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On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the potential for mortgage rates to rise in 2026 if labor data improves.
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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.
Related to this episode:
Compare Current Mortgage Rates - HousingWire
https://www.housingwire.com/mortgage-rates/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
To learn more about Trust & Will click here.
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.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Modashami to talk about job
00:11numbers and what that could do to mortgage rates in 2026. First, I want to say thank
00:16you to our sponsor, Trust & Will, for making this episode possible. Logan, welcome back
00:21to the podcast.
00:23It is wonderful to be here on Fed Day. Us nerds are always very excited on a day like
00:29this, but this technically would be Jerome Powell's last Fed Day before they announce,
00:37if they do announce, Kevin Hassett early next year before the Fed meets late January.
00:44Everybody is on pins and needles, of course. Even though, I mean, widely expected, what
00:49is it, over 90 percent? There's going to be a rate cut. We know what that is. It's more
00:54what he's going to say, correct?
00:56So my thing is labor over inflation, of course, and that has worked out this year. But everyone
01:05is still under the assumption that the labor market is going to break eventually and that
01:11the Fed is going to be behind the curve, if that's the case. So today we're going to talk
01:17about like why, like, you know, what if labor gets better? Like, what does that mean? I mean,
01:21in theory, rates would have to go higher in 2026, but we're not going to have Powell anymore and
01:28they want to cut rates. So there's all these things. But Powell usually gets very hawkish
01:34right about now, just like he did last time, just like he did in, you know, September of 2023 when
01:41he went mega hawkish and the 10-year yield went up to 5 percent. And even the Fed was like,
01:45what's going on here? I'm like, forward guidance, homie. What did you, what did you think was going
01:52to happen? You remember that? After that, you know, and the 10-year, and they were like, what's
01:57going on here? And I'm like, in any case, I do expect him to be hawkish. I do think they're still
02:05worried, you know, mortgage rates just getting near 6 percent can breathe life in the housing. But
02:11we're only here because the labor market got softer. What if that didn't happen? You know,
02:18and the spreads didn't get better. We're over 7 percent easily right now as we speak. And the
02:23housing data would look much different today. Okay. So before we dive into like what that would
02:28look like, I want to know from your perspective, what's the likelihood that labor gets better versus
02:34labor gets worse? I mean, it's been weakening, weakening, weakening. It hasn't broken yet.
02:40What are your odds? So I remember 2018 and 19, and the labor market was getting softer because of the
02:49trade war. Companies didn't know what to do, what was going to happen, what the rules were. It was
02:55very chaotic, kind of like now, very chaotic. But when there was clarity toward the end of 2019,
03:04and not a lot of people probably remember this, but I do because the data was getting better.
03:08And because the data got better, we had these really big positive job sprints, January and February of
03:162020, that nobody saw coming because they assumed the labor market was breaking. See, everybody went
03:23into the recession camp in 2019 as well. But the recession triggers didn't go off. And then all of a
03:29sudden, you know, the first few months of 2020 were really good. And then COVID happened. So everybody
03:34forgot about that period except me. So now we're working from like really, really low levels of
03:42jobs data. The job openings data came out today. The headline job openings data print bond yields went
03:48up three or four basis points right off of that. But when you look at the internals of the data,
03:53hirings are down, quit percentage is down. Quit percentage falling means that, you know,
03:59less people are quitting their work for better paying jobs. And the layoffs picked up just a
04:03little bit. The ADP weekly data came out today, it was positive 4,700. So we're working from such a low
04:11bar with jobs data. It doesn't take much to make it look positive anymore. Right? And lower rates
04:20already has done one thing, if it sticks, if the BLS jobs data does not get any more negative revisions on
04:28this data line, lower rates took a four or five month negative construction working data line and
04:35made it positive again. So there are things that if policy clears up, let's hypothetically, let's say
04:43there's no more trade war, right? The Supreme Court shoots down tariffs. We have all these tax cuts and
04:51refunds and manufacturing depreciations are going to go all these things are set up for 20. So it's,
04:58it doesn't take much to have a positive year compared to having the last five months be 39,000
05:05jobs. Yes. But from your perspective, okay, a positive year, but like, do you think that we are
05:11going into a stronger category that would warrant higher rates? Yes. Yes. I think the backdrop is there
05:21if certain things clear up, boy, it is not hard to get 50, 60,000 jobs per month, or you have a few
05:31prints. So because I went through the first trade war, and because the backdrop is different, I
05:38understand what Trump's trying to do. Trump's Trump declared holy war on the Federal Reserve, because he
05:43remembers what happened in 2018-19. The Fed all of a sudden started cutting rates, mortgage rates went
05:50lower. Housing demand picked up toward 2019. Then things got better. And then, you know, all of a
05:57sudden, permits broke to cycle highs. So they kind of remember that. It really depends on
06:02how much, you know, how much does the economic variables clear up going into 2026? Or are we still
06:13just going to be dealing with tariffs and trade wars and not realizing what the rules are, and then
06:18rates stay elevated and doesn't get any help? But rate cuts do help the economy to a degree, especially
06:25as the cost, the interest cost goes down, some deals start to make sense. So because we have such
06:32a low bar, I don't want to do what I see a lot of people doing. They're going straight into the
06:37recession camp. And they've kind of always been in the recession camp. But the bar is very low. I
06:43really want to see what Powell thinks. Because when labor breaks, it breaks, man. That's just
06:48jobless claims heading up higher. It's over, man. There's nothing you can't hide behind that. But we
06:53do have some things that are going to happen in 2026 if we get a little bit more clarity on the
06:58tariffs and everything. And if the tariffs went away and the growth rate of inflation on goods fell,
07:05right? And then we get even lower rates, you can get maybe the labor data start picking up. I know
07:11the small business labor index picked up today about hiring going out in the next six months. So there
07:18are things that as analysts, we're supposed to take all the different variables out here. And I think
07:24sometimes when everyone wants to go into the, well, rates have to go lower because we're going into
07:30recession and not possibly think of, well, how does that stop? I'm just trying to give a different
07:36side to it. Because it's really hard to get mortgage rates under 5.75% with neutral policy.
07:43Neutral policy is taking the Fed funds rate to three, three and a half or three and a quarter percent,
07:47wherever you think neutral policy is. So we're kind of down here. So the question is next year,
07:52if the labor data starts to get better, what does Fed Chairman Hassett say? We need to cut rates even
07:59more? So it's going to be a very meticulously tricky year with economic data because we've never
08:06had a sitting president put his own people into the Federal Reserve out there. So it is going to be a
08:13once in a lifetime event to see in a very unique period of time in the economy how that operates with
08:20mortgage rates. Because all we're talking about is where mortgage rates are going to go
08:23out here. And the labor data has pushed it lower for now. But there's limits to how much lower we
08:29can go unless the job market breaks. So say, you know, we get a Hassett. It sure looks like he's
08:35the front runner, right? And he's in after Powell leaves. What can he do? Like, you know, Trump has
08:43talked about dropping rates to levels that just they're not realistic. What do you think is
08:49realistic if they get to if they get a Hassett in there, if they get a couple more Fed governors in
08:55there? What is realistic as far as cutting that they can do? You get you get neutral policy, which
09:01is basically three, three and a quarter rates at that point. So you have a few more rate cuts into the
09:07system out there. Again, so much of this is already priced into mortgage rates. This is why I don't
09:13go below 5.75%. Because again, the market is already looking out for neutral policy. Now, when the
09:20economic data gets worse, you know, like last year, 2024, my God, 2024, we didn't have a rate cut into
09:26the system and the 10 year yield broke the holder line. I'm like, whoa, everyone's going into the
09:32recession camp early. So there's just realistic realities that we have to deal with with rates.
09:40And we're sitting here, we're almost at 6.40% on mortgage rates with these rate cuts into the
09:47system with spreads getting better, right? Only because the labor data got worse. So the question
09:53going out next year is, how do we track the mortgage rate 10 year yield environment with
09:59knowing that, you know, we're going to have a new Fed president, we're going to have probably new
10:05Fed governors if Trump could fire people, but that can bring the short term rates down that just that
10:10might not mean mortgage rates get down toward five and a quarter or five and a half that like some
10:15people are talking about, but just maybe hovering around the high sixes, and or low sixes and high
10:22fives. That might be a realistic, no matter who the Fed chairman is out there. Now, again,
10:28if labor breaks, all bets are off, right? That under 5.75 is in play. Spreads get back to normal
10:36for the next year, we're already there at 5.75. But it's going to be such a meticulous year. And
10:41since it's Fed day today, that it's going to really, I just truly believe Powell does this hawkish
10:48thing right about now. And it's going to be his last like Fed press event before they name the news.
10:53So I want to see how the bond market reacts, because it's not shocking that mortgage rates
10:58are in a range and the 10-year yield is in a range. It's really hard to break below 4.18,
11:02you know, really hard to break below 4%. We're here because the labor data softer and Fed policy
11:08is easier now than what it was, let's say, late 2023.
11:12Is there any world in which the Fed can get to accommodative stance? I can't say that.
11:20So there's been never any discussion on an accommodative stance. That would mean that the
11:27economy needs much lower rates to boost demand. So again, if jobless, I've always held that jobless
11:35claim line, right? Since 2022, we said jobless claims have to head toward 323,000, four-week
11:42moving average. If you want the Fed to really pivot to get from modestly restricted, we're still
11:48modestly restrictive, to modestly restrictive, to neutral policy, to an accommodative stance,
11:54jobless claims have to break. And the whole point of all this discussion in the last few years was
11:59that telling people, hey, listen, they are going to stay as restrictive as possible. These are the
12:05exact words we've used for years now, until the labor market breaks. They are still today
12:10telling you we are modestly restrictive with the lowest job growth in the 21st century.
12:17So this is by choice. This is a policy choice. We are about to take away the person who advocated
12:24that policy choice away. And Kevin Hassett will be there. Now, Kevin Hassett is going to give
12:28unbelievable positive forward guidance that Powell won't do. So it just becomes interesting
12:35in this market sense, because if the economic data is getting better, and the labor data gets a little
12:41bit better, where do rates go that even with the Hassett and, you know, Stephen Myron, and maybe,
12:49you know, Trump gets one or two more people into the Fed, that becomes a more conflicting story.
12:54So it's just something to think about for next year, because it just seems like to me,
13:00everyone is going full blown into the lower mortgage rate camp. But what if the labor data did get
13:06better? And there's enough hawks still on the Fed to kind of push back on whoever the chairman is out
13:13there. I do think that's might going to change. It could get very, very testy next year with Fed
13:20governors, you know, if they don't think they have the numbers to get the votes in. So
13:25oh, it's going to get interesting. It's going to be such a unique 2026, because we're we're dealing
13:31with stuff that we have not dealt with in recent history. And we get to see how the markets react
13:37to it. The trade war is really interesting how you unwind that from now. So are you saying that if
13:44the trade war goes away, if the Supreme Court says you cannot do these tariffs, you know, unilaterally,
13:49the way you've done it, whatever, without Congress, that that if they do that, then rates go up.
13:56That's what you're saying. Well, here's the thing. That's that's if the trade war ends.
14:02And all of a sudden, the economic data gets better. And the growth rate of inflation, boy,
14:07you need the Fed to like, hey, listen, we really want to get to neutral policy now, because the one
14:13thing that was holding us up was the trade war. Now that's gone. What if that doesn't happen?
14:21And we do we just the Fed does they don't have enough votes yet to get policy down to neutral
14:26fast enough out there. And I just I just remember that in 2020, 2019, when the economic data was
14:34getting better, and everyone just kind of ignored it. I mean, I wrote a whole article about it before
14:40COVID. We had rising retail sales, housing permits broke out, existing home sales broke out, new home
14:46sales broke out, manufacturing data was positive. The ISM service was all positive. Every single data
14:52line that we think about an expansion all went positive, then COVID hit. So it's just something
14:57to think about for next year, because it gets a little bit tricky with the Fed now, because I just
15:03to me, it's hard for the 10 year yield to really get below 380. And it's hard for mortgage rates to get
15:08below 5.75. Unless the spreads get better, or we get you know, we ditch the modestly restrictive or
15:16neutral policy. So there's a reason why we don't go below six. Because if you look at the history,
15:22the Fed funds rate is spreads are, you know, you can see why it's difficult to do that. And for the
15:27last three years, that's been the case, right? The only time things get rates get better is when
15:33people are worried about the economy, and it's a growth scare. We've talked so much about mortgage
15:38spreads and how they're the hero of this year, and really last year, it took so long for them to come
15:44down. What are some things you're looking for in 2026 regarding spreads that like, here are the
15:49things that could make spreads worse again? You know, the history of spreads, when they work from
15:57elevated levels going all the way lower, but they haven't got back to the normal trend,
16:02you still have a leeway to go lower. Now, the one time spreads got worse this year,
16:10about 20 to 25 basis was Godzilla tariffs. Godzilla tariffs created major chaos. Why? Because the stock
16:17market was down 20%. And then funds had to liquidate their bond funds to raise cash. So all hell broke
16:25loose, right? But when we look at 2025, when before the year started, we said, what does Trump need?
16:33He needs a lower dollar, he needs lower rates, and he needs oil prices down. And even with all that,
16:39it's still problematic for the midterms, right? This is why these trade wars are difficult around,
16:45you know, you have two year political cycles, right? And then you have voters, you know, and then in
16:49Congress, you know, becomes how, you know, you get Democrats back in there, you know, the last two years
16:54are going to be more difficult. So, so many variables are up there that are not normal, that we don't
17:02really deal with, that we're just going to have to play close attention to this. Because I tell you,
17:10when you're, when you are dealing with a 21st century lows in job creation, it doesn't take much to get a
17:18little bit of improvement out there. So I think this is part of the reason why Trump wants Kevin
17:24Hassett, because he can't imagine if all of a sudden the economic data gets better, and he's got
17:31someone like a Waller or Bowman that says, hey, well, you know, the labor data is getting firming,
17:36he still wants lower rates, right? He wants rates as low as possible out there, out there. So there's,
17:42it's, it's, it's, it's conflicting, right? There's, there's a lot of, there's a lot of things that just
17:47aren't what we would see in a normal cycle, that we get to test case for the first time in 2026
17:54out there. And just like purchase application data was working from the lowest levels ever,
17:59we've had what, 42, 43 straight weeks of double digit or year over year growth. The last 30 weeks
18:05have been double digit year over year growth, but you're working from a very low bar, right? The jobs
18:09data is working from a very low bar. So I thought of that when job openings data, the headline data
18:14beat bond yields went up, even though the internals were soft, bond traders are just working off of
18:20certain things right now. So it just, just means that we have to be a little bit more focused and
18:25disciplined going into 2026. Agreed. And I once again, feel like our housing economic summit on February
18:3310th, what great timing. We do that on purpose, because we should have some answers by then on some of
18:39these things. And then we can set up, this is what 2026 is going to look like. We have an amazing day
18:46full of speakers. You especially are going to be our keynote. We have a ton of great people. So
18:52sign up for that. And Logan, thank you so much. I'll talk to you again soon.
18:56Pleasure. I can't wait to hear what Powell thinks. You know, I made a little AI video of him
19:01with a Santa outfit with no shirt on. That was bad. And just like with Rudolph and just very happy.
19:09And I said, we need to give Powell this joyful look for the Fed Press event and get him in a Christmas
19:16spirit. Not, not Ebenezer Scrooge, not doing humbug, you know, say, hey, listen, it's okay if you give a
19:24little bit of positive forward guidance. You don't have to be, you know, Scrooge for Christmas.
19:28We will see. It's either the Grinch or Scrooge or maybe Santa. We'll see which one we get
19:34later today when that comes out. All right. Thanks, Logan.
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