Mortgage spreads continue to keep mortgage rates in check as Iran war spreads

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about how mortgage spreads are keeping rates in check, what to expect from jobs Friday and more.  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 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

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the role of mortgage

00:14spreads in keeping mortgage rates low as we are in this conflict with Iran. Before we dive in,

00:20I want to say thank you to our sponsor, Trust & Will, for making this episode possible.

00:25Logan, welcome back to the podcast.

00:27Sarah, do you remember Mighty Mouse?

00:30Yes, I do. Yes.

00:31Here I come to save the day. You know, that was mortgage spreads this week.

00:39Absolutely.

00:41Yes, because this is Thursday morning. Thursday morning, very key. I mean, oil prices are going

00:46up again. The 10-year yield tested that 415 level early in the morning. It's bounced off of that

00:50twice. And for those that read the Tracker article over the weekend, we said that the 10-year yield

00:57needs to close above 415 and get follow-through bonds selling mean yields go higher for me to

01:02believe that the market believes this is going to be a bigger and bigger thing. And of course,

01:07the Iran war is now on multiple days and it doesn't look like it's ending soon. And ships are being

01:13hit by drones and insurance rates are going up. There's all these things that are happening now.

01:18And yet, even with all that, the 10-year yield still hasn't broken a level that I need to see,

01:25or I need to see WTI oil prices to get above 82 for me to think, okay, this is going

01:31to be a real

01:32big deal because this isn't going to end anytime soon. But yesterday morning, mortgage rates went

01:39lower. Yeah. And I was just thinking, we brought out the peanut butter jar, mortgage spreads,

01:48tasting delicious and everything. And it's hard for me to try to really explain my whole talking

01:54point that mortgage spreads are here to reduce volatility on the downside and upside with rates.

02:00And mortgage spreads had been going higher because it was working from a very low level and yields

02:07were moving lower and lower. So it reduces the volatility to the downside with rates. Well,

02:13yesterday, the 10-year yield was flat to slightly higher and mortgage rates had a good pricing day.

02:18And that's the spreads taking some of that upward movement in the recent days and bringing it down

02:24lower. So it brought rates lower. So this is a really good example this week that mortgage spreads

02:30are now a wartime economic hero during this crazy week that we've had. And this morning,

02:38by the time this podcast comes out, jobs dated, which is really key to a lot of things for me

02:44personally, we'll get a good test of what the 10-year yield is thinking about with the labor data.

02:51Because if the labor data gets better, right, and we have a lot of hawkish Fed people still,

02:56why couldn't yields go up? And this is the kind of the 440 to 460 10-year yield high-range

03:03forecast.

03:03As long as you have hawkish Fed people and inflation is not back to 2%, you can make a case

03:10for labor overinflation to the upside as well. So it's a really good week in terms of testing a lot

03:17of stuff.

03:17I think what you've been looking for since Sunday, right, Sunday night trading, Monday,

03:22every day this week, you're looking at like, are they appropriately, is the bond market pricing in

03:28what's happening in Iran? Are they still sort of taking a wait and see? And what we don't know

03:33is just the expansion of this. Because it changes on a regular basis. But it seems like even with the

03:40expansion that we've had so far, people are, you know, we're okay with this level.

03:45So old school thinking is money goes into bonds when war happens. But we've talked about this a lot.

03:53The last few years, that has not been the case. It's different with the 10-year yield. But

04:00hotter PPI inflation, hotter prices paid inflation data report, the ISM service sector was expanding.

04:09Jobless claims are very low. We get retail sales that comes out tomorrow. So there's economic data that

04:15warrants the 10-year yield to be here or higher without the Iran situation. And we're still here,

04:20you know, and maybe like we talked about yesterday, the jobs data just doesn't have enough breath,

04:25whatever it is. Again, it's confusing a lot of people. However, with all that said,

04:30mortgage rates are near 6% because we have a lot of Fed rate cuts in the system and mortgage

04:35spreads

04:35got better, especially to start the year. So when we saw that announcement, the first night it

04:42happened with the mortgage-backed securities, we talked about this, is that I thought this was a

04:47defensive move, right? This was a defensive mechanism to kind of reduce volatility. Look

04:54what's happened, man. We have a lot of stuff that has happened since that day, and it's reduced the

04:59volatility in rates. We have not had mortgage rates above six and a quarter the entire year.

05:04So if we did not have that MBS buying, that $200 billion, if we didn't have that,

05:08where do you think mortgage rates would be right now? Well, considering that that started last year,

05:14you know, you could easily make a 15 to 30 basis points higher just above the spreads,

05:19because the spreads were improving on itself by its own, right? It would have gotten better. But I

05:23was thinking we'd get better mortgage spreads or closer to normal toward the end of this year. And

05:29then that was, you know, we'll be back to normal then. It happened early. They made the announcement.

05:34There's a lot of stuff going on. But again, we are near 6% with, you know, some of the

05:42economic data

05:43improving, some of the inflation data getting hotter, 15% unilateral tariffs on the verge of

05:48happening for a few months, which is a higher percentage of what we've collected in the last

05:53year. And now war with Iran. I mean, if I had said that to anybody two years ago, people would

06:02say

06:02seven to 8% mortgage rates with that, right? Because, you know, but in this case, it's a

06:09complicated period because job growth is still slow. It's only in a few sectors. Consumption is

06:15still holding up. The jobless claims data is low. And now we have war and oil and the Trinity impact,

06:21right? We always thought that for Trump to make this, whatever he wants to do work, he needs lower

06:27oil prices and lower rates. And right now, those two things have not pushed him to make any kind

06:33of concessions yet. And the war is still going on. And just to give everyone, just to remind everyone,

06:40Godzilla tariffs all hell broke with the markets, right? We had a 20% drawdown. We had a bear market

06:46in the stock market in a very short amount of times, but that didn't make them move until the 10

06:52-year

06:52yield got up to 450, 460. And they're like, oh, all right, all right. Somebody kicked Peter Navarro

06:57out of the room. We're going to have to need Trump to, you know, tweet something to calm the markets

07:01down. So that's why I kept that 415 line. I want to see that because to me, it's like it

07:07yields warrant

07:08to be higher just on the inflation and economic data. But here we are. And again, one headline can

07:17change all of this. And I think there's just, there's enough people out there that are just

07:22sitting there and waiting to see that because that's something that could push oil prices lower,

07:27maybe bring yields down a little bit lower. But for now, we're still here near 6%.

07:32Yeah. I was going to ask you about oil prices because of that Trinity effect that you have talked

07:36about since the inauguration was like gas prices, energy prices have to be lower. I mean, isn't that a

07:43threat right now? And how are we going to respond to that? So I always like to read people's

07:48languages. And I think Trump this morning said, you know, gas prices are still low for now. So I know

07:55they're monitoring this because they're saying, well, hey, listen, protect the ships, man. The

08:00Strait of Hormuz is not working normal. However, this is becoming more than just oil, like fertilizer

08:06and chemicals and everything. And, you know, chaos, right? I mean, I love, I'm an agent of chaos,

08:13so I love chaos, but the Middle East, all these things, you know, you would think oil prices should

08:20be higher, but we started with a lot of oil supply out there. There's a lot of oil and shipping

08:25boats

08:26out there that are just sitting there. So they picked a time to where they could do this. The question

08:33is how long? How long do they want to push this? Because energy is one thing that people see,

08:40gas prices, what they see every day, right? And then they use that, you know, the war,

08:48the Russian war versus Ukraine, oil prices spiked up, wheat prices spiked up, inflation took up,

08:55and then oil prices started to head lower. So Trump is very mindful of that, right? And he's mindful

09:01of mortgage rates. So the mortgage rate story is still near 6%. And I sympathize with people who say

09:11the 10-year yield shouldn't be this low because oil prices and the 10-year yield and mortgage rate

09:16should move together. So the velocity of the move of oil from $56 to $80 with WTI has not been

09:25effectively priced in mortgage rates. I get that. But just remember, we've had a lot of rate cuts in the

09:30system and mortgage spreads are better. So if you're trying to make sense of that, that's what

09:35it is. Mortgage spreads were the defensive war hero right now. But there is going to be a point to

09:41where

09:42it becomes more problematic. That's the duration. Like all chaotic events, if they end quickly, you just

09:47go back to normal. But, you know, there was a report. I don't know if they, you know, a lot

09:52of these

09:52reports are just, you know, fillers out there just to do psychological warfare. But, you know, they talked

09:57about that. This thing is, they're planning for a war as long as September, you know. So we'll see.

10:05It's a day-by-day thing. But clearly now that it's, by the time this podcast comes out, it's Friday.

10:10The

10:10war hasn't ended. Who knows by the time Thursday night happens. But this is not one of these one

10:17and done kind of things in the past. This is legit. So the 10-year yield should be higher. Oil

10:23prices

10:24should be higher if they think this is going to escalate into something more. Because

10:28boats aren't moving. Insurance rates are going up. And now it's spreading out to other parts

10:34of the shipping. So wild times, man. 24. What would Jack Bauer do? Probably yell at someone.

10:41Listen, you picked the right analogy for this year in 24. We've had more 24 this year than I would

10:48have thoughts. I know. And it's only like early March, man. We haven't even got to March

10:54Madness for basketball yet, you know. And we've got like seven events. So who knows? Chaos,

10:59man. No normal years so far. No normal years. One normal years. But the irony is, out of all

11:06the things, mortgage rates, very low volatility. And this is the spread. So it is good for so many

11:13people to now see it live in action, right? The volatility compressing on both sides. When

11:1810-year yield goes lower, spreads get a little bit higher. When they go, you know, it's just

11:23working itself off. So for me, just as somebody who's tried to talk about mortgage spread so much

11:29in the last three years, because I know not a lot of people know about it, this is a good

11:33week to

11:33kind of show what it's really designed to do. So one of the things that we can see right away

11:38is

11:38it. You know, this administration has a lot going on right now. They're pretty, pretty, you know,

11:43dealing with all these other things. So we haven't had any like housing announcements. We were hoping

11:47we would get some of that on the State of the Union, or I was hoping. I know you kind

11:52of are like,

11:53listen, they don't need to be doing any of this. But we know that they're working on some,

11:58you know, innovative things to help housing affordability, working on different things that

12:03are important to the mortgage industry or housing. But I feel like all of those things are probably on

12:07hold right now. Whenever there's war, and you're, you're spearheading the war, a lot of the attention

12:14has, I encourage anybody, if anybody goes to London, they should go to Churchill's bunker.

12:20Oh, I've been there. I loved it.

12:21Yeah, take a look into Churchill's bunker and what was going on back there. They had charts,

12:26they had charts in the bunker, you know, because they're managing, they're taking a look at food

12:29prices, energy prices, everything, you know. So right now, their attention is not only on the

12:36war front, but it's economic impact, because, you know, it, the longer this goes, and the scale of

12:44what this could impact onto the economy, you know, starts to seep itself more and more out there. So,

12:52you know, midterms are coming up. So I know a lot of people thought maybe this is just gonna be

12:58a

12:58quick one. Obviously, that's not the case. This is, if you're talking about regime changes and

13:03bringing Kurdish forces in, man, this is, this, this has gone full 24, you know, hour 17. We can't

13:12wait because Jack Power is about to do something crazy. But yeah, it's, it's, it's been an interesting

13:18week. I mean, I've been following markets since 1996. This has been one of the more, I mean,

13:23you hate to say it because it's a chaotic event, but it's been fun to watch to see how the

13:27market kind

13:28of reacts to this. But for housing, it's spreads, and rates are near 6%. So you take away all the

13:35crazy noise out there. Purchase apps are up, mortgage rates are near 6%. Price growth is

13:42cooling down, inventory's up. It's, it's a healthier housing market on that front. But

13:46you've got all these headlines, and you just don't know what's next out there.

13:51We really don't. Okay, well, speak of what's next. Obviously, this is going to come out the

13:56morning that we get jobs Friday. So we don't know what that is yet. But tell me what you think

14:01that impact could be. So this month is going to be a little bit quirky, because you have the

14:06educational side into this month. But you also you have the winter hit as well. So it's a toss up

14:13of

14:13me. It can easily be a 70 to 80,000 month just on some adjustments. I'm sorry, what do you

14:19mean by

14:19educational month? Like, you know, there's hirings that happen throughout the year. So there's some

14:24seasonal factors there. So so that could impact maybe this report, but also then there's the

14:30winter impact, where jobless claims spiked for two weeks because of the winter, right? And you could

14:36all you can see this at a lot of weekly data, like our weekly data, we can see the impacts

14:40and snow

14:40states, right, but not the impacts in warmer states out there. So again, for me, just what we wrote

14:48about in the tracker last week, I want to see if the 10 year yield can close above 415 and

14:52sell it off.

14:53But we have a lot of economic data this week as well. We've had more hawkish Fed presidents. I

14:58mean, it wasn't just Kashkari and Beth Hammock, Schmidt from the Kansas City Fed and came out

15:04was was very hawkish as well. So we're throwing everything at here. You know, remember Neil Kashkari

15:12when he said in 2023, we can't have mortgage rates near 6%. If people are buying homes, how are we

15:18supposed to balance the economy? Well, here we are. 6% mortgage rates, purchase apps are picking

15:23up just a little bit. So a lot, a lot going on. But again, as somebody who's professed labor over

15:28inflation, jobless claims are still low. The challenger data was positive, but just because

15:34it was a big drawdown, just remember that, you know, you have a lot of doge firings that are input

15:39into that. So that I never really liked the challenger data. It's a jobs data that talks about,

15:44you know, how many fires are about to happen. I'm more jobless claims, job openings person, but

15:51no, it's just, I really, if the labor data beats estimates and the 10-year yield doesn't close above

16:00415 and the war is still going on and going worse, you know, that is, there's something else going on

16:08that even I'm not picking up. So that's just for me. That's, I really want to see that. So far

16:13this

16:13morning we bounced off that 415 level twice. So I'm like, okay, here we go. You know, I always

16:18have to like create names, right? I didn't create any nicknames for this, for this level here, but

16:24it's, it's, it's, it'll be interesting jobs to report to see. And remember for me personally,

16:30the federal reserve, when they talked about attacking the labor supply, so they want to attack

16:34the labor supply. The reason they, they targeted the labor market is because they believe that to get

16:402% inflation, you need wage growth to come down to 3% and under because productivity, they don't,

16:46a lot of the fed people don't believe in the productivity miracle. Lisa Cook and Kevin Warsh

16:52do. So because of that productivity is really at 1% and that's how you get inflation back to 2%.

16:58And, and, and, and rents are a really good example of that, right? Rental vacancies are up. Wage

17:04growth is slowing down. It's really hard to have rents really take off when those two variables are

17:09together. So if people make less money, they don't have to worry about inflation taking off. If people

17:15are making more money and wage growth is picking up, then you need productivity to, to offset that and

17:22keep prices at bay. So again, wage growth every single month, we keep an eye on that, but it really

17:28is

17:28interesting. We've thrown a lot of things this week out there. So I'm, I'm excited to see how the market

17:34reacts tomorrow. Me too. It's going to be really interesting. And then you throw in the AI conversation

17:39into that productivity, job losses, you know, hiring, things like that. It is an X factor.

17:46You know, the, right now there's two X variables for the lower rate camp people. They say AI is

17:55disinflationary wages, uh, corporate profits and firings. There's also a lot of rumblings

18:00about private credit. The private credit market is breaking and that's going to be negative.

18:05Remember the commercial loans. You remember that, how the commercial loans are supposed to

18:10be the big recession. We don't even talk about that anymore. It's true. Like nobody talks about

18:14that anymore. And one of the things we've said is that if you saw what the federal reserve did

18:18to Silicon Valley bank. And I remember talking about this years ago and I said, the federal

18:24reserve can snap their fingers and over weekend merge banks to limit the damage. Right. They don't

18:29necessarily want to do that, but if they can, if they need to, if banks start to go under, they

18:34can

18:34do it. Right. So the commercial bank, I, I, the, the, the credit markets there. I, I took Austin

18:40powers, that movie where he's like taking the ice rink roller and he's, it takes, it looks like it said

18:44three hours to kill the person. That's basically like the commercial credit market and nothing's

18:49really happened yet. Um, but private credit, if you see it, you'll start to see the deterioration

18:55faster. So there's, there's other variables for the lower rate camp and they're used the AI

18:59disinflation and the private credit markets, you know, on the verge of breaking as things that

19:04will be negative for the economy, which the economy, they, a lot of people, or not a lot of

19:08people, but some people really can't take a shock like that now. So you've got a lot of things

19:12go in, in 2026. So that's why we need this twice a day, seven days a week, you know, live

19:2024, seven, let the chart daddy cook.

19:22Logan, you're the, I mean, you know, I know you could do it. Most other people cannot do

19:26that. So, and don't say, Oh, I could do it by myself. See, my finger just came out when

19:30I'm like, I know when you're mad at me, I know.

19:33Not mad, but it is pretty funny. It's automatic.

19:36Your finger is off. You, you, you, you're, you're ready to tell me you can't do this alone

19:39because you can't be trusted. If you go alone, you're going to, it's true. It's true. All

19:44right. Well, thank you so much for being on glad that we do have you all so much is going

19:48on and we will talk again soon.

19:50Pleasure wheel or Chloe or Madam president, Madam president. I do appreciate the fact that

19:56you have adopted Madam president pretty well. So victory there.

20:09you have adopted Madam president. Thank you so much for joining us.

20:09Bye-bye.

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