How war with Iran could affect mortgage rates

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the Iran war and how it could affect the 10-year yield and mortgage rates.  Related to this episode:  Will war with Iran send mortgage rates higher or lower? https://www.housingwire.com/articles/will-war-with-iran-send-mortgage-rates-higher-or-lower/ 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.

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about what

00:14the effect of the Iran war will be on mortgage rates and whether it can make mortgage rates

00:18worse. Before we dive in, I want to thank our sponsor, Trust & Will, for making this

00:23episode possible. Logan, welcome back to the podcast. You look very Miami today.

00:28Yes, I literally just got off stage and ran up here, Madam President, to make sure that

00:33I come on time for you because, yes, I'm in Miami. And wow, boy, a lot has happened. You

00:42know, we're kind of talking about in the last part, like what are the variables? And, you

00:46know, the Iran situation is interesting to me now, thinking what happened on Friday to

00:55what happened on Sunday night to what happened on Monday. So this is Monday. We're talking

01:00about it. Oil prices have not probably escalated as high as people thought. But on the bond

01:08market and mortgage side, the initial reaction was what people usually think. Money went into

01:14the bond market early on Sunday night trading, and then it kept on going higher and higher

01:19and higher. We're pretty much flat. But like we wrote in the article, escalation is the key

01:25to any of these situations. And unlike the bombing of the nuclear facilities, there is no talks

01:34of ending this anytime soon. So because of that, because the 10-year yield got to a yearly low

01:41at 392, we saw a pretty good move higher. Now, mortgage rates went from 5.99% to 612. So

01:51it's

01:51nothing too dramatic. And the 10-year yield is still near, I mean, it's basically at the levels

01:57kind of it was not that long ago. But going out in the future, if this escalates into a bigger

02:07thing,

02:08and then it's going to be part of the marketplace for a while. Because it wasn't like, hey, by the

02:14way, we're done. We're moving on. They're like, hey, listen, this is going to be here for a while

02:19and all of this. And in that context, until you get a little bit more clarity, we have to deal

02:28with

02:28that. But it's also jobs weak. And then on top of that, the ISM manufacturing, whatever paid price

02:36index, like really blew up higher. A lot of that has to do with some of the tariffs on aluminum.

02:43So I think clarity is hard to come by, right? We've heard different things at different times,

02:48even just from the president. But I think we can say that like, compared to like what he did in

02:53Venezuela, where that was a pretty quick action, then we're out. He has said that like, you know,

02:58there's there's he wants to regime change. At one point, he said he thinks it's going to be a

03:02couple weeks. No one really knows. So are you surprised that it actually hasn't that the market

03:08hasn't acted even more like that, that things didn't go higher? This this area is not, of course,

03:15my wheelhouse, but I'm just giving my observation. I don't think the market is pricing in this being

03:21an escalating event, because of what Iran can or can't do and because of the midterms here. So

03:31and again, I'm while I'm talking, the 10 year yield is just at 4.05 percent. Mortgage rates are

03:39at 6.12 percent. Oil prices didn't get up to, let's say, WTI get 80 or $82. So I just

03:47don't think

03:47the market is is fully believing yet that this is going to be an escalating event. But if this keeps

03:54on going off, you see, Iran's taking a different approach. They're not they're shooting their

03:58neighbors. Right. Right. You know, and it becomes more expensive if boats just don't want to go

04:07through the Strait of Hormuz or the insurance rates go up. So this is a different tactic on both sides

04:13on Trump. And again, what was different about Trump this time around than the first one?

04:19Godzilla tariffs. Right. Nobody thought that we do Godzilla tariffs. Now, you know, going in and,

04:26you know, bombing Iran like they have. The midterms are coming up. But, you know,

04:32what if Trump just goes, hey, listen, I know I'm going to lose the midterms. I got to get as

04:36much

04:36in as I can before, you know, things get harder for me. So we'll have to wait and see what

04:42happens.

04:44But that's that's the Iranian situation right now and its impact on oil prices in the 10 year.

04:51I know a lot of people thought, OK, well, money goes into bonds and everything. We're working from

04:56the lowest levels of the year and we had a hot inflation period on Friday and on Monday morning.

05:02The ISN price paid index was very hot as well. So I will say to listeners, Logan wrote about this

05:08as part of the housing market tracker over the weekend, because, of course, we woke up on Saturday

05:13morning. We're like, OK, just what we talked about on the Friday podcast on the, you know,

05:21I would say, you know, go there because he lays out sort of why he's thinking this way.

05:26But, yeah, I think it's really interesting. And I unfortunately, I feel like this could

05:30raise rates right when we were thinking this is going to be, you know, a better start to spring.

05:36But did it really raise rates in a big way? I mean, that's the thing. I don't know if it's

05:43coincidence that, OK, now, of course, I don't think it's, you know, let's wait till the 10 year

05:47yield gets under four percent. Then let's go, you know, attack her on. But I'm always looking

05:53on a technical side. I need the 10 year yield to break above four. I mean, we were at much

05:57higher

05:57yields earlier in the year. So for now, it's actually a mild response considering the seriousness

06:09of the of the event. So I just don't see this being fully priced in yet, because to me, it's

06:16like

06:16the 10 year yield should be higher because not only of the event, the scale of the event, because the

06:22PPI inflation was hot, the jobless claims data was low. You know, so I'm not I'm not fully convinced

06:29the market is buying in yet. But if I saw oil prices, not crude, but WTI get above $80, if

06:37I see

06:38the 10 year yield, get back up to $430. But again, you're now dealing with variables between how much

06:43can Iran really do take? How much does Trump really want to push this, you know, for the

06:49midterm? So it's just one of these X variable things that we have to deal with. And we'll take

06:54it one day at a time. But that wasn't the biggest story. I mean, of course, it was the biggest

06:59story,

07:00but it wasn't one of the there were other storylines to talk about on Monday, too.

07:04Okay, well, let's talk about some of those, right? Because this is a week of a lot of economic

07:09data. So we have jobs reports, we have Fed speeches, we have retail sales, but the prices

07:15paid on the ISM index really just blew up to the high side. What does that mean? Maybe

07:22basically manufacturing, the prices they have to pay for the goods is elevated higher than what people

07:29were anticipating. Then you have the PPI inflation data that was super hot. So we're having 3% plus

07:36PCE inflation. That's what the Fed tracks. So now the question is, you know, a lot of people say,

07:43well, if oil prices got to a certain level, it becomes disinflationary because it hits demand.

07:47We have to remember as a percentage of income, we spend a lot less on oil like we used to.

07:53Like in the late 70s, like how does oil, adjusting to inflation, oil has to be like $450 to get

07:59those

07:59kind of levels. So we're obviously not there. And the oil response was big, but not as big as people

08:08think. So I just don't think we're fully pricing in this being an escalating event, considering the

08:16things that have happened. So, but that's the Iranian side. Now we have the economic data side,

08:23right? What if we have a jobs report that beats expectations? What if retail sales picks up?

08:28Stuff like that to me actually matters more because we're, I'm sitting here the last time I saw the

08:3210-year yield is 4.05%. We're pretty much at multi-year lows out here. And again, I hold that

08:39whole door line at 380 for a reason, but it really is going to get interesting to see if Fed

08:46governors start to make comments on this. Because they've got prices paid going up,

08:52they have PPI inflation going up, and the energy portion they can maybe say until we get some

08:58clarity, we're not sure. But that's, you know, the Fed doesn't really manage that part of the economy

09:04in a sense. So interesting week. Interesting, I mean, this whole week's going to be kind of a buckle

09:10up. But I still don't think the market is pricing in the full escalating of this going on, even though

09:19Trump has said, I'm going to be here for weeks until they give up. And the Iranians are shooting

09:24their neighbors left to right. So definitely a weekend to take notice.

09:31So what do you think, you know, if you're, if you're the Federal Reserve, you know, do any of

09:36these factors move what you're what you were going to do? If I were them, I would just

09:41I would not make comments about the Iranian thing. At this point, if you want to talk about PPI

09:46inflation or prices paid, go but don't kind of get into that. Midterms are coming up over the whole

09:55trinity impact, the whole trinity impact was that, you know, but we have to look at this in relative

10:01terms. Oil prices were 120, 22 during your crane. It's like 72 last time I saw the 10 year yield

10:09was

10:09at 5% at one point in 2023. Mortgage rates were 8%. We're near 4% with 6.12%. You

10:18know, so relative

10:19terms, not that big of a deal yet. But going out, is this is is this like they're going to

10:26just go for

10:27it as much as they can in a very short amount of time and then clear it up a little

10:31bit later. But

10:32there's there's more at play here with the inflation data with some Fed governors. Again,

10:41we're supposedly going to have 15% tariffs now. And people can see that the prices being paid on some

10:47of these goods is keeping things sticky. So maybe just it's going to it's 24.

10:5324. It is. It really is. Okay, like 24. This weekend, I was like, that was the right analogy.

11:00I hate to say it because nobody needs that. But for and what I mean by that is nobody needs

11:04the kind

11:05of events that happen in 24. But yeah, this is crazy. So anything else, you know, before you were

11:12you were putting in all this about the Iran war, what were you looking at in the tracker that was

11:19catching your eye? The tracker was good. Now, the tracker had a big inventory decline and a big new

11:25listings decline. I would just say that there's a seasonal flow of inventory and new listings data.

11:30And I chalk it up to that. And I think we're about to start the March push on inventory,

11:39weekly pending sales positive. Price cut percentage is still down one and a quarter percent,

11:45but it's about to do its upward slope that we see on the seasonal increases. So the tracker looked

11:51good on that side. And of course, rates got below six percent. So we'll see how this kind of plays

12:00itself out on some of the weekly data going out. But if you just like close your eyes and you

12:05just

12:05thought to yourself, the 10 year yields at four point zero five percent and mortgage rates are six

12:10point one, two percent. It's not a big deal whatsoever at all. That's like the low levels

12:15of the multi-year low levels of those two things. But I think as long as this Iran situation goes

12:23on,

12:23you just don't know how the market's going to react or going out in the future. Is it an escalation,

12:30right? Like the nuclear bombings facilities was one and done, out, done, finished, gone.

12:36So far, that's not been the case. But I just I just to me, it just looks like if this

12:40thing

12:41can get worse, there's there's a lot more pricing that can be impacted. But for now,

12:47considering the severity of it, considering the inflation data, the jobs data, well,

12:52not bad, actually. Look at it in that context. So are we going to have a typical Jobs Friday report

13:00this week? Jobs will be fine. I don't think the job openings is this week, but we'll have the ADP,

13:06we'll have the weekly jobless claims and the BLS report. So we have retail sales as well.

13:16I, you know, of course, I'd like everything to get back onto the economic side of things,

13:21because I think that's a value. But I mean, if you just sat there and thought about for a second

13:25that you can have very low jobless claims, three percent plus inflation report coming next month

13:31because PPI and prices paid up and we're war with Iran. Boy, if you're telling me the 10 year

13:38yields at 405 and the mortgage rates near 6 percent, you're like, I don't I a lot of people wouldn't

13:43take that bet. And I totally understand. But we really need to, like, keep an eye on the Iran

13:52situation, but really focus on the economic data, because the economic data is going to be the big

13:55driver. Everything, you know, the situation Iran will eventually find a solution or an ending. But

14:03it's just it's just a big week. We've got a lot of things going on, you know, and so tomorrow.

14:07So

14:08we're recording this on Monday. Tuesday is primary day. As you said, you know, the the midterms are here

14:13like, no, we're not we're not electing someone tomorrow. But it will be a bellwether of like,

14:17who who is what part of the ideological spectrum is seeing, you know, momentum or not. And and that

14:25might, you know, that might influence the White House. It is it's this this move from Trump is is

14:32as aggressive as the Godzilla tariffs were. Right. So this wasn't like the nuclear facility bombing was

14:39was a big move, but it was like one and done. That's it. But this was this was legit. I

14:44mean,

14:44this is not some, you know, flyby event. Of course, this week, we're going to get existing

14:51home sales. The NAR is bringing that out there. And just to kind of reemphasize, this is the last

14:59report. I believe that you're going to see the snow data into it because our weekly data is is picking

15:05up there. And just for just a review for everyone, the housing market shifted mid June. The housing data

15:11started to get better all the way up until December. December had a nine month sales.

15:16We refused to write the tracker for the last two weeks of the year and the first week just because

15:21we knew that when you're working from an elevated level and you have Christmas and New Year's in the

15:26middle of the week that you need to be full throttle with everything that wasn't going to be full

15:30thought. So that decline that we saw initial initial the initial decline, which we said everyone's

15:36going to overplay this. They did. Right. And then the data rebounded very aggressively. And then

15:42the snow happened. And we're just the last two weeks, we're seeing the snow data kind of filter

15:47stuff off. So our weekly pending sales looks out 30 to 60 days out there. So last existing home sales

15:54report after that, I think we're free and clear on on a lot of things. We just go back to

15:57the normal

15:59reports on that side. Logan, thank you so much for jumping in this weekend and writing up like what the

16:04Iran war meant for mortgage rates. We will be keeping close eye on this. So listeners, if something

16:09happens, check housingmar.com because Logan will have another report on this. But we are watching

16:15it closely when it comes to what is what is it going to do for the housing market? And just

16:20to

16:20like refocus everyone, imagine seven months ago, if somebody told you inflation is on the hotter

16:32side. We just bomb in this, you know, Iran and took out a lot of their leadership. The prices paid

16:40on

16:41manufacturing data on this is blowing up higher. And we're here with a 4.05% 10 year yield and

16:506.12%

16:51mortgage rate spreads. Sarah Wheeler, mortgage spreads, the unsung hero of last year and the unsung

16:59hero of this year because mortgage rates would easily be I mean, we could be talking about, you know,

17:04seven and a half percent mortgage rates today, if the spreads didn't improve from the worst levels of

17:092023. So a lot. It's a lot. It's a lot to go over. It's it's crazy time. But that's our

17:14job to try to make

17:15sense of it all. That is our job. Logan, thank you so much. I will talk to you again soon.

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