The economic wild cards that could lower mortgage rates

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the economic wild cards that could drive mortgage rates lower this spring.   Related to this episode:   Compare Current Mortgage Rates - HousingWire  https://housingwire.slack.com/archives/D0A8X8APWA2/p1772218774018539  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   To learn more about Trust & Will visit trustandwill.com   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.

Transcript

00:10Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the economic wild

00:16cards that could drive mortgage rates lower this spring. Before we dive in, I want to thank our

00:21sponsor, Trust & Will, for making this episode possible. Logan, welcome back to the podcast.

00:28Madam President, paper, rock, scissors. Labor over inflation. And, you know, this is Friday

00:39morning. And, you know, Thursday morning, I always joke around when the 10-year-old gets around 4%.

00:44And I was playing the video of Captain America holding Thanos' hand from coming down. And I'm

00:51like, I'm trying to protect the 4% 10-year-old, which I'm really about to say it's on the

00:55verge

00:55of breaking. But it's Friday morning, and we had a really hot inflation print, like super hot

01:03inflation print. And it's going to be so hot that the PCE inflation data is going to have three or

01:103.1% year over year. And that's what the Fed really revolves around, you know, the goods

01:15pricings of PCE inflation, more than the true inflation data that a lot of people are talking

01:20about that are showing inflation around with a one handle. But 10-year yield had already broken

01:26under 4% and just went up a smidge right after the report and came back down. So I think

01:31the

01:32question is now going out for the rest of this year. Obviously, this isn't like 2024, where the

01:37Fed cut rates and rates just shot back up. So obviously, by now with mortgage spreads and

01:42everything, people, we don't have to worry about, you know, rates shooting up to 7% or something

01:47like that, unless something crazy happens. But like, what are the wild cards now, now that we're

01:53going into March, right, here it is, right? And it's, it's been such a long time that we've had

02:01mortgage rates, like stable, like not much is going, and you're on the low end. You know, so you know,

02:09the what, what, what can be the positive and negative wild cards for mortgage rates going out for the rest

02:15of this year, considering everything that we have now as a backdrop?

02:22I think that's a great discussion, because people are trying to figure out with all the things that

02:26have shifted, what are the things that we should, you know, what, what can they look at and go, yes,

02:31this

02:31is going to have this result. So for instance, right, that, that inflation report, I mean, would you have

02:37expected it to have more of a result on, on rates?

02:41Technically speaking, the 10 year yield broke a key level. And what we always say, there are no

02:46bond, by the way, to the gentleman who's listening, who says that nobody's going to buy the 10 year

02:51yield at 5% because America is a broke country. I suggest you go look at a five year chart

02:57of the

02:5710 year yield. And as Matt Damon said, once in a movie, how do you like them apples? You know,

03:05there's a lot of noise right now on the economy. Private credit is, you know, breaking supposedly

03:14and AI, you know, layoffs, you know, Jack Dorsey had another over bloated company and he had to lay

03:22off 40% of the people. Stocks are selling off, you know, so there's, there's a lot of noise and

03:28kind of the old school thinking when stocks sell off money goes into bonds, but it's going to the bonds

03:32near 4% now for that. So there's obviously ample amount of demand for our treasuries.

03:41But we're, we're almost, I think we got to 397. I mean, by the time Monday happens,

03:46this might be over 4% again, but we're almost at the bottom of the 10 year yield range. That

03:51380

03:52lines is the Hodor line. So we get to bring Hodor back. Am I saying it right, Sarah?

03:57It's hold the door. So it's Hodor. It's not Hodor. I think it's where you put the R is really

04:02important in this one. There we go. In any case, what can be the positive rate story for housing

04:13going out for the rest of the year? Is that hypothetically speaking, you know, my line in

04:20the sand is 5.75%, 380 on the 10 year yield. Mortgage spreads, you know, are going to get back

04:27to normal, but I thought that'd be later toward the end of the year, not, you know, we almost

04:32got back to that 180 level early. Let's just say that Trump does these 15% tariffs and demand

04:44gets hit. Private credit is getting weaker and weaker and stocks start to sell off. Can that

04:52push the 10 year yield below 380? Yes. You know, a market event like that can. We saw that

04:59in 2024, right? In 2024, jobs are running at 160,000 that year. And the market completely

05:08freaked out, thought we were going into a recession. That would be to me a positive rate story, maybe

05:16not a positive economic story. But, you know, I, one of the things I've talked about going into this

05:22year is what if the tariffs are like totally kicked out and, you know, there's a refund of money and

05:28then the tax cuts and everything, all this stuff going into that would be a very healthy backdrop.

05:34But now, if you are going to do unilaterally 15% tariffs and private credit is breaking maybe to

05:42the sense and you get more AI headline layoffs, you know, you could definitely get below 5.75%

05:48or maybe if the market sells off a rush to bonds, but it would be, it would, to me, there,

05:54there'd

05:54be limits to the downside unless the Federal Reserve altogether, right? I mean, we have a lot of hawks

06:01still on the Federal Reserve board who keep on saying the labor market is fine. Austin Goolsbee

06:06yesterday came out and said, listen, the labor market's fine. It's stable, right? So something

06:14like that can maybe be a positive wild card in terms of rates maybe going lower than what I,

06:19I thought it could be the case. Listen, if we're going to be wrong on one side, let's be,

06:25let's have it go lower than when, than what the forecast was, right? It's always really tricky

06:30because usually that means that like the different parts of the economy are not doing well, right? I mean,

06:35if it's labor over inflation, it might mean that you're heading into a recession or you are

06:40seeing a lot of layoffs, which no one, no one wants that. On the other hand, like whatever the

06:45economic reality is, let's have the one that is going to really be really helpful to housing.

06:51So in this context, we've been below 382 other times. Of course, 2024, there were so many negative

07:01revisions. Jobs were missing estimates. In 2023, the Silicon Valley banking crisis, the dollar was

07:08super strong. London was going to lose its pension. Remember when London was going to lose its pension

07:13funds, they could even open the market. And when the dollar gets too strong, 110, 115, all hell breaks

07:18out of the world. It's complete chaos. But in this case, jobless claims data is still very low. I know

07:26a lot of people say, well, it's a gig economy. No, listen, the history of US economics, man, when

07:32claims break, industrial production falls, private investment falls, consumption falls, all these

07:37things rolling together. And we just don't see that in the data yet. But for this year, if you get

07:46a

07:46stock market sell off and kind of negative headlines, you could see money flowing into it. It's just that

07:56the market's already pricing a lot of that. It's really hard to break under 380, as we've seen for the

08:02last

08:02few years, unless there's some, you know, market driven event or a theme of the economy breaking. If the

08:10economy is breaking, then you could easily go below that. But for now, I think that would be on the

08:15rate

08:16side, a positive rate story going lower. So I do have a question. Like, I know that you have said

08:23that, you

08:24know, the people's expectations that like, oh, once Warsh is in, which, by the way, still hasn't been

08:29confirmed, because we need, the Federal Reserve has, you know, is being investigated by the DOJ.

08:37You've had senators say they're not going to confirm Warsh until that investigation is over. You've had

08:42Trump double down. We now hear that there are, you know, conversations going on where the Federal

08:48Reserve has asked the Supreme Court to intervene. Anyway, lots of things going on there. So,

08:54but say we get Warsh in, you've said like, that doesn't mean automatic lower rates. But my question

08:59to you is, given all the stuff that's going on with the change in that leadership, is it still

09:05going to be the Fed's going to look at labor over inflation? Yes. I mean, Kevin Warsh is going to

09:11be

09:12more dovish than Powell, like by a lot at the meeting. So, but they're talking about doing stuff with

09:22the balance sheets and stuff like this, that a lot of market people are like, that's not, even the

09:26Federal Reserve governors have said, I don't know what you guys are talking about. That's not really

09:31feasible. You know, we don't want to create banking stress or anything like that.

09:37But hypothetically speaking, let's just say jobless claims does start to perk up higher,

09:42higher. It doesn't really matter what the Federal Reserve, the bond market's going to get ahead of the

09:46Federal Reserve. And then the Federal Reserve has to come after. So the question is,

09:50the Beth Hammocks of the world, the Lori Logans, the Austin Goolsbys, who say the labor market is

09:55fine, it's stable, there's nothing wrong. Inflation is a concern, you know, even, but even Austin said,

10:02I see a path for maybe two more rate cuts. Market is really just like toward the bottom of the

10:08range.

10:08But if jobless claims break, you know, the bond market does all the heavy lifting for the Federal

10:13Reserve first, the Fed plays catch up. That's just the institution can't be as fluid as the 10-year

10:20yield is. So Warsh is definitely going to be more dovish, of course. And everything kind of just moves

10:28off of that. But, you know, the closer you get to the midterms, you know, Trump really needs to get

10:35his people in to try to, you know, push this. As you can see, it is a full court blitz

10:40by the White

10:41House when it says mortgage rates are under 6% or mortgage rates the lowest in a year. So we

10:47go

10:47back to our Trinity discussion on November 7th, 2024. We said three things that the White House

10:53wants, lower rates, lower energy prices, and a lower dollar. They kind of have that, you know,

10:59right now. They probably like rates a little bit lower, but energy prices were lower. And the reason

11:05for that thinking is that everyone buys gas every week, right? That's something that if you see lower

11:13energy prices in your mind, you think, hey, listen, energy prices. Millions and millions of people buy

11:19and sell homes and move and life is formed around the housing market. So lower mortgage rates, you know,

11:25in people's mind, that's, you know, and if you really want to like export stuff, you need a lower dollar,

11:30right? You can't have the dollar too strong. So I think they have everything they want. I know Trump

11:35always talks about, well, we need to lower rates to lower the interest payment on that. That's not

11:39what the Federal Reserve does. They don't ever look at that, nor this has been talked about a lot the

11:44last two years. It's not in their mandate. They do not care, nor it is not anything that they,

11:50like the old Kevin Walsh, before he became Kevin Walsh 2.0, Trump's boy, you know, would have said,

11:58there's no way we need to lower rates to lower the interest payments. The government needs to

12:02balance their budget, you know, by themselves. But here we are, you know, and that would be,

12:09that would be the case for, you know, some type of economic events, stock market, but we're kind

12:14of toward the end or the bottom end of this forecast range for 2026. So you've talked about

12:21some wild cards too. Is there any other wild cards that you see that could lower rates?

12:25Those, those are really it. I mean, those are, or hypothetically, let's just say, because there's

12:33all this talk about Iran and everything. Let's just say there's a, maybe a bigger form of escalation

12:40in the Middle East that draws other partners into this fiasco. They have flight to safety,

12:49you know, in, in that context. And obviously inflation is not doing anything because with that

12:58PPI inflation report, barely even smidge the 10-year yield. So that, that, I mean, that's another

13:05hypothetical that, you know, if you wanted to think of something, but those are, those are for like,

13:11what could go lower for rates? Now the question is, what's the wild card to send rates up higher?

13:17Absolutely. That was my next question. So you, you, uh, jumped ahead. So tell me what that looks

13:22like. So the wild card is, and it becomes a little bit more tricky now because Trump wants to do

13:28these

13:2815% tariffs and there's no, it's, it's funny. Everybody wants to give checks to everyone.

13:34Like there's the refunds for the tariffs. And then there's the tariff checks as like politicians on both

13:41sides figured out, just throw money at people. You know, if you throw money at people, people,

13:45people get happy. So now the refund for the tariffs going away, that was different than the refund for

13:52the checks, right? So when people say they're going to balance the budget by, you know, they're going

13:57to use the money to bail out farmers and then give checks out to people. You can't use the same

14:01dollar

14:02like in 27 different things. Okay. You know, you don't have that much money, but, um, I don't know.

14:08So let's just say hypothetically, the tariff situation is resolved. Like they take tariffs

14:14off and companies go, okay, you have free reign to do whatever you want. Right. You know, you don't

14:19have these ups and downs on GDP, on exporting, front loading, you know, getting stuff or all that

14:25stuff. You know, the tax cuts, people have more money. Uh, they're able to, uh, uh, sound dovish and

14:32then the labor data gets better, you know, um, that can push up rates, but even with the labor data

14:40getting better early on or stabilizing, not a lot of people believe the headline reports, but

14:45that four 30 level didn't break either. So, you know, we have a very, very low kind of a low

14:52channel

14:52rates, just like 5.99 to six and a quarter out here. But to get to the upper end of

14:58the forecast,

14:59you know, four 40 to four 60 on the 10 year yield and, um, uh, six and a half to

15:076.75 on mortgage rates.

15:10The economy outperforms, the unemployment rate goes lower, wage growth starts to perk up, not,

15:16not head lower. And the inflation data stays sticky. Those are the things that at least I believe that

15:22can push rates up higher as a wild card is that the wild card is always the U S economy

15:28outperforming.

15:30Expectations. Now here you have all these headlines, right? AI is going to take all the jobs. Private

15:36credit market is breaking. Stocks are overvalued. You know, there's all these things going on here.

15:41So, uh, uh, let's say a lot of that reverses, uh, uh, and no matter how dovish Kevin Warsh sounds,

15:48the Hawks really start pounding the table and saying, you know, uh, um, we believe we need to stay

15:55more restrictive than, than what people want because inflation is too sticky. So an outperforming

16:02economy, like the, I think the first or second article I ever wrote for housing wire and economy

16:07outperforming doesn't necessarily mean it's good for housing because rates tend to move up. So

16:12that would be the wild card to the upside now, because clearly right now the inflation data is

16:16not doing anything. There's just a lot of noise around the future prospects of labor with AI and

16:23credit breaking stuff like that. Okay. So what, if you had to, if you had to place a bet, uh,

16:31what's,

16:31what are the wild cards that you believe in more? Do you think we have more potential to go lower

16:35or

16:36more to go higher? I I'm, I'm kind of just sticking in my range. Uh, but if you, if you

16:42had to like,

16:44there's, there's probably a better chance for the stock market to like have a pullback

16:49if there's more negative headlines and that could be a flight to quality and that in a sense, maybe

16:55get the 10 year yield below 380, like we saw in 2024, that has a higher shot right now, just

17:02because

17:02we're not that far off and market sediment is, is, is very sketchy right now. So if, if, if I

17:09had to

17:10choose between the two right now, that's that just because if Trump, you know, Trump doing 15%

17:15unilateral tariffs was not part of the equation this year, right? You know, that wasn't what,

17:22you know, I was thinking that maybe they get some clarity on tariffs and move on. So it would be

17:27something like that to that nature, but I, I always like to stick at my channels just because history

17:32says when you find a normal channel tied to Fed policy, it usually stays in there, uh, unless you

17:39have some crazy events. So, um, all I gotta say is, you know, talk about finally having somewhat of a

17:46first world problem, lower rates spreads, better volatility is compressed, you know, uh, everyone's

17:54talking about, you know, lower rates is a good thing going into midterms. They probably want that to

17:59continue. And, uh, we kind of take it to that, but you never want rates to go lower because the

18:06economy

18:07is breaking out there, but we've had the 10 year old now go below 4% a few times without

18:12the U S going

18:13into a recession. So my little joke, I see that I can do AI stuff now with that picture. I

18:20survived

18:20the 4% tenure. I've got people partying behind me and we all survived. You know, you can have

18:26the 10 year yield fall and not have a recession in the U S. Yeah, no, I think, I think

18:31the whole

18:32reason we're having this discussion is just sort of the, um, the interesting place where we are with

18:38inflation and then, and then the, what that did to mortgage rates. Yeah, there, there is, there's a

18:43lot of scratching heads, you know, just not just today, but the last few days, not a lot of people

18:48were anticipating the 10 year yield to be under 4% because the labor data had improved. It wasn't

18:53great, but it had improved inflation and picked up, uh, on the PC and PPI inflation today. And the 10

19:02year yield just broke through. And again, so much, so much of emotions and things driven by the markets

19:08are these headlines. And I think the, the, the AI disinflation theme and also, you know, private

19:14credit getting weaker is pushing some money into safety. And we'll see, you know, we're still not,

19:19I'm not, I haven't brought Hodor out, you know, getting ready to defend the key line. I always

19:24like to protect my edges up top and on the bottom. So we're getting closer to that than the top

19:29and

19:30we'll kind of take it from there, but Hey, listen, we'll take it. Well, the housing market, we'll take

19:37it, you know, stability and rates rates of multi-year lows and better spreads. You know, you couldn't,

19:42you couldn't ask. And traditionally at this point of the cycle, this, these do occur, but, uh,

19:48you're going to have no more Powell, no more hawkish Powell. You're going to have a more

19:52dovish talking fed. It'll be, it'll be interesting to see the fight between the hawks and the doves

19:57going out for the rest of the year. Once Warsh is in, that's going to be some great popcorn, man.

20:02But, um, yeah. So you think it's, you think that at some point Trump will just be like, fine,

20:08shut the investigation down to get Warsh in.

20:10I don't think he would go through all that to have Powell just stay as a fed chairman the whole

20:18time, you know? So, uh, um, but again, I, I believe what's really going on is not so much

20:25an investigation. They want assurance from Powell that he's not going to stay as fed governor,

20:31which he can do. He can still stay on the federal reserve board. And I think this is all about

20:36that.

20:36I don't think this is about the investigation. I think they just don't trust that he'll leave.

20:42And maybe that happens in the background that nobody knows about, but, you know, um, um, I'm

20:48pretty sure he wants to get out of this thing. Why do you want to sit here and deal with

20:52all this

20:53drama now? You know, go, go, go have a beer, go watch some Grateful Dead concerts, you know,

21:00spend some time with your family, man. Let, let everyone else deal with the craziness that.

21:06Well, of course we're doing this on Friday. We never know what's going to happen Friday night,

21:11Saturday, Sunday, but, um, we will check back with you again, um, next week. Logan,

21:15thank you so much. Madam president, paper, rock, scissors. Once again, one, right. This is,

21:21this was the day. I really like, I really like this new regime that you're calling me. Madam.

21:27Yeah. You wanted, you upgraded yourself to madam president. So, Hey, listen, I'm, uh, you're,

21:34you're my boss. My boss said, call me madam president and I'm just doing it.

21:39I love it. All right. Well, thank you so much. Talk to you soon.

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