef? I mean, the AI data centers could only take you so long, right? You know, so you,

13:47you lost total construction and manufacturing in the same report. So again, they've, if any, if

13:57everybody listened to the Fed as carefully as I have, they've literally been telling people this

14:02for a long, we need the labor market to break. We need jobless claims to break. So there's time

14:07because the economy is still growing. People are still consuming goods and services. You have one

14:12sector of the economy that has been in a recession since 2022 housing starts typically in an expansion.

14:18Housing permits are growing. You can change this. The question is, will they, this federal reserve has

14:25not proven to me. They want to change this until I see evidence and verbiage. Uh, we are still going

14:33to be a modestly restrictive federal reserve. And, uh, Hey, guess what? Unemployment rate is

14:39still low. You know that until I see that change because the bond market is doing a lot of the

14:44heavy lifting. Like it always does. We've always talked about this term, but the bond market does

14:48a lot of the heavy lifting early, and then that will help. And that's, what's helped before in the

14:53past. Remember in 2022 rates went down to 6%. Oh my God, the builders of confidence, you know,

14:59new home sales started to grow, single family permits started. That's what an economic expansion

15:03looks like. Permits growing, home sales, but here they don't talk about it. They don't ever say

15:11anything about housing. Right. And they know this, they know this, that the, but until I see a change,

15:17then yeah. So, you know, it is what it is, but, uh, we still have a federal reserve that is

15:25modestly restrictive. And, uh, um, that because the spreads are better now this year, mortgage rates

15:32are closer to 6% now, but if the spreads hadn't gotten better, we're still at elevated rates.

15:38And until I hear the man say, I guess it really was labor over inflation, right? You know, and, uh,

15:45we're going to change our tone. Then I'll, then I'll go with it. But until then, I am not moving from

15:49my stance that this is all by design because they need cover for anything. Uh, they feel better when

15:57the labor market is this soft and then they could cut rates and then go, Hey, listen, this is our

16:01dual mandate. That was the whole dual mandate, right? We're talking dual mandate, Alexander

16:05Hamilton style, right? Two guns, tens feet, boom, bam, bam labor over inflation. By the way, labor won

16:12that one. One shot only. There we go. I'll be your huckleberry. Oh my gosh. Okay. So, um, this is

16:21interesting because of course there's this huge political fight going on right now, the battle

16:25over the, over the fed with Trump and Powell. The interesting thing to me is that this has been

16:30Powell's stance when, when Biden was in, I mean, he's, he has had this, um, this same stance, uh,

16:38this time last year, you know, 2022 to your point, but now, now we have a different dynamic. So, um,

16:44what do you think, like, this was the first jobs report for BLS jobs report with a new person in

16:49charge. Um, as far as you're concerned, numbers are good. This looks right. Uh, this looks right.

16:55And this looks right to the ADP report as well. I mean, those two data lines, you know, uh, on my

17:01Instagram stories, I showed a two bar charts, the BLS report and the ADP report. And if you took the

17:07trend, they both are trending lower together. So this looks right, uh, uh, in that now you're

17:13going to get revisions. You might get positive revisions, negative revisions, but any case,

17:17we're going to get another set of revisions on September 9th as well. So I I'm just hoping

17:22there is still time to like, you know, recalibrate. That's going to be the term you might hear a lot

17:28later, recalibrate the language. And then we go from, from there. So thankfully this has all

17:35happened while jobless claims is still very low. All right. The continuing claims, Sarah,

17:41the continuing claims are at a three year high. They don't care. How many times have we come on

17:45here in this podcast and we say they don't care? Jerome Powell, two, two meetings ago, he said,

17:50if you're looking for a job tough, it's hard. Okay. So again, by design, if you think about it by design,

17:57because they need cover because the growth rate of inflation is, you know, at 3%, 3.1% core,

18:032.9%, then they can feel easier about cutting or sounding a little bit more dovish out there. But

18:11their last line of defense is jobless claims data. And that's still historically low.

18:17Always remember everyone, one and a half to 2 million people get fired every single month,

18:21right? This is why jobless claims never goes to zero. And, you know, this is just how the function

18:25of our economy, it's when growth slows down enough, consumption slows down that people tend to fire

18:31more people and you have no growing labor, uh, labor market anymore because the economy is growing

18:36slower. We're not there yet, but there's time to change. So, um, it's, it's, it's one of these

18:42things we have two elderly gentlemen, Trump and Powell that are both kind of lying to everyone.

18:50You know, Trump says the economy is super hot and everything. And they're like, I want emergency

18:54rate cuts, you know? So in a sense, the one laugh I had with one of my stock traders, we were like,

19:01Trump was right. He does need emergency rate cuts. The economy is slowing down, but he can't,

19:06he can't verbally say that. So it's one of these things for those that remember the first trade war,

19:10that first trade war tap dance was very mild compared to Godzilla tariffs.

19:14And the economy was struggling because business didn't know what to do, right? Business investment

19:20went to zero. Everyone's like, what are the rules? What are the deals? There's no, like every,

19:24we're all over the place. So Trump and Powell just need to look at each other and go, what's the best

19:30way to just get to that net? Do we need to actually sign some deals and everything? And then Powell go,

19:36do we need to get a little bit more, uh, dovish and just work it out and move. And Powell's going to

19:42leave. And let's just go to the next stage. But both men needed a wake up call. And hopefully this

19:50is it because you can't really hide from this anymore, but this has been here for the data for

19:53last few months. I mean, it's not anything new. This is just a slowing trend. Uh, um, and again,

19:59I I'm always going to harp on this. We, you do not, it's never a good thing. And this is why we talk

20:04about this all the time where you start to have manufacturing jobs being lost and residential

20:10construction. Well, that's why we do those charts all the time. We go, it's the cheat code for

20:14economic cycles is construction labor, right? And it's, it's falling now. And, uh, hopefully

20:20there's time to change. And, uh, it's a good, good foundation for the next Fed meeting.

20:25And welcome news. I mean, uh, rates, rates dropping great news for those in housing, right? So we're at,

20:31uh, year to date lows and even, is this lower than what we got, uh, this time last year?

20:35No, I think the low last year was 6.08%. So we're not, we're not, and we have to remember the 10 year

20:42yield today is still 4.08%. It's not three 63 last year was much different. If we were, if we were

20:49there were, uh, uh, easily sub 6%, even maybe below 5.75. Now for those that, uh, follow our work,

20:57the 10 year yield forecast for me this year was 4.70, uh, to three 80, right? The whole door line.

21:03If we're above 4.70, that means the economy is booming. Okay. So we were there for just a few

21:07days and then we've come back down. The 10 year yield and mortgage rates look pretty much right

21:12with a federal reserve that is restrictive policy. If the federal reserve, or if said,

21:17we want to become more dovish, it's different. You can, you can get the yields lower, but again,

21:22it's still stuck in the range and it's still been in that range. This is why we always talk about

21:27channels and models and waves and, and, and, and duration. Uh, uh, and because things change,

21:33economics change all the time. It's, it's someone's daily model that matters and here

21:37warrants the data to go lower out there. And, but we still don't have any policy changes,

21:43uh, out there. So I think that we'll let, let's wait to see what they think, uh, about this because

21:49to me, still, they want to stay as modestly restrictive as possible because they can still come

21:55back to us and say 4.3 unemployment rate is low and jobless claims are low. And they can use that

22:02up until jobless claims break on them. And at that point, it doesn't matter anymore.

22:07They can't lie to everyone. And the 10 year yield goes much lower. Mortgage rates go much lower.

22:12And the fed comes back in their next meeting and go, oops, we did it again. Bring up Britney Spears song.

22:20Bring up Britney Spears. All right. Well, Logan, thank you so much for being on huge day.

22:25Huge day. Um, we will talk to you again soon. Thanks for being on and bringing us all your

22:30wisdom. Team labor over inflation. And let's get Christopher Waller as the fed chairman. Now,

22:37come on. Love it. All right. We'll talk again soon.

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