How the Iran conflict is making mortgage spreads worse

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about how a shift in mortgage spreads will influence mortgage rates as long as the Iran war continues.  Related to this episode:  Mortgage rates now closer to 7% than 6% as the Iran war escalates https://www.housingwire.com/articles/mortgage-rates-now-closer-to-7-than-6-as-the-iran-war-escalates/  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. http://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 walk us through

00:14the latest in the Iran war and how that's affecting housing data, including mortgage

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

00:23episode possible. Logan, welcome back to the podcast on another wild day.

00:28You know, it's Friday morning. Again, who knows what is going to happen over the next 12 to 24 hours

00:35or the next 72 or even the next 10 days. But I would tell you this. I, at least after

00:41Thursday's

00:42close of the markets, I saw the biggest market event of this whole chaos. And to me, it was

00:50bond traders, oil traders. Oil traders, not so much, but bond traders, like, where's the beef?

00:57Like, you know, Trump, you know, of course, you know, didn't go ahead and bomb the oil facilities

01:05or gas facilities and said there's going to be a 10-day truce or whatever. And usually what happens

01:13is the 10-year yield falls and oil falls. So it did for a little bit, but it is just

01:16reversed course.

01:17And, you know, I'm waking up three in the morning here looking at the 10-year yield and energy price

01:24is still escalating higher. And I don't think people understand things can get a lot worse

01:30because the market really was fighting tooth and nail on some of this stuff, on sending things

01:36higher. But the fact that it was the first time to me that the bond market's like, where's the beef,

01:41homie? You know, you jawboned so much of this for so long. But when the markets don't

01:49even accept your jawboning, and I say this as the 10-year yields at 448, and this is not how

01:57I

01:57envisioned the 10-year yield getting to 460, which was the peak of 2026 for me. But the market is

02:06not

02:06caring about the jawboning anymore. Brent crude oil prices hit a market trading high last time I checked.

02:17And that to me is the biggest event outside of the war itself, is that when does the market just

02:28basically not give Trump or the jawboning beset and all these things any leeway? And that's where

02:35the stove, you're touching the stove, and they keep your hands on, right? You start to burn more and

02:43more. You can't just put your hand there for a second and get out and, you know, oh, I'm going

02:47to do it, man. So now I think, to me, it's now it gets more serious that the markets are

02:54now going

02:54against the jawboning. And maybe you need that, right? Because we needed that to get Godzilla tariffs

03:01off last year. And I'm waiting to see a crazy Friday. It's very early here. We've got 30 minutes

03:10before the markets open. But that to me is the biggest story because that can really change

03:17things over the next, you know, 10 to 14 days because Trump gave that, you know, 10-day reprieve.

03:24But the markets just don't care. And I think there's where the pain starts to fold. And I

03:30thought, you know, Godzilla tariffs taught us that last year, that it wasn't so much stocks falling.

03:37Last year, stocks fell. And what occurred was originally, the 10-year yield fell all the way

03:44to below 4%. And then it shot up to 450, 460. And when it got up to 450, 460, that's

03:51when Bissett and

03:52Lutwick. And then they came into the White House. They made sure Peter Navarro was out of the room.

03:58And they told Trump, listen, the bond market is going against you. So I've always thought that,

04:04you know, the bond market is always king. That's just my general bias.

04:09So it's going to be very interesting for me to see what is the dialogue now that if you can't

04:16jawbone

04:16the markets anymore, and there's a lot of leeway for oil prices to go up a lot higher, right? And

04:22now the 10-year yield is, you know, where the Fed funds policy is and everything, getting above 460

04:28means that, you know, the Fed needs to start hiking rates, or at least the market is perceiving

04:34they're behind. So it gets more chaotic now because now you're touching the stove and they won't let your

04:41hand off. And that thing burns, man. That thing really, really burns. And again, when you're past

04:47March 21st, things are different now, right? The escalation factor starts to pick up. You could

04:53have done this for two or three weeks, maybe, and then you get away with it and go back to,

04:57you know,

04:57but now you start to get into some real problematic things with supply shortages and lack of production

05:03and things around the world. Yeah, to me, this is really interesting. We already said that today,

05:09Friday was going to be crazy, especially tonight. Now, we were like, you know, watch out what happens

05:15on Friday night. That's when, you know, you could see action. Do you think that's changed with what,

05:20because he said, we're not going to do anything for 10 days or? Yeah, it changed, but it's also,

05:25you know, I don't know if Trump and the White House thought, well, this is going to be progress

05:31toward an end and then oil prices should go down and a 10-year yield should go down. Okay. So

05:36if that was the calculation on it, then I'm like, you know, and I retweeted that statement like I did

05:44the other one over the weekend. I don't think this tactic works anymore. Trump's playbook of bully

05:51ball, you know, it's not really tested for duration and escalation because he's always been able to

05:59off rampant. Yeah. I mean, you have a country that is fighting for its, you know, life in terms of

06:07not

06:07the people, but the military and the people in control, right? So it isn't like you're dealing

06:14with the Iranian people who would love to be liberated, but you're dealing with a regime who

06:19is now fighting and is going to die for their survival versus Trump, who's used to tweeting stuff

06:27out and doing bully ball tactics, which works if you want to do tariffs with another country. I'm

06:33going to do 300% tariffs. I'm going to do a hundred. I'm going to, whatever. You can off ramp

06:37that, right? You don't have any consequences because until you collect the revenues from the

06:42tarry, you know, all that stuff, this is different. This is war. And I think one of the,

06:48one of the, and now that more stories are coming out, JD Vance obviously did not want this,

06:53right? He did not want this war. He had a very tense talk with Netanyahu who said,

06:59homie, you told us all this was going to happen. None of it is happening this way. So we'll support

07:03you, but we think your version of what needs to happen is different than ours. Well, again,

07:09all this is happening past the 21st, right? You're starting to see more things such a part of that,

07:15you know, this is starting to get to a very, very critical stage. And you either commit yourself,

07:21you know, they talked about 10,000 troops coming there. I mean, what are you, what are you going

07:26to do? Send 10,000 soldiers to a country like that who has home court advantage, right? You need,

07:34if you were, if you were really serious about doing this, you would declare war and you use the full

07:40force of the U S military, right? You can't just say, we're just going to put 10,000 troops for

07:45a

07:45country that has 600,000 soldiers out there. So I think it's, I understand Trump's playbook in the

07:54past, but this is not, you know, tariffs, right? This is war that escalated past to a point. I was

08:03going to give it three weeks. You don't want to do this and then get off the ramp. That's fine

08:07in the sense that you can do it, but now the market turned, right? And to me, it's like,

08:16you know, the marketplace dictates a lot of things. Uh, uh, uh, and it dictated Godzilla tariffs last

08:23year because nobody was doing anything, but they literally went into the white house and beset and

08:29Ludwig literally had to get Trump to tweet this out. And to me, that was the 10 year yield at

08:35four

08:3550, four 60. So again, my peak forecast for four 60 on the 10 year had nothing to do with

08:42war.

08:42None of this is, is, this is a whole brand new game. And we always say that one of the

08:48reasons I

08:48don't like, I don't like anybody perma, whether you're perma bear or pull perma bull, you have to

08:54have models. And just like in the gangs in New York, blood stays on the blade. You never look away.

09:00Right. So when you are dealing with a shock like this, you've got to alter stuff out there. And

09:06this is why the, you know, when the 10 year yield broke over four 31, we had closing and bonds

09:12selling

09:12off four 60 is in play, right? If the escalation happens. So you, you have to, and I know the,

09:19I know the bond market isn't for everyone. I know oil futures isn't for everyone, but

09:23this is what the chart daddy does. So it's not shocking that we're not having a clear off ramp

09:29and we're trying to do bully ball. But I said, Hey, listen, we're going to bring 10,000 soldiers.

09:34And I just, I don't think in this situation that works. Right. You know, and, uh, two ships try to

09:43go through the straight of Hormuz, you know, they got these live, live maps, you know, these ships that

09:48are trying to, you know, all of a sudden we're all looking at that. Yeah. We're all looking at it.

09:51You saw these two ships try to go, no, no way, homie, time to go back, you know? Um,

09:58so I thought it was the biggest market event of, uh, of the whole thing. Is this that, you know,

10:04the, the white house was trying to draw bone everything down. But if, if man, I'm telling you,

10:09people don't realize this oil has so much upside, uh, here. And I think the, the 10 day reprieve,

10:17you know, uh, you have a lot of oil, you're talking like 120 to 140 million barrels of oil.

10:24That's not going through, uh, during that timeframe. So, uh, the, the market can change

10:30a lot of ideas, both positive or negative, but, uh, uh, I thought that was the most important.

10:35And, you know, people are always saying, why won't this end? Why won't they, if you want closure,

10:41this is one way to kind of speed it up, uh, because, you know, the 10 year yield at 448

10:48this

10:48morning, Brent crude at 114 or 111, you know, it, it, we, we've been here in the 10 year yield

10:57before, right? We have better spread. So it, that's not the thing, but when you know, you have

11:03more escalation and the market's not getting, or it's not working with you, that's where things can,

11:08uh, uh, happen. So let me ask you this because obviously, you know, you've, you've talked about

11:14spreads for a couple of years now. And one of the only people who really turned, uh, pointing out

11:19how it's cushioning, um, where we are with mortgage rates against the volatility, but at some point,

11:25these sorts of events, they're the things that affect spreads. So what are you seeing on spreads

11:30right now? Spreads are getting worse. Um, and again, when you, when you talk about spreads and you look

11:36at the history of economic cycles, um, I, I always look at it as if, if you have a shock

11:43event, like

11:45a really good thing was a 2023, the spreads were getting better. Their spreads were getting

11:50noticeably better in the early part of 2023. But then what happened to Silicon Valley banking crisis

11:55happened. And then the fed raised rates during that banking crisis. So what occurred was people

12:02saw that as a net negative to the economy, that credit conditions are about to get worse. And

12:08that could be recessionary and the spreads could get worse than that. Cause you've got to compensate

12:11investors for maybe a lack of payments coming through for any kind of job loss recession. So I thought

12:172023 was a very good version where the spreads were getting better. And then, uh, uh, uh, they got

12:23noticeably worse and they got to pre cycle highs here. We had, I mean, I tell you, Wheeler, we had

12:31a

12:31good thing here. We had lower mortgage rates, no volatility spreads at, at, at, at, at basically

12:38almost back to normal. You couldn't have asked for a better backdrop, but the one thing, the one thing

12:45that can reverse thing, war oil and uncertainty about the economy. So, you know, after 2010,

12:53we've been able to handle higher oil prices, but I think the, you know, 2008 oil prices went up,

12:59but we also had a credit, uh, uh, system that was breaking. And then you had the shock of oil

13:03prices

13:04on top of that. So oil was a secondary factor. You go look in the Gulf war, uh, uh, in

13:10the early

13:101990s, the credit markets were kind of breaking as well, uh, uh, before that event happened. And

13:16the fed was kind of like, Hmm, no, we think the, you know, I think the economy is fine. We

13:21think

13:21they can weather it and everything. And then the oil shock happened. And then a few months later,

13:26it wasn't. So you, I wouldn't use 2008 because the credit markets were breaking years before the

13:31recession. So that, that was a whole different story. And then the system was falling apart, but

13:36the Gulf war is a, is a really good example right now of what to look at going out in

13:42the future

13:42because the labor market, I mean, literally the last jobs report was negative. Even if you make

13:47some adjustments to the strike and the weather and all that stuff, it's still negative, but now you

13:52have shocks and what you never want to deal with is a shock supply shock price shock going up in

14:01a time

14:01where you're like, Hmm, we're not running at full throttle. So it's chaos. So the spreads should

14:07get worse from there. Now. Also the spreads were getting worse in February because they were already

14:12working from a very low level. This is what I try to teach people. Like, well, you know, people say,

14:16why were the spreads getting worse? Well, the spreads job is to compress volatility, even to the

14:21downside, right? They don't want spreads to get any better because rates would move, uh, lower too fast.

14:26So the spreads were actually getting worse in, uh, uh, February, but now, now there's more risk

14:32out here and there is no closure, right? And so when you do a tweet saying I'm bringing 10,000

14:38Marines

14:38here, I'm doing this, it doesn't work. It doesn't, this is not putting 300% tariffs on Canada because

14:48you don't like what Mark Carney said. And this is war, right? And this is serious. And I don't know.

14:56I think I look at the market reaction. That's to be a positive of getting it done. But I also

15:02know

15:02that every government in the world has top-notch agents reading sentence structure, body language,

15:08everything when somebody is, you know, maybe tilting their way to something. And the latest

15:14report has heard Trump's bored. Like it's not that he thinks it's a mistake, but him being bored is

15:19actually probably a good thing to get this done with out there. He wants to move on to the next

15:24thing.

15:25So hopefully this pushes the thing because that's what we saw last year. We saw that with

15:33the, with the 10 year old at four 54 60, we saw that last year. And I know Vance didn't

15:38want to

15:38do this. And I know a boy, boy, I'd love to hear that conversation with that. That at least, you

15:43know,

15:43we're, we're starting to get steps to maybe get there, but I've always thought that the markets were

15:49falling for the jawbone act a little bit too much. And that prevents maybe some final conclusion.

15:54So that to me, what I, what I'm basically saying is that I saw the biggest market event

15:58happen after the close of Thursday. Right. And it's by the time everybody listens to this,

16:03it's Monday morning, Lord knows what is going to happen by Monday morning. Lord knows what's

16:08going to happen by the end of Friday night. But that to me was like a really important thing

16:15for this whole, cause we, we can't move on until we get some closure here. Right. None of the economic

16:20data and all this stuff that's being reported just isn't going to be any valid going out. It was

16:24kind of like COVID. Remember COVID, like we had that first initial wave of data that were like,

16:30none of this data matters because we're about to get hit. Cause activities falling. None of the

16:35data that start were being reported for the previous month really matters. But now that you're

16:39almost into full month, you're starting to get the curve of data being impacted. And over the next

16:45few months, you know we'll see the effects on the economic data. You know, I know if, if people

16:50listen to this podcast every day, which we know there are a lot of you guys and thank you. They're

16:55very familiar with what the spreads are, but just really quick, the spread is the difference between

16:59the 30 year fixed rate mortgage and the 10 year yield. And it got, as you, as you mentioned, it

17:05got,

17:05when those things are far apart, generally speaking that's not good for mortgage rates. And they got

17:12far apart starting in 2022, 2023, and they've been slowly going back down. So to see that that's

17:18being affected when that was one of the most positive stories of 2025 and 2026, like what does

17:25that just one change mean for mortgage rates as far as their ability to go higher? I would tell you

17:31this very simple. If we had the high levels of spreads in 2023, 2024, and 2025, even mortgage rates are

17:40already above seven. So the fact that we're still sub 7%, you know, is that the spreads are the only

17:48thing helping that. Now, if you look at the history of economic cycles, the spreads do get better at

17:53this time. And the only time it really gets reversed is a shock event. Like 2008 was a shock

17:59event. Spreads got worse. COVID was a shock event. Spreads got worse. We've had other times in cycles where

18:07the spreads actually get better because, you know, going into a recession. So not all recessions are

18:15spreads going up. But if it's something fast and quick like this, the spreads get a little bit worse

18:21and they've been slowly getting worse and reversing the trends. But we would already be over 7%. I mean,

18:292023, we're like 7.60 to 7.70 today. If we had those spreads of- The spreads of 2023.

18:37So again,

18:37the market does not act good when rates are above seven. We've seen that in the data. The market does

18:44act good. The housing market. The housing market does act good when rates are near six and there's

18:51no volatility. So for the first time ever, we had that. September all the way toward the end of

18:58February, that bull pattern on the 10-year yield was intact. And then the spreads got better.

19:03Spreads getting better early in the year, push rates lower than I thought it would go early in

19:08the year. So that was another event that happened in 2026 that was not a part of the forecast. But

19:16yeah, it's chaos. And it's just that when you're in an industry that has live daily action

19:23requirements, the volatility is never a good thing. That's why I've always stressed low volatility,

19:29boring housing market. Good. That's what you want. That's what we had. So I'm just hoping that

19:35because the market doesn't take the job voting anywhere, that'll be the final kicker because

19:41that's what we saw last year. And we're at those levels or near those levels where you get to do

19:48that.

19:48And I'm hoping that's the case of that 450, 460 on the 10-year yield like it did last year.

19:54But now

19:54you have rising oil prices, rising oil prices, rising yields, right? The whole Trinity impact,

19:59the whole thing we talked about after November of 2024 is now evaporating to the upside, right? And

20:06then you have 15% tariffs on everything. And then you just can't function, right? It's just constantly

20:12on the news all the time. That's not how economies work, right? So hopefully, hopefully this is the

20:20start of getting some closure. And it's mother marketplace who cannot be bullied, bald. You know,

20:28that thing is a force. Now, you know what? I always talk about the economy, right?

20:36What do I always say that you don't like?

20:38Like, oh, you're like, mother economics is a serial killer.

20:42Yes, a serial killer. I'm like, no, it's not.

20:44But mother marketplace, holy, mother marketplace is like Genghis Khan. You do not mess with the

20:50whole entire markets if the markets, both oil and the bond market go gets you. Man, those are just

20:56like, whew, here comes Genghis Khan's, here comes, you know. So it's just to me, that was like, whoa.

21:05Like, I was like, oh, boy, they're not playing anymore. So we'll see. By the time you all listen

21:12to this, we had a Friday, Saturday, Sunday and Monday morning. So we'll see what happens. But I

21:17thought Thursday after hours event was the most gripping and telling market event during this chaos.

21:25Logan, I think this is another weekend where we are on pins and needles and looking at stuff all

21:30weekend long, Friday night, Saturday morning, Sunday night. It doesn't matter. It's going to be

21:35crazy, which is good for our audience because we're going to keep them up to date. But no rest for

21:40us.

21:40No, no rest. And I'm not sure if the audience agrees that this is the best, but, you know,

21:47it's no, I mean, I mean, it's good that we're paying attention. It's not the best things are

21:52happening. But again, that's why I would say blood stays on the blade. Never look away.

21:56Okay. You got to be on that stuff 24 seven. You always have the most dramatic.

22:01This isn't the industry for you. Or if you're an analyst and you just don't want to pay,

22:06you got to go into this. And when things are the most chaotic is the time you got to perform

22:11the

22:11best because when it's boring and slow, you know, you know, you don't, people don't need too much

22:18guidance, but now you do. So that's what we're here for. Okay. The other day you were like,

22:23did you really say pull the trigger? And you just said blood on the blades. I'm just going to say,

22:27I know, but that's my line. That's Sarah. Well, you got to go watch gangs in New York.

22:32Oh no, I've seen gangs in New York. You know, the starting scene, right? You don't blood stays

22:38on the blade. There's a reason for that. There's a reason that there's a reason that sticks in my

22:41head. This is why we're 24 seven. We never look away, which I appreciate. I appreciate you being on

22:47top of it, Logan. Thank you so much. We will talk again soon and who knows what's happening between

22:52here and there, but thank you.

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