Will Iran conflict make the Fed hawkish this week?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the upcoming Fed meeting and what impact the Iran conflict might have on the Fed’s rate stance.  Related to this episode:  Housing market is poised for growth in 2026 if Iran conflict doesn’t raise rates https://www.housingwire.com/articles/housing-market-is-poised-for-growth-in-2026-if-iran-conflict-doesnt-raise-yields/ 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 upcoming Fed

00:15meeting and what impact the Iran conflict might have on their rate stance. As always,

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

00:24Logan, welcome back to the podcast on this very auspicious day.

00:28Sarah, it's Friday morning. So, you know, we're going to do this and then we don't know what

00:34Monday morning is going to bring because who knows over the weekend with this conflict. But

00:40one thing we know for sure is that the Federal Reserve will meet next week and there will be

00:45no rate cuts. So, you know, that is for certain at this point, regardless of what happens over the

00:53weekend. So no matter the fact that we got that really bad jobs report, that's not enough because

00:57I've already got rate cuts into the system for that.

01:00There's enough rate cuts for them, for the Hawks to be closer to neutral policy. And with this

01:08conflict still rising, you really more now than ever, you probably need jobless claims to really

01:17start breaking. Not only for them to feel comfortable about, you know, talking about

01:24rate cuts, but also there might be a lingering feeling that this situation, while not in the

01:33same scale, can be a problem going out. You know, if a few pirates start shooting ships here, you know,

01:41stuff like that, that, you know, the whole Trinity impact or thing that we talked about

01:47on November of 2024, after Trump won, is that he really does need lower energy prices and lower rates

01:55to make people. But this has gone on now. It's almost two weeks. And it doesn't look like there's

02:04going to be any closure, but also, you know, what does the post-conflict look like now? And I think

02:11we're at that stage to where the Federal Reserve is just basically, we're going to take a wait and

02:16see, but as long as jobless claims stay low, the market's already taken away all the rate cuts

02:25pretty much for the most part. And the PCE inflation data is still 1% above target out there. So

02:35it's, you got tariffs, you got supply shocks from conflicts, you know, wire rates high. I think Trump

02:43wanted an emergency rate cut meeting or emergency rate cut. And we're just like, no, it's not how it's

02:50not how it works. I think this is such an interesting situation, because there's very

02:55other places in the world where, I mean, you have the Panama Canal, you have the Suez Canal,

02:59and you have the Strait of Hormuz that really are these sort of choke points where people can have

03:05outsized influence, right? Like Iran in general, maybe doesn't have the kind of capacity to do a lot

03:11of harm. Except here, they, I mean, they hold all the cards, right? They can cause a lot of harm.

03:17And

03:17they can, I read this morning, you know, they're, the word out of them is like, hey, we'll just,

03:23we, we win more by waiting it out, right? What do they have to lose by just making this hard

03:28on

03:28everybody? I mean, they do have home court advantage. Right. You know, I mean, that's,

03:34that's one thing that they'll, they'll always have on that side. So again, they, drones are cheap.

03:42And, you know, you just need one or two of them to hit a tanker, even if there is being

03:49escorted.

03:50And the longer this goes on, again, the more problematic it comes for a lot of input costs

03:56going out. I get a sense. I'm just, I'm going to always wait till March 21st. That's my thing.

04:04And to make a reassessment, I am assuming that we didn't think they were going to try to shut the

04:12straight down. I mean, that's something that has never been there. But again, this is a conflict

04:19where, you know, it's going, it's not like the bombing of the nuclear facilities. It's, it's the,

04:26now you're, you're taking out leaders and, you know, stuff like this. So a little bit different,

04:32not a little bit, a lot different than what there was last year. So, but I'm pretty sure that the

04:37feds is going to hold pad and go, we're just not sure what's going to happen with lingering inflation,

04:42maybe going out and for, especially with the PC inflation report now, 3.1% that came out today.

04:51Interesting timing. Here we are, March 13th, Friday, March, March, Friday, the 13th in March,

04:57and exactly six years ago was when we had a lot of the COVID, uh, shutdowns, you know,

05:02like the official shutdowns, like no more school, people were sent home from offices. Nobody knew

05:07when they were going to go back. They brought later, like computers home. Lots of people didn't

05:11work remote at that point. And it was just really the unknown, a really, uh, interesting period of

05:17time. And here we are six years later, March 13th, Friday, the 13th again. Um, what do you think,

05:23when you think back about that time, six years ago, you know, COVID, you know, I, I, I, I'm always

05:31going to say this, the, the, the economic data was actually getting better before COVID started.

05:36Right. I bring it up because I think I'm the only one that remembers this, but that was,

05:40you know, that we, we just came off the first trade war tap dance and then deals were being signed.

05:47And a lot of the forward looking economic data was starting to get better retail sales,

05:52ISM services, manufacturing data, housing broke out before COVID hit us. I always tell people

05:57purchase application data finally hit 300 the first two weeks of 2020, um, housing starts existing

06:04area. And then COVID happened. And then it just became a belief on what you thought

06:09was the next stage. So of course, a lot of people, I, I could understand probably thought

06:14depression and anything. And we, uh, picked our time, uh, April 7th, 2020, the St. Louis

06:21financial stress index was falling down. The 10 year yield was above 62 basis points.

06:27And we said, that's it games on. Here's where the recovery starts.

06:30And when you said we, you really mean you, you wrote the recovery model and we're like,

06:34Hmm, we are a team here, Sarah Wheeler.

06:37And I appreciate that, but let's just be honest. You looked at that data and you came up with that

06:41date and it was, no one else was saying that, Oh yeah, that's by April. We're going to be fine.

06:45Yeah. We, so we said dates, I think it was May 15th and then September, you know, you know,

06:50things that should get us back because we had so much, it was such a huge negative contraction

06:56of, of activity and it was a health issue, not an economic one that as soon as that activity just

07:04gets somewhat back to normal, you're, you're games on. Right. So that was, that was the premise

07:09on that. But on that day, the St. Louis financial stress index started to grow lower and the 10 year

07:15yield was above 62 basis points, which to me was, man, okay, we're, we're, we're, we're back on it.

07:21And then that was the fastest and greatest economic recovery in the history of earth. So that was a,

07:28that was a very interesting year because it was hard getting people to believe that

07:33the recovery was happening. And then we retired the model on December 9th, 2020.

07:39And then 2021, everybody had an LKW shape recovery. I was like, no, game's on that. We're,

07:45we're, we're, we're past that stage. We gotta, you know, we have to worry about, we need higher rates,

07:52higher rates because, you know, housing prices could escalate out of control. So,

07:58yeah, that was a forbearance crash bro time too.

08:00I was just going to say so many things came out of that. Let's talk about the Federal Reserve during

08:04that time because the Federal Reserve, I mean, stepped up. They were, they were instrumental

08:10in that recovery.

08:12Yes. So they kind of brought out everyone, Godzilla, King Kong, Rodan, everybody, they,

08:17they threw everything they had to make sure that we didn't have a deflationary collapse.

08:22So I think it was, it was hard for people to understand why I was calling for higher rates

08:28in February of 2021, but my recovery model was already retired, like games on. So it's just hard

08:35convincing people about a recovery in that sense. And of course it's COVID. So you don't know,

08:41are we going to get shut down? Who's going to work? So as long as you plug the holes for

08:45people

08:45that couldn't work, right? Everything else was good. Balance sheets were fine. And then you kind of

08:51just move with it, but different case now with the Federal Reserve, a Fed meeting this week. And I

08:57think that's just, it's a different circumstance right now, especially now that we're coming to

09:05the end of Jerome Powell's tenure. And now Kevin Warsh will be leading the Fed soon.

09:11One of the things that you, one of the points that you made during that period was the fact that

09:17Fannie and Freddie were in conservatorship was a very good thing during COVID. And it's one of

09:22the things you're like, if they had not been in conservatorship, what would that have looked like?

09:26I'm giving a salute to Mark Calabrio, who is one of the unsung heroes of the United States of America

09:33economy, because the government stepped in, Freddie and Fannie coming in.

09:38He was FHFA director.

09:40Yes. FHFA, because he hates anything that's government. So oddly enough, this man, when he

09:47passes off, did one of the greatest government interventions. Forbearance is going to be one

09:52of the most successful programs because people were getting off of forbearance really after the

09:57first four or five months, because most people got their jobs back. As of October of 2020, most people

10:06that made 60,000 or above got their jobs back. So in this context, not only was Freddie and Fannie

10:15able

10:16to provide lending, right? A lot of people thought that if Freddie and Fannie were publicly traded

10:22companies, their stocks would be down, lending would be tight, but that wasn't the case, right?

10:26So Freddie and Fannie being in conservatorship during that time and doing forbearance would be one of the

10:31most successful government programs in the history of the world. And it's going to have Mark

10:36Calabrio's name all over it and he can't do anything. And that probably irks him more than

10:41anything else in history. Well, actually you should be proud of it because I mean, it's who knows what

10:45would have happened if we weren't able to pull that lever? Yeah, we just have such an ideological

10:51difference on Freddie and Fannie are just simply massive. They're very big. And the housing market is

11:00just this functioning credit market, right? So they provide that kind of credit out there because

11:06they were in conservatorship. They're still in conservatorship. Credit is able to flow and it's

11:11been a perfectly fine functioning system, right? We have no drama. We only have good results here,

11:19right? There is no negative results. So this is why I've always been hesitant against them

11:23being taken out of a conservatorship because in a publicly traded company, remember, shareholders

11:29first, right? Profit margins, stuff that, you know, when hits the fan, you know, you have to

11:37make tough choices. In conservatorship, it's fine. It's like we have the military. Military in a sense

11:43is nationalized because the government runs it, right? We're not, when we need the military to do

11:48stuff, they do it, right? We don't think about our shareholders going to be hurt. No, we just,

11:53we don't ask the power we're going to pay for whatever. We just go and get it done. It's kind

11:57of like housing is the same thing. They're just so big out there. And that was one of the more

12:01successful things in the history of America. And when we look back at that 2020, at this year,

12:07at this day, six years ago, nothing in housing has been normal since. Nothing.

12:13No, but we had a normal year this year. In 2025?

12:19Early, yeah. Early in 2026, housing looked as close to as normal as possible. And it could still

12:25have a normal year, but then the conflict happened, you know? So I stress this, that I don't know how

12:34many people remember what a normal year looks like, but slow and boring is what housing typically is.

12:41It's not a very high velocity sector, unless some crazy things happen. And because inventory is up

12:49and rates are elevated and the supply and demand equilibrium is between buyers and sellers now,

12:56it's no longer a seller's market in that sense to where they control everything.

13:00This is as close to as normal as you're going to get. So maybe this conflict ends soon and we

13:07can

13:08get back to it, but it was really beautiful to watch. Since when did the housing market change,

13:14Sarah Wheeler?

13:15At what? Mid-June of 2025.

13:18Mid-June. Yes. Yes. Mid-June. And it's funny because right before I came on this,

13:22I was explaining to everyone by using our aggregate data. What do we know

13:27before the conflict happened and rates went up? Housing demand was up year over year. Price

13:33cut percentage was down year over year, still elevated, but down. Inventory growth went from

13:3833% now down to 6.91%. It'll be different by the time this podcast comes out. And it was

13:45basically

13:46a functioning marketplace that wasn't a very high velocity thing, which means that you can't really

13:52doom porn it, right? We're always dealing with people that says housing's collapsing because

13:57there's X amount of sellers and stuff like that. And it's just not the case. And I think that was

14:03the whole purpose of the tracker was that, was to show everyone, to get everyone on page with what's

14:10really happening. And, uh, uh, it, it, it, it's beautiful to watch how people see that and go,

14:16okay, this is legit. That that's not legit, you know, but this is legit. And then we could put all

14:22the data lines together. Well, and that started in 2022 because we had bought, uh, housing wire

14:28bought Altos data. So you finally had your hands on weekly fresh data. You've been a kid, like a kid

14:34in the candy store ever since. So we have Altos data. Now we have housing wire data as you know,

14:39it, it runs on that, that foundation, but does different things. And now we have housing wire

14:44intelligence. So, uh, we've come a long way just in the last couple of years. Yes. Yes. And again,

14:48it's an unfair advantage. This is why I always thought the doomers were crazy to go head to head with

14:53me

14:53because they do not have, you know, um, but, uh, it's, it's nice to see people go into the housing

15:00wire intelligence and do it for their own neighborhood, right? Do it for their own zip code,

15:04city and state. I think that it's been fun watching that and seeing the positive, uh,

15:08feedback and out there. So it's, it's, it's, it's, it's, I love this year, you know, of course

15:14this conflict happened. So we'll see what happens when it, when it, when it goes, uh, when it, when

15:19it finishes, but boy, it was, it was pretty to watch the market from mid June all the way up

15:24before the conflict happened, you know, because we see it, we're always ahead of the curve and we

15:30could show it. And those that read the tracker and follow the data are like, okay,

15:33yeah, this makes sense. And we always said it's when rates get below 6.64 and head towards six,

15:39there it is. And getting just near six and less volatility. Okay. So, um, does this,

15:47this far into the conflict, um, does this change this X factor change your, um, overall forecast

15:56for this year at all? No, because you know what, for me, I had rates, uh, ranging, uh,

16:02between 5.75 and 6.75. So, uh, if anything, um, I thought rates would be higher early on in

16:09the year. And then what occurred is the mortgage backed security purchase was, uh, done. So that

16:15brought, you know, uh, uh, mortgage spreads down lower faster than I assumed, cause I was looking

16:26at, you know, if the, if the, if the Supreme court shut down the tariffs and they just,

16:31you know, if there's a little bit more breathing room, uh, uh, for companies to make choices now

16:37and everything, then, you know, the economy may get a little bit more traction because,

16:41you know, you've got the tax cut bills and everything and all that. And none of that happened,

16:45right? We went, we went 15% tariffs, you know, the jobs data went negative, you know? So the rate

16:51factor doesn't really, uh, uh, rates are kind of where I thought they would be, but a little,

16:56maybe a little bit higher early on, but because the jobs data went negative, it actually, you know,

17:01got under 6%, but now we have to do with this rain, Iranian conflict. If rates go above 6.75%,

17:09then that's something that's not part of my forecast. So that's different. If rates go below 5.75%,

17:16that's not part of the forecast. So everything's kind of mirrored into this. And for me, it's,

17:21it's really simple. We're sales, sales. I, uh, straightforward. If rates stay six and a quarter

17:26and under, you get 237,000 more existing home sales. That's the sales curve that we've seen.

17:32If you extrapolate the data, whatever data, whenever rates are six and a quarter and older, you, you,

17:37you, you, you model out what the demand curve is that gets you that we were heading in that

17:43direction. Uh, now rates are a little bit higher. So the question is the pro, you know, how long this

17:48goes, how much higher can rates go out there? Uh, but again, this is, we've had two real,

17:54three real X factors that came in. We're going to have 15% tariffs being collected. We have a

18:00conflict in Iran and we have the mortgage backed security purchase announcement. So those are three

18:04things that came into this year that, you know, you just got to adjust, but right now for now,

18:09everything kind of stays to save, uh, uh, out there. And we kind of wait till the data actually

18:14sees, uh, if anything turns more positive or more negative in that light, but really the housing data

18:21really looks fine when rates are six and a quarter and are under, and you have no volatility, really.

18:27That was the beauty part of this year, uh, before the conflict, the volatility was really compressed,

18:33but the escalation of the conflict has, has made it, uh, uh, more problematic.

18:38It really has. Um, well, I appreciate this. And to our listeners, you know, if, if things,

18:43as things happen over the weekend, we're always Logan and I were always on, we don't always do a

18:48podcast. Oftentimes he does write an extra thing over the weekend. In addition to the tracker,

18:53if something happens on Sunday or he's like, Hey, you know, make sure you watch out for that.

18:57But, um, follow us housingwire.com and also join us in Austin coming up here for, uh, the gathering

19:04because you and I are going to have, you're going to be of course, one of our keynote speakers.

19:09And then you and I are going to do a special late night with Logan and Sarah, uh, in person,

19:15uh, you know, sort of like this, like the podcast, we're not sure we're going to record it yet,

19:21but for everybody there, they can ask questions and we're really excited about that. We've already

19:25got people super psyched about that. So you guys, that sounds like it'd be fun.

19:29It's going to be great. It's going to be great. So, uh, before we sign off any surprises that we

19:35should be ready for, for the fed meeting, you, you mentioned, we talked about it early on

19:39anything there. You, you know, I think, I think maybe one surprise could be maybe some of the doves

19:44have more of a hawkish tone. Uh, um, I know everyone thinks that Warsh is coming in and they're

19:52going to do rate cuts and it's really hard for, we just have a PC inflation print above 3%. So

20:00we're

20:01one over 1% on target off target. Uh, we have a conflict of war that has no resolution, uh,

20:08out

20:08there. So in this environment, I, I maybe one surprise that some of the doves might sound hawkish

20:15because the market is pricing out like a lot of, uh, whatever two rate cuts they had,

20:21they're pricing that out right now for this year. So of course things could change, but I think the,

20:25the one surprise is maybe how hawkish some of the doves will be in this regard.

20:30All right. We will keep an eye out. Always want to know what might happen at the fed.

20:34Logan. Thanks again.

20:35Pleasure.

20:45What?

20:46What?

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