- 3 months ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage rates rising 15 basis points following the Fed rate cut. The two also talk about what to expect next.
Related to this episode:
Mortgage rates go wild following Fed rate cut and Powell remarks | HousingWire
https://www.housingwire.com/articles/mortgage-rates-today-fed-rate-cuts-powell/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
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:
Mortgage rates go wild following Fed rate cut and Powell remarks | HousingWire
https://www.housingwire.com/articles/mortgage-rates-today-fed-rate-cuts-powell/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
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 what is going on
00:11with mortgage rates following the Fed cutting rates yesterday. So, Logan, welcome back to the
00:16podcast. Yes. You know, we're sitting here right now. It's Thursday morning. The 10-year yield
00:22right now is at 410. This is actually where I thought it should be after the retail sales report.
00:26But there's been a lot of volatility with mortgage pricing itself, first to the downside,
00:32where the 10-year yield had really good mortgage spreads, and then a very sharp reversal as well,
00:40while the 10-year yield has just basically moved 10 basis points back and forth. And sometimes you
00:46get this volatility puke up, you know, sometimes on the downside into the upside. And, you know,
00:54of course, a lot of things change after Jerome Powell started talking. So, clearly, we have
01:00times, and to me, that 4% level, if you actually log chart out the 10-year yield, that's a line in
01:06the sand right now in that terms. But a lot of pricing for the good side has just been reversed.
01:14The market tends to take a little bit of time to work itself out, but a lot of volatility in a short
01:21amount of time, which is never a good thing, because people have loans to get ready to lock,
01:26and some people might have been trying to play the Fed meeting. And, you know, those who locked
01:31before the Fed meeting were probably really happy. But the question is, this eventually does fix itself
01:37over time, and then you get better spreads, and you go back to normal. But what about mortgage rates
01:42for the rest of the year now? This is the big question. And I guess my first question is,
01:46was that move higher? And, you know, in the big scheme of things, not huge, but over a day,
01:52a big move. Is that because of actual economic data that we're getting? Is that just a reaction? What
01:59is it? It's not the 10-year yield volatility. A lot of things change after Powell started talking,
02:07and things are being, you know, winded out in market terms. So I was initially always surprised
02:16how low the 10-year yield was after the retail sales report that came out on Tuesday. Where it is right
02:21now would be, you know, completely acceptable. We had jobless claims data was better today because the
02:28Texas flood is out of the equation. The Philly Fed manufacturing data, the new orders, the components
02:33were good. But mortgage pricing at times can get really, really extreme, even to the positive and
02:42negative side. And I think this is just kind of people unwinding things around a key level.
02:49But going out in the future, it's going to be a little bit different. And we've always said this,
02:53the market will always get ahead of the Fed. The bond market tends to overdo it to the up and
02:57downside at times. But it's really hard with Fed policy to get mortgage rates under 6%. I mean,
03:05there's a reason why I do not forecast below 5.75. If mortgage spreads got back to normal,
03:12you can get there. But to get that next leg lower, with neutral policy kind of priced in,
03:20it's just difficult. And now this is the third time this has occurred. But this is happening with
03:26job growth being at the lowest levels in recent history. And the article that we wrote, we kind
03:32of highlighted, this isn't like all the sectors of the economy are slowly growing their jobs. We have
03:38very high unemployment for young workers. Black unemployment rate is 7%. Manufacturing jobs are
03:44being lost for some time now. Residential specialty contract, I've been losing jobs for some time now.
03:50And now residential construction workers losing their jobs. But the 10-year yield did a lot of
03:55the heavy lifting already for the Fed, like they've done before, like they did in 2023,
04:00they did it in 2024, and they did it again in 2025. But when you get down here, there's a reason why we
04:07go, you know, you need a lot more things to happen or this is it. And I think there are people out there
04:14that just naturally assume that rates will just get back to 5% or something like that, like they're
04:20accustomed to. But this is why one of the things I've tried to teach this year is 65 to 75% of where
04:29the 10-year yield of mortgage rates can range is still Fed policy. It might not direct it in the Fed
04:35meetings or anything like that, but you are stuck in a range for a reason. And to get above a certain
04:41range, you know, for the 10-year yield to get above 470, the economy has to be booming. This is one of
04:47the mistakes a lot of higher yield people make. And Sarah, you and I have talked about this for a long
04:51time. You know, a lot of bearish people in America will say you need, when higher yields comes, that's
04:58a really big, no, that's a sign that the economy is doing well, right? So if you're above 470, you are
05:05you are in the the economy is going to outperform camp. If you are below 380, boy, you're the
05:11economy is really underperforming. But you could stay within a range in the 10-year yield and mortgage
05:16rates. And it looks perfectly fine with Fed policy. So we've been talking about what could happen after
05:22the Fed was expected to cut rates. And we reminded people about last year. At this time, no one needed
05:29reminding, I'm sure, because it was painful, because, you know, here we had the Fed cut rates,
05:34and then, you know, mortgage rates, Fed cut, Fed funds rate, mortgage rates went up. And this,
05:40I think, is part of what you're saying that, like, you know, it's it makes the job of loan officers and
05:45realtors harder when they have to explain to their consumers, like, because everybody knows, oh, Fed,
05:51the Fed cut rates, the Fed cut rates, hold, you know, don't lock my loan, or I'll wait for lower rates.
05:55And we know it doesn't always do that. It didn't do that last year. And you had said in your article
06:01and on our podcast that you thought a lot of things were already baked in, right? Like the pricing was
06:07already baking in this, this rate cut. Do you feel like it, it, it followed kind of what you were
06:12thinking? There's, there's a lot of rate cuts priced in. I think that's the thing. I think there's
06:19a lot of Fed rate cuts priced in with where the 10 year yield is at 4% or even at 380. So it's really
06:26difficult to make that next leg lower. I think for those of you that remember me in 2023, like the
06:32Gandalf line, I didn't just create that out of thin air. I thought, boy, we, we have to be going into a
06:38recession if we're going to break this level. I just don't see the recessionary data, what people
06:45were talking about in 2023. So we should hold. And the Hodor line was created at 380. Now the
06:51Hodor line was actually broken last year, which still to me is kind of shocking, but it was only
06:55for a limited time. The bond market can get ahead of the federal reserve because they can really
07:00believe that, you know, a recession is happening, but jobless claims didn't break. And then bond yields
07:05reversed here. It's a little bit different. We only got a 10, 10 basis points reversal right now
07:10and mortgage pricing got really good because the spreads got good. And then it just completely
07:15reversed that trade. So this is the confusing part about markets and mortgage backed security
07:23and that type of marketplace, but it is around an event of the federal reserve. So we always say
07:27the bond market will get ahead, but if you don't kind of deliver these things do happen. And I think
07:35the verbiage was the thing that bothered a lot of markets, but in this case, the 10 year yield at
07:40410 looks perfectly acceptable with where Fed policy is out there because they still are in
07:47their, in their minds, modestly restrictive, and they quite don't believe in the weaker labor market.
07:54If you listen to Powell yesterday, I mean, again, I harp on this and I harp on this for the rest of
07:59my life. If you are telling America that the break evens are zero, that we could have no job growth
08:06whatsoever with, we have more, see the federal reserve loves the job openings data, but the job
08:11openings data right now has more unemployed workers than people, than job openings. All right. That was
08:18one of the data lines they always harped on here. Oh, zero job growth is completely fine. Manufacturing
08:24jobs have been losing jobs since late 2022. We had huge population growth rebound and they still lost
08:30jobs. Residential construction jobs, specialty contract. These, these are not population growth
08:35stories. These are rate stories, right? These are capital investments. So it is a good in, in some of
08:41the sense that the Fed funds rate is coming lower because the short term of borrowing costs are going
08:46lower. And this is one of the reasons why we think that Trump's real policy is maybe to push arm loan
08:50lending. It's, it's a long yield, but this is a very short volatility spread. And I, I, I totally get it.
08:57This is where I feel bad for everyone because people are like, Oh my God, you know, they had this
09:03refinance all ready to lock and everything all of a sudden, you know, uh, uh, and you're just
09:10basically, it's a loan stuck in the system that can't, uh, do a rate and term refinance now.
09:16Okay. So let's look at, we've got three and a half months left in this year. So from your
09:21perspective, are we about what we can kind of, I mean, is this the level of mortgage pricing that
09:27seems like this is, this is the right level? Sarah, it is very difficult to get under 6%. And I say that
09:33because Fed policy is still modestly restrictive and this is now the third time in a row, right?
09:38This is three years in a row. So you have very limited downside with rates. Okay. Uh, and then
09:45you're more evenly priced now, you know, I think mortgage news daily went from 6, 12 to 6, 22 to 635
09:54in a very short amount of time. So a lot of negative pricing, uh, convexity is actually in the system
10:00right now, but, uh, to get below 6%, right. You do need a lot of stuff to occur. And we listed those
10:07things in the article out there, but, uh, it, it, it isn't shocking that we always get to this level
10:14and it isn't shocking that for the third year in a row, the Fed comes out and goes, Oh, wait a second.
10:20You know, you know, they could have just let it go. They could have had a dovish statement,
10:27but they didn't. And that's, that's my thing. You know, uh, this is done on purpose for a reason.
10:32This is now the third time when rates get down to this level and they're just not comfortable.
10:38Okay. So it's not like Neil Kashkari coming out and basically saying, we don't want mortgage rates
10:42at 6%, but it's not shocking that they try to get the markets to, uh, uh, not go much lower, uh,
10:49out there. So, uh, crazy, uh, two day period. It's crazy in the sense that the 10 year yield isn't doing
10:56much. Right. But this is the volatility sometimes in the mortgage-backed security markets that that
11:01can happen. Eventually it fixes itself out, out there, but you could see that around events,
11:06certain trades, you know, Godzilla tariffs was one of this, like Godzilla tariffs took the 10 year
11:12yield to 3.87%, but mortgage rates were higher back then. Even, even, uh, even at the lows, uh,
11:20of Godzilla tariffs, just because, you know, uh, the spreads were worse. So this happens from time
11:26to time, but going out in the future, it's just keeping to remember if you, if you, if you're
11:30looking for near 6% or sub 6% mortgage rate, you either need the mortgage spreads to get much better.
11:35You need the fed to get dovish, or you need the labor market to get, uh, broken. And with modestly
11:40restrictive policy, that's what it looks like. And this is why I think the arms are going to be
11:44something the white house talks about, because you can get sub 6% mortgage rates with arms and
11:47the builders have shown you, this is a way to grow sales, uh, out there, but, uh, an unfortunate
11:53volatility day that I just think not a lot of people get, because they don't see the 10 year
11:57yield really having a crazy day. And it's at 410, you know, but if you can, if you think of it,
12:04it was higher rates when we were at 4%, uh, uh, with Godzilla tariffs. So the spreads have improved
12:10from those levels, but, uh, sometimes you get one or two crazy days and it works itself out over time.
12:15Crazy days. Yes. Um, I would encourage anyone to, um, go look at the article, uh, that Logan
12:21published about this because it does have a lot of detail about, okay, this is how it could go lower.
12:26This, how the, these are the factors that would have to be there for rates to go lower from here.
12:31Here's what could happen to, to raise them higher. Um, also has charts, which are always very helpful.
12:36So from the chart daddy. So Logan, thanks for being on. Thanks for, um, explaining what's happening.
12:41Appreciate it. My pleasure, Sarah.
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