The best and worst case for housing as the Iran war continues

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about how the Iran war continues to impact housing, and the worst and best case scenarios as we go forward.   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 l

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk through the best and

00:15worst case scenarios for housing as the Iran war continues. Before we dive in, I want to

00:20thank our sponsor, Trust in Will, for making this episode possible. Logan, welcome back to

00:25the podcast and we're not in person today. No, we're not. No paper, rock, scissors game where I

00:31could beat you in. But it's Friday morning when this podcast comes out. And what a what a week

00:38this has been after the 21st of March. Obviously, we could see things are escalating into a point to

00:45where do we have a deal? Do we have a ceasefire? Do we have other countries? Everything coming in

00:50is Thursday morning, Thursday morning. Trump had some tweets, truth social posts, whatever you want

00:56to call it. Ten year yield went up. Oil prices went up. Then oil prices fell. Ten year yield fell.

01:03And

01:04then Trump got on camera. And once he got on camera, some of the stuff he says. I haven't seen

01:13it yet.

01:14If you try to take it in a humorous way, it's just, you know, it's like, oh, they're begging

01:18for a deal. And no, no, no, this. And, you know, the other ones, all the ones who didn't do

01:23deals

01:24are dead, you know. So in any case, the more he talked, the ten year yield went up. Oil prices

01:31went

01:31up. So we're back here again, where everything is headline and one line sentences and moving rates

01:38up and down and oil prices up and down. And of course, it's like the weekend is coming up. So

01:45they talked about plans, like, you know, are they going to do big military plans now? Are they

01:49going to do more big bombings and everything? Because you have to do everything after the

01:52close of the market, you know, so. It's tough, man. It's tough on business people trying to figure

01:58out what they should, you know, project forward. When you look at this, what do you expect for

02:04yourself? What do you like? Yes. I think we can say, here's the top of mortgage range. Here's the,

02:10here's, you know, the top where oil goes. Have you seen the divergence? I know you were,

02:14you were tracking oil and it's, and it's effect on the ten year yield. Has that changed this week?

02:18What that relationship is? No, I mean, they're, they're pretty much running hand in hand. I think

02:23bond traders and oil traders are just doing what they're doing. Everybody's running off headlines now.

02:30You know, jobless claims was at 210,000. It was good. Doesn't matter.

02:34Nothing, nothing matters until this gets resolved. I mean, if it's me personally,

02:41the first thing I would do is I would eliminate all tariffs. Like the last thing you need is an

02:47energy shock supply. And then you increase the, you know, a tariff percentage at the same, it's like,

02:54like, what are y'all doing here? You know? And I would just say, listen, until this war is over,

03:00we're not going to collect any tariffs, try whatever you can to limit the damage as much as

03:07possible. And it's just, we're, we're getting to a more dicier stage, which I, I understand how all

03:14these, everybody's trying to get a deal going now because everyone knows how serious it's getting

03:19now with, with no oil getting out. I mean, of course there, there, there, there are oil,

03:26there are countries getting oil out there, but you know, when you're not running at full throttle,

03:31things, things change. So I think the question is like, what would be the outcome? Like what's the

03:37best outcome for housing? What would be the worst outcome for housing?

03:40Well, let's do that. Okay. Best outcome for how, well, let's start with the worst. Let's start with

03:44the worst first and then we'll get to the best. Well, the worst outside of beating Sarah every

03:48single day in paper, rock, scissors would be the let's just say it gets really bad. And we're,

03:58everyone's blowing up everyone's energy capacity and oil prices go to 150, 200 inflation starts to

04:08really take up. The fed just basically throws in the towel and says, listen, we, we, we need hikes.

04:13You know, we can't take these supply shocks, mortgage rates spreads get worse. We're, we're

04:19back above 7%. Not part of the forecast, of course, in that manner. Now, since affordability got a

04:26little bit better over the last two years, you know, 7% rates doesn't have the same effect. And we

04:33saw

04:34that last year, early in the year where the housing market held up. Okay. With rates at seven, but it

04:39wasn't really growing in this case that we just go back to what's happened in the last few years,

04:44housing demand picks up when rates are near 6% and we break over 6.64, we head towards seven,

04:51we go over seven, whatever flow of positive demand comes up, it goes back down again. And we're going

04:57nowhere. We're stuck. That would be the worst case scenario that there is no clear ending. And the

05:04escalation got so bad that it would take months and months and months to get anything going,

05:10repairs going or oil capacities down. There's no, you know, so that to me would be the worst case

05:16scenario because... Okay. So I have some questions on that before you move to best case. So worst case,

05:22so is worst case seven and a half rates? Could rates get... I mean, anything above seven is worst case

05:28because the spreads got so much better before the year that it really takes the 10-year yield much

05:33higher to get above seven. So you're talking above 4.60 going to 5% on that. Because the spreads

05:40are so

05:41much better now, it's really hard to get to 7.50, especially now. I mean, how I tell people is

05:51that

05:537.60 needs like, you know, 2023 spreads to happen today. So you need, you need, we made so much

06:01improvement over the last few years that the spreads just getting back there would be much

06:08different. You really need like economic data getting worse and then nothing improving. And then

06:13all of a sudden investors are thinking we need compensation because the Fed's going to get hawkish.

06:18And that's like, you know, Bill Murray's cats and dogs getting along, mass hysteria, ghostbusters

06:25thing. Right. But again, we're today, Thursday morning with a 10-year yield at 4.41, we're at 6.55%.

06:34You know, so again, every in 2025, 2024 and 2023 with mortgage spreads at the worst levels of any of

06:41those years, we're over seven already. So it takes a lot to get us there. But again, worst case scenario,

06:47this escalates out of control. It takes months. There's no oil coming down and production is,

06:52you know, everything you could imagine not going well in this situation and why people don't get in

07:01these kinds of conflicts because you can't control everything. So that, that would be the worst outcome

07:05and sales fall down again, you know, and then we just do what we've done in the past few years.

07:10In that worst case situation, what does the Fed do? Could they make it worse by,

07:14because if inflation goes up, they do a rate hike?

07:17Yeah. They'll, they'll, they'll, they'll make it worse by raising rates because this is obviously

07:22not a, this is not a demand. This is a supply shock. And in their eyes, they feel like supply

07:30shocks could be embedded inflation. So how you want to do, what you want is to destroy demand enough

07:37to make the inflationary shock. It's just not going to work, you know, in this sense, you can't hike,

07:43you know, aggressively again with the labor market where it is. So, but you, they would talk more

07:50hawkish. You'd probably get a hot rate hike this year. No cuts. It's just that, that, that whole thing,

07:56the whole Trinity thing goes away. The whole Trinity, the whole thing of that, I've said that the White

08:01House, if they really wanted to do this trade war tap dance thing, they need lower oil prices and

08:05lower mortgage rates. Now you're going to get, you know, if that happens, you're going to get

08:10consumers mad, you know, and, uh, they see energy prices up, diesel prices, food prices going up,

08:16mortgage rates higher in their minds. What Trump was trying to do is get people think every single

08:21daily life. These are, if you look at the marketing tactics of the White House, whenever rates got near

08:266%, they showcased it, you know, whenever oil prices and gas prices that they showcase it,

08:31right? You don't have that leverage anymore. Uh, and I don't know how much Americans are really

08:37into, okay, let's change the regime of Iran, you know, uh, for that. And then if things escalate

08:42out of control, that's not a positive for anyone. That's a negative all the way around, not only here

08:46in America, but around the world, uh, out there. So it just, it just that, that, and then home sales

08:51will fall back down again, like they've done in the past when rates get above seven. And we're just

08:55stuck back into that, uh, uh, uh, range again. You know, uh, when, when you talk about inflation,

09:00you talk about destruction demand, uh, that they need to do that, uh, demand destruction. You just

09:05think no one needs to do that to the housing market. The housing market has been in a recession

09:10since 2022. Nobody needs that in the housing market. It does not matter because the federal

09:16reserve does not do their dual mandate around housing. I know. So it just doesn't matter. I said this,

09:22what a 2021, 2022, I mean, the whole concept of team higher rates in February of 2021. And I was

09:29like, well, you know, the problem is that the unemployment rate is 6.3%. So the fed's not

09:34going to, you know, job on anything because they're, you know, they want to make sure that you get out

09:41of this COVID. And unfortunately back then that was, you know, that was the early stages of the very

09:47unhealthy housing market to a savagely unhealthy house. So here, you know, that's just, it's a

09:52casualty of war, Sarah Wheeler, if that happens, uh, uh, so, uh, everyone has a deal with that,

09:59but that, that would be the worst case scenario. That's worst case. Okay. Let's talk about best

10:03case, best case scenario. Of course. So now that we've gone all the way through March, you know,

10:09the housing market positive throughout the year, uh, even though the growth rate of inventory has

10:14slowed down, uh, even though the price cut percentage is, is negative year over year

10:19prices aren't escalating out of control. It's not like 2023. Like for example, if home prices were

10:24going up 6%, 5% or 6% like it was in 2023, even though demand wasn't doing anything, that's

10:30a

10:30negative, right? That's just, there's, we still have, you know, too many people chasing too few homes,

10:35but we had record low levels of sales. You need to have prices up. That's, it's never a good thing

10:39this year. You know, you, you don't have that even with rates going lower. It isn't like home prices or,

10:44or booming out there on a national basis. So the housing market is still intact, still showing

10:51growth. We get this done early. Somehow we get a deal. Somehow everyone gets along. There's no,

10:58uh, drama. Uh, oil starts to flow, you know, ships start to move in the Strait of Hormuz. And

11:04initially you get that initial drop in the 10 year yield and you get that initial drop in oil prices.

11:10And because you're only at 6.55% today, it doesn't take much to get under six and a quarter,

11:16right? The housing data, if you take the seasonalities and holidays and snow and all

11:20that stuff, housing data looks perfectly fine when rates are under six or a quarter for like three

11:25years, I've gone on CNBC, uh, and basically said, you don't need three, you don't need four,

11:31you don't need five, but you do need rates just to get near 6% and stay there with no

11:37volatility.

11:37We had it. We had it. And it was perfectly fine. Purchase application data is up. Weekly pending

11:45sales up, take the snow and all that holidays out of the equation from mid June, the housing market

11:50changed where to ran with it because we're not that far from there. The best case scenario, we get

11:56a deal very quick. Everyone says, okay, uh, all the actors play well with each other and everybody

12:03starts to make money again and we're off and you know, it takes some time to get the demand curve

12:08back going, uh, positive again. And then we just run with it. And then we, we, we take it from

12:13there

12:13because the spreads are, it's all about the spreads. If the spreads weren't good, you know,

12:20we wouldn't have this discussion, you know, at six, five, five. So, uh, uh, that would be the best

12:25case to know closure. I'm not looking for oil to go back down to 56. It's all about the spreads.

12:31Of course, if we didn't have spreads getting close back to normal, we're not at six, five,

12:35five. So we, we can't have this discussion because in the past, we always said it's when

12:39mortgage rates get below 6.64 and head towards 6% is when the data gets better. So again, that's

12:45the best, best scenario is when we get a deal done, everybody plays nice with each other,

12:50ships start to move through it. I don't have to do AI photos of me being bombed by jets in

12:55middle

12:56of oil fields and everybody starts making money again and we're good. Yeah. It left such a bad

13:01taste in everyone's mouth that, uh, um, that's something that nobody wants to get into right

13:07away. And there's no more agitation in that, in that area. We don't have all of a sudden two weeks

13:14later, some ship gets blown up, you know, some, you know, stuff like that. And, and this is the

13:20problem doing an event like this. Can you control every single variable? Because you might have

13:26different fractions in the middle East trying to derail this now, you know, this is why I'm not

13:33sure if in a midterm year, I would have done this. I'm pretty sure I would have done this in

13:37a midterm

13:38year, but you know, was it so imperative to do something like this, this time with rising PC

13:45inflation and PPI inflation, and then you add this component that can you control it? So

13:49best case scenario, everyone plays nice. We get it done. Everyone starts to make money straight

13:54if our moves goes away. Um, and we push forward for the rest of the year. Interesting that the best

14:00and worst case could change on a dime, right? Because it could happen before we're doing this

14:05on Thursday morning could happen before Friday that somehow there's a peace deal. We've heard several

14:10times about this. And every time there's supposed to be a peace deal, the Iranians are like,

14:14no, there's not, we're not doing that. And so, but maybe they're going to find some,

14:19something, you know, on the other hand, it, it could get worse.

14:23Obviously Friday evening, East coast time, get ready for some tweet, some operation. It's the

14:28weekends that are really crazy. Uh, uh, uh, and, uh, I think that's, that's where you have to be

14:35mindful of it. So when this podcast comes out on Friday, just kind of realize that, you know,

14:40I joked that, you know, the, uh, um, you know, when, uh, the James Bond actor, uh, was doing,

14:49Hey, ladies and gentlemen, it's the weekend, you know, and they, they brought out the war plans

14:54that, you know, could possibly have this weekend. So, uh, unfortunately everyone has to keep their

14:59heads up on Friday nights and, uh, Saturday and Sunday, uh, because it seems like that's the time

15:04where you get a lot of crazy stuff done. Uh, and then for the markets, it's different. This is the

15:09playbook, right? Uh, they don't want to escalate anything during market hours. Cause all of a

15:14sudden, Oh my God, oil prices go to 120. So the white house is mindful of the market participation

15:20into this whole, uh, equation. So, uh, kind of keep your heads up on that. Who knows? Maybe,

15:26maybe something happens positive over the weekend. Uh, uh, but a lot, a lot, a lot can change over this

15:34weekend and the following weekend. Uh, uh, because you know, we're, we're moving on to a schedule

15:39that, you know, a lot of people did not think we would be at this point. And it gets more

15:43again, every day that goes by less production, less oil out there, higher input costs. Every

15:50day we see we're raising, you know, energy charges on airlines, uh, mail, you know, all

15:57these things, they start to input diesel costs, I think are $7 in California. You know, everything

16:02starts, uh, you know, it's, it's the pain starts to get more and more and more. And then if something

16:07escalates even worse, Oh boy, we do tough, tough, tough, tough, tough thing to get out

16:14of. Especially if you have buyers who have identified a house, they've gotten, you know,

16:21their, their initial stuff and they're like, do I do it now? Do I, I don't, I don't, I

16:26don't think home buyers or, or anything, nothing really changes from them during this whole time.

16:31We haven't seen a big, big change on anything on, on that front. If you're in it, you know,

16:37the, the, the, the quarter percent move higher from six to four isn't going to do this. Um,

16:42so I, I, I'm not worried about that. I'm worried about escalation and taking us to a level that

16:47has actually seen rates really deter, uh, uh, demand and what we've seen in the last few

16:52years. And I think that's, that's, that's what I'm more worried about. I don't think American

16:56home buyers and sellers are the soft marshmallow people that look at bad charts on social media

17:03and say, Oh my God, y'all know who I am. Y'all know who I'm talking about. And it's

17:09just, it's

17:10getting, it's getting worse and worse out there. But I would say that they, you know, there, there

17:15might be people every time it goes up a quarter, right? I mean, you have some, uh, less people

17:19who can qualify. So I think it is a very real thing. I think if you're, if you're making your

17:23entire decision off of 80 to $120 point, you shouldn't buy a house. You should rent for the

17:28rest of your life and hide in a bunker and ask your landlord to plunge your toilet. You know,

17:34gee, I mean, so that's that I'm not, but if rates went up 1% and your payment goes up

17:40more than you

17:40want, or you can't qualify, I get that. But for now it's somewhat manageable, but I'm more worried

17:47about it getting to a rate level that we have seen the whole demand curve change.

17:53out there. So, uh, it is difficult. The volatility is difficult for load officers,

17:58floating and locking and all that, you know, uh, um, uh, to, to get deals done. And that's,

18:04that's the problem that not a lot of people talk about the float model in this kind of environment

18:08is extremely difficult out here. And, and there is no pullbacks or anything that you're 100% sure

18:15of you can lock in. So it becomes more problematic because there's only legitimately eight to 11

18:19business days within a transaction to make that lock thing kind of work. Uh, once you get the

18:25process going. So I think that's, that's the, uh, untold difficulty part of volatility in the real

18:31estate industry about the locks and floating and all that stuff. And this is, this is the world we

18:35live in at this point. That's why it was so good early on in the year. It was so good.

18:40Y'all remember

18:40that time, less volatility, less drama, positive. So listeners, make sure you check back with

18:46housing wire, um, Friday night, of course, you know, we will talk about if anything happens,

18:50what that might be doing to rates, what that does to housing. We'll have it in the, in the weekend

18:54tracker and make sure you get your tickets for the gathering. So you can, uh, see Logan and I in

18:59person in a late night, special, a live session of this. You can ask him questions and we have, uh,

19:05uh, just an amazing group of speakers coming too. So Logan, thanks as always for keeping us up to date.

19:11Pleasure, Sarah. Hopefully this ends soon.

19:18Pleasure, Sarah.

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