Unemployment, consumer sentiment and mortgage rates

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the relationship between the unemployment rate and mortgage rates, even as the war with Iran continues to escalate.  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 real estate.

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the 10-year yield

00:15and mortgage rates as we look at the unemployment numbers and consumer sentiment, even as the war

00:20with Iran continues to escalate. Before we dive in, I want to thank our sponsor,

00:24Tristan Will, for making this episode possible. Logan, welcome back to the podcast. It is

00:29wonderful to be here, Sarah. It is wonderful to have you. Well, you have had a very eventful 24

00:35hours, tons of stuff going on, and CNBC called. You're on Fast Money, and that was a great segment

00:42and then also a hilarious segment. You know, I have to tell you, doing the CNBC show at 2.15

00:48p.m.

00:49instead of 2.15 a.m. is a lot more fun, you know. You've done both. I've done both, yes.

00:57So as you

00:58can imagine, Fast Money with all the crazy market drama out there, you know, who are they going to

01:03call? Bring the chart, daddy. So I joked with you about it that I know things are hectic when my

01:08bond trader friends, stock trader friends, and commodity trader friends are all talking to me

01:12on the same day, right? So everyone's trying to figure this out, what's going on. And still,

01:18with the 10-year yield and mortgage rates and everything, and, you know, it's very confusing,

01:23but I thought that was the best CNBC interview I've been a part of because the questions were

01:29really good out there. I thought they were. No, we're going to get to some of those questions,

01:34which are some of the things I ask you about, but then specifically drill down on mortgage rates.

01:38But I do have to say, after those great questions and after you were off the air, like all the

01:44angers

01:44were talking about you, like, oh, Logan's great. And somebody was like, we've never, what they say,

01:49we've never had his, Logan's hair shirt combination is the best we've ever had on this show.

01:55Yeah. I, I, I, I, I didn't, I didn't watch any of that. All I know is that I got

02:01a ton of message

02:03of, you know, I guess he said, oh, it was hot or something.

02:06Yes. He said, he's like, it's making me hot or something like that.

02:08So I, I, as you can imagine, I was getting reamed on social media from people. I didn't realize what

02:15was happening until you, you told me, you know, what, what was said.

02:19And I still haven't even, I, I still haven't even seen it, but yeah, the hair, the hair looked good

02:25yesterday on the tube, you know, so the, the shirt looked good. So I I've always been known

02:30for a bit of a theatrics at times. Yes, you have given the people what they want. Oh, okay. Well,

02:36let's dig in. Cause like the questions that I have about today are what is the escalation,

02:41you know, has it been priced in yet? And number two, what's the potential for how low, you know,

02:48how this could affect mortgage rates to the good side. So let's start at the top and go the escalation.

02:53What are we seeing how that's affecting the 10 year yield? So I had a really good talk with one

02:58of my bond trader friends and, you know, I, I reminded him that, you know, the 10 year yield

03:03was at four 30 on January 20th when oil was a lot lower. Uh, we never had any of this

03:12issue. Uh, bond

03:14yields were higher then. So we're, we haven't quite gotten past that bull that I always call. And to

03:23me, it's, I think the last time I saw it was four 23, four 24 in the 10 year yield.

03:28Um, again,

03:29there's two ways of thinking about this. If the economy can expand, let's just do a hypothetical

03:36to make it easy. Let's say that you need gas prices to get to $4 and 75 cents before it

03:42really

03:43impacts the retail sales and everything else. So while that is going on, the 10 year yield can keep

03:48on going higher because oil prices are keep on going higher. And as long as the economy can expand

03:53and the labor data, if it gets better than rates and yields and everything should go up because

03:59it's an expanding economy with growing inflation and inputs until this resolves itself, the bond

04:05market did, I thought correctly started to go up higher because this is escalating. This is not

04:13what a weekend at Bernie's kind of event. And then, you know, let it, let it go back to normal.

04:18This might be here for some time now. Um, now the counter to this is also what I explained to

04:25my

04:25friend that right now the 10 year yield is like, okay, so what if the economy can't take the shock?

04:31We just had a negative jobs report. Retail sales weren't that great in the last report. And now

04:38we're pushing energy costs and airline costs and diesel and fertilizer, all these things are coming

04:46in out there. And let's say the economy gets worse. Then the 10 year yield should go lower

04:53because then the federal reserve says, you know, uh, this is really going to hurt the labor market,

04:58paper, rock, scissors, labor or inflation. They will start to talk dovish because they say the war

05:03will eventually end itself, but the job market might get hit too much on it. So

05:09right now to me, it's, it's just this tug of war with a 10 year yield. They don't want to

05:13fully commit

05:14because they just don't know that, you know, if the economy could take it because then yield should

05:19go up higher. If the labor market is doing better, inflation is hot and stuff like that. And they

05:24don't want to take the 10 year yield lower because you know, they still not convinced that the economy

05:30is getting even weaker, uh, uh, uh, than, than it was after the jobs report. So it's a tug of

05:36war

05:36at this stage, but if you think about it in that light, maybe that explains why the 10 year yield

05:41is still look at a chart of the 10 year yield from September, all the way up to where we

05:46are in March.

05:46It's just been really in that bowl. And it properly went lower, uh, a few weeks ago because the jobs

05:54data

05:54was negative, which was not in anybody's bingo cards and the job. And then we, we even talked

05:59about that before the jobs report that maybe the 10 year yield is saying, we don't care what anybody

06:04thinks about labor force growth. The breadth of the jobs data is terrible. And if you don't have

06:10those two sectors, every jobs report would be negative. So, uh, that's what happened in that

06:15report. So tug of war for right now. And, uh, again, how long this rides, I know you think about

06:22everything that's happened. Trump announced they're going to release the strategic reserves.

06:27Uh, uh, the world has announced they're going to release some strategic reserve and oil prices are

06:32still higher today. Right. Mother marketplace does not give a bleep about, you know, headlines and

06:41tweets or anything like that. You know, you could fool it once or twice about maybe ending it or not

06:46ending it or getting the Jones act and all that stuff. But my, my oil trader friends, like this

06:52thing can easily go to one 51 75 because the straighter four moves. Now you could put a bandaid

06:58on this thing, but we have ships, we have ships stranded in the ocean getting hit right now. So,

07:04uh, this is an escalating event that can get a lot worse. And right now to me, the 10 year

07:11yield is

07:11just waiting to pick a side to really go over. So the bandaid is the releasing of the reserves,

07:17right? That gives you some short-term help there. We can't, we can't, I mean, I think it was,

07:21I think there's 12 to 15, uh, 12 to 15 million barrels that are not going in or something. So

07:29we

07:29could only maybe provide one, one to two or something. Now the world is going to release, uh,

07:35a lot more, but these are just short-term mandates and then that's it. There's nothing really

07:41else. They're going to try to do the Jones Act. They threw every headline they could at this and

07:47oil prices went higher. That's telling you something that, you know, uh, Trump's been

07:52used to jawboning. I don't know if people remember the first trade war. They used to bring people out.

07:57Oh, our talks with China are going good. And the markets would rally or something. Yeah. Markets

08:02like, no, this is commodity world, man. Or you might've tricked us one or two times with stuff. But

08:08so I think there is, might be some shock in the white house that they've threw everything at this

08:14thing and oil prices went up higher. I think there's also clearly shock that the Iranians

08:19are still able to do. I think at least it seems like the white house thought maybe they would

08:24fold earlier or they would, you know, just pull back. And actually, I mean, I feel like they're

08:29more determined than ever. I mean, they proved that by going after ships yesterday. You know,

08:33this is all they have. Of course, like North Korea has a nuclear deterrent, right? Russia has a nuclear

08:39deterrent. Uh, the Iranians don't. So all Iran has is the Strait of Hormuz. So this is really their

08:48only deterrent they can really use. Uh, uh, uh, so they're going to maximize that to the full extent.

08:54And again, the world, the war has changed. It's drones, right? It's just, it's weird. We're

09:00dealing with, you know, uh, uh, vertical drones and swimming, you know, boat drones and stuff like

09:06this. And they're, they're not playing. They're taking ships out left and right. And, you know,

09:13a lot of people just thought, well, the bombing will be the first weekend or a few days and that's

09:16that that's not happening. So it's, I don't know. It's something, something didn't go right here or

09:26maybe, uh, the, the original game plan was not the game plan. That's going to be at the end of

09:31it all,

09:32but, uh, um, we're still dealing with this and we did everything we could to try to calm the oil

09:39markets down and they're still elevated. So again, escalation every day that goes by less production,

09:46has to happen, right? Uh, more play, more boats getting to shore more, you know, you can, you,

09:53you, the, the problem with this is that if this thing goes on, maybe you get something even worse

09:58happens and it becomes even a longer and bigger, that's, that's the risk. The longer this goes in

10:03this chaotic, uh, uh, uh, the, the, the, the higher the probability of something even worse happening,

10:09uh, because you have two sides that just, you know, maybe want it to end and not getting how they

10:15want. So they, they, they do something unconventional that they wouldn't have done.

10:19So I was just talking to a mortgage lender and they were talking about the fact that, um,

10:24there, there is a lot of chaos, but they also in the last 30 days had a huge volume of

10:29rate locks

10:30because as things were going crazy and things would dip, they had, you know, smart LOs who are

10:35out there watching and just locked, you know, some pretty, uh, a lot of volume in the last 30 days

10:41because of this, right. If you're watching that. And I think this is just, we talked about it

10:45yesterday when things are bad for the overall economy, sometimes that can be good for rates.

10:50Um, yesterday, one of the questions you got from, uh, CNBC, one of the anchors was like,

10:55what about the fact that, uh, employment, the unemployment rate is up? How does that affect

11:00mortgage rates? And it's what you've talked about, like with, with president Trump, he wants a good

11:05economic picture and he wants low mortgage rates. And it's like, those two things don't usually go

11:09together, right? If, as an unemployment goes up, sadly, a lot of times that means mortgage rates

11:14go down. You know, uh, Guy Adami, when he asked that it was kind of applying he, he, the specific

11:20question was what's the magic number? What if the unemployment rate, what number does the

11:24unemployment rate go to where it impacts housing demand? And I said, you know, the unemployment rate

11:30going higher, oddly enough, will be better for housing. Uh, and, uh, because once it goes up,

11:36the 10 year yield goes down and the fed has to get dovish because the labor market's breaking,

11:41uh, if the unemployment rate doesn't go anywhere and the economy is still expanding, or if it goes

11:47lower and inflation picks up, that's bad for housing. Why? Because rates are going to go higher.

11:52Uh, so it was the opposite. That was the correct take that the unemployment rate falling with inflation

11:59pressures picking up means that the 10 year yield should go higher because it's the labor market isn't

12:05being impacted, but inflation is high. So, uh, you need to have more restrictive policy. But, uh, I think

12:12he was at, he was, uh, under the, the, the thinking that unemployment rate goes up and people don't buy

12:19homes. Hey, listen, we show those charts all the time. You look at recessions that tends to be the

12:24bottom of sales and then sales start to grow for years. But COVID was the best example. Again, 25 to

12:3035

12:30million people, 20 to 30 million people unemployed and 5 million in forbearance. But as soon as people

12:36start, Oh God, 3% mortgage, 133 million people still working. And that's what I try to explain to a

12:42guy

12:42that majority of the workforce is always employed in every recession, especially homeowners, homeowners,

12:49home buyers, home sellers are going to be buyers, uh, because they typically are in the middle to upper

12:54middle, uh, class in terms of the job structure. The highest unemployment rate tends to be high school

12:59dropouts, right? They tend to get hit the hardest first right away. So you simply cannot lay enough

13:05people to offset that rates are going to make that next big move lower. When we talk about our next

13:10big

13:10move lower, it's mortgage rates, not moving between 5.99 to, you know, 7.99 is mortgage rates going to

13:204.75 to 5.75 and never going higher than the lows of the previous cycle. That's that next move

13:28lower

13:28that typically happens in a recession until the economy actually rebounds out there. So we're, we're not

13:35there yet. Uh, but in previous cycles that happens, rates go lower. Most people are working. That's why home

13:41sales bottom out and tend to rise during that environment.

13:44So let me ask you, let me tweak his question and say, what is, uh, at what point do we

13:50hit an

13:51unemployment? What's that number that makes rates go lower? I mean, to me, to me, it's, it's always

13:56like jobless claims came out today. Jobless claims were fine. Right. But if jobless claims were running

14:02toward 323,000, like we've said since the end of 2022, that's the labor market breaking. So the jobless

14:11claims data, uh, uh, to me matters more because the unemployment rate has risen right now, but it's

14:17also, you know, with labor force growth and people leaving the workforce, the unemployment rate, it's,

14:21it's going to be tricky to kind of get there. So the, uh, uh, it is this interesting dichotomy that

14:27the federal reserve is that we have no job growth. We have no job growth for 12 months. Nothing is

14:33happening here and it's two sectors holding it up, but they need to see labor break. That means the

14:40economy is consuming less. There's less investments that policy is getting to neutral

14:45is too restrictive and they need to do it a commative stance. So, uh, to me, it's always

14:51been jobless claims more than the unemployment rate because the unemployment rate rose and the

14:55federal reserve used to say, well, the labor force grew and that's, we have more people looking and

15:00that's why the unemployment rate rose. So we don't care about that, but jobless claims is something

15:04they can't really hide around because that's just people, more people filing for unemployment. But that

15:08also means consumption is less investment is less. The economy's retracting. Uh, people need to fire

15:15more people just to save, uh, uh, profit margins and keep the business going in that regard. We're,

15:20we're not there yet, but, uh, again, the labor market getting weaker, either as higher unemployment

15:26or higher jobless claims is a benefit for housing where the unemployment rate was getting lower and we

15:33were creating millions of jobs. That was negative for housing because rates needed to be up.

15:36So you, you talked about the unemployment rate. They asked you yesterday about consumer sentiment

15:41and, um, I loved your answer. You came back with, you know, the, the one you always do,

15:46which is on the data. The data shows that just like, you know, I, I talked to that, uh, lender

15:51today and they're like, you know, a huge number of rate locks. So it, it doesn't consumer sentiment

15:57about the overall economy is not the same as consumer sentiment. People want to buy homes.

16:01So can I, I told the individual, I said, consumer sentiment has been trash for a very long time,

16:08right? I mean, it's just, yeah, it's been trash for a very long time. If you look at them,

16:11they're all, they're all terrible. I mean, some of them are like worse than COVID levels, you know? So

16:16I, I don't put much stock and survey data anymore, but if that was the case, purchase application data

16:22would it be positive year over year? I mean, if consumer sentiment was really like

16:27being a deterrent, then purchase application data would be negative year over year, not positive,

16:33right? So more people are applying for mortgages, more, we're getting more contracts and stuff like

16:38that. So there we go in that, in that sense. So, um, uh, that's that context, uh, in, in that

16:46regard.

16:47And of course, then they asked you, like, what, what is the war doing to 10 year old and mortgage

16:52rates right now, which all of our, all of our, uh, audience would also want to know.

16:57Yeah. I mean, the, the 10 year yield has gone up from the lowest levels of the year and mortgage

17:02rates have gone from, I think 5.99 to 6.24. Uh, um, so to me, housing operates better six

17:12and a

17:12quarter and under, right? And we had higher 10 year yield earlier in the year with no Iran war,

17:17no oil prices. Uh, but you know, the, the, the, we didn't have a negative job support to me,

17:24it's like, once you get above six and a quarter and start heading up, there's where you want to

17:29see if it's impacted. Cause right now all the data we have is, you know, in a sense to a

17:35degree

17:35backward looking, it's all positive, right? It's all positive. The war has been here for

17:3813 days now. So it hasn't really impacted because the 10 year yield hasn't gone up enough to change

17:45the demand curve. We also have a lot of rate locks in America this year between rates between 6.20

17:52and 6.35. So, so that's the majority of the locks for purchases are kind of in that area too.

17:59But

17:59again, it's always better when you have lower rates for a longer period of time, but it did

18:04shoot up rates. It's just, it's not the, what I told, uh, Melissa Lee, the anchor it's in the past

18:11is when rates shoot up to seven and go above seven and then the housing data slows down and

18:15then here's everyone. Oh my God, rates are 6%. Oh my God, it's about to seven again. So we don't

18:20have that. And I said, if that happens, it's a negative because it's always been negative

18:23the last few years. So we've never had a positive demand curve when the rates shoot up a backup

18:28up again. But in this case, uh, so far it's, we're just kind of right there. Uh, uh, and this

18:35thing is

18:36still escalating, uh, out there. So it's, it's a, it's a complicated one. It's a calm, it's complicated

18:41for the bond market on where they want to go with this, because if the bond market thought the labor

18:46market is going to re-accelerate it at 10 year yield would be much higher. No question. Mortgage rates

18:51would be higher, but it's not quite, they're not quite there yet, especially after, I mean, it would

18:56have been, we would have had probably a lot different discussion right now if the jobs report

19:01grew 92,000 instead of lost 92,000. Uh, so, so I understand the conflict with bond traders

19:07in that regard, you know, what do you do? And who knows what, what, maybe we all get lucky and

19:12the

19:12war ends, you know, uh, quickly, but for now we can only deal with what we have in front of

19:18us.

19:18I think that war ending is, is tricky because, um, the United States could say, Trump could say,

19:24we're done. We're okay. No, no more. And Iran could be like, okay, uh, we're going to keep

19:30bombing stuff in the Strait of Hormuz until we get there. And that would be a detriment because

19:34if, if America really wanted to, they could crush their, their, their energy islands and their ships

19:39and they are going to be toast. I mean, I mean, if there is a, there is a point where

19:43advantage to a

19:44disadvantage, where you think you have an advantage and then you're forcing your enemy to cut your head

19:49off, they will cut your head off. So, uh, uh, I think both, both, if there was, if there was

19:56an

19:56objective cleared or whatever the real reason for this war is, both sides will get it because you

20:02cannot, you do, you do not want, if you have an out boy, you have a lot of rebuilding to

20:08do, uh,

20:09out there. But, um, uh, in this regard, I, I don't, I understand there's a lot of people who do

20:15say

20:15that, that Iran is just going to simply keep shooting missiles until they get guarantees.

20:19But, you know, if the U S really wanted to crush them at one Island where they ship all their

20:24oil

20:25to China and their boats, their tankers, if those are gone, it's the, the ability for them to make

20:31money, you know, uh, and their banking crisis would happen and all this stuff, that would be an

20:36escalation that, you know, both countries probably don't want at the point. So, uh, I understand the

20:42logic with that. They say, Iranians are just never going to stop, but then you're, you're forcing

20:46your opponent to finish you off. You never want to force your opponent to finish you off because

20:52there is no, there is no tomorrow in that. So you have to be a little bit clever in war

20:57and not

20:58listen to Joe and Jim sitting in their single family home in America, giving advice on military

21:05warfare. It's kind of things, but that's what we're so good at in this country. Everybody has an

21:09opinion. I know everyone has an opinion, but it's just, I, I, you know, there's a lot of that going

21:14on that the Iranians could say, Oh, good. Well, we'll just, you know, we'll keep fighting because,

21:18you know, it's, they've taken a lot of damage, uh, out there. It's going to cost a lot for them

21:23to

21:23rebuild, uh, uh, stuff. So, uh, it is, it's just chaos. It's 24. It just, it is what it is.

21:30We, we try to

21:31make the best out of it, but, uh, I see the conflict in the 10 year yield because I, somebody

21:37told me the

21:3710 year yield should be at four 50. I don't, I, I, I wouldn't disagree with that. I get that

21:41rising inflation, but then you got to say, okay, then the jobs data has got to get better.

21:46Right. And then you could counter and say, well, $4 gasoline is not going to kill the economy. It

21:52needs to be four 75, you know? So it's, we don't know that lever, but neither does a bond market

21:58yet want to make that commitment. And that's, you know, my, with my friend, I said, we had a higher

22:0410 year yield on January 20th. There was nothing going on back then. Now it's like, we're fighting

22:09it at four 24. It's like, Oh, okay. So confusion. Could you imagine if we just had a normal year?

22:15No, we just didn't have any drama. If we didn't have any, no tariffs, no war, no, no, they just,

22:21just a normal year, like a normal year or watching the NFL draft, the NBA, you know, all this stuff

22:29and

22:30just, you know, no rest for the weekend. Okay. Well, thank you so much, Logan, and we will talk

22:36to you again soon. Pleasure, Sarah.

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