- 3 days ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about what he expects from the Fed, the 10-year yield and mortgage rates once the war in Iran is over. The two also discuss the need for 10 million new houses.
Related to this episode:
White House says US has housing deficit of 10 million units
https://www.housingwire.com/articles/white-house-housing-deficit-deregulation/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
To learn more about Total Expert visit totalexpert.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.
Related to this episode:
White House says US has housing deficit of 10 million units
https://www.housingwire.com/articles/white-house-housing-deficit-deregulation/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
To learn more about Total Expert visit totalexpert.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.
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NewsTranscript
00:10Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about what housing looks
00:15like post-war when it comes to inflation, the 10-year yield mortgage rates. We are excited to
00:21be able to talk about this. Can't wait to dive in. Before that, I want to make sure to say
00:25thank
00:25you to our sponsor, Total Expert, for making this episode possible. Logan, welcome back to the
00:31podcast. It is wonderful to be here. It is Friday morning, and the headline just came out that we
00:39might do a $20 billion uranium swap between US and Iran. 10-year yield fell. We tested that. We're
00:47at that 424 level. That was the first test after the possible ceasefire. Oil prices made another
00:54leg lower. Last time I checked was 84. Who knows what will happen on Monday? Of course,
01:01the weekends are pretty crazy these days. But it's time to start thinking because we are back in the
01:07bull. And when we talk about the bull, the 10-year yield, late August, early September, all the way
01:13up until the war started, we were kind of between like 395 on the 10-year and 430, kind of
01:20in that
01:20area. Spreads are better. So it's been the lowest mortgage rate curve in the last few years. But
01:27the housing data looked a lot better, you know, just, you know, kind of going with the forecast
01:32this year. We could get 237,000 more existing home sales if mortgage rates are six and a quarter
01:37and under less volatility. And that's kind of like, you know, what we had, which was rare. We haven't had
01:45that. But we just took a shock. We took a war shock. There were people talking about eight to 11
01:51%
01:51mortgage rates and all these things. And the 10-year yield didn't get as high as I thought. I
01:58thought maybe 450, kind of 460, the war escalates. We got to 448. So we never got to some of
02:05the levels
02:06I thought. But three Fridays ago, it started to diverge. The bond market was getting ahead of
02:12the oil prices. I mean, a deal is going to happen. The stock market rebounded pretty fast. Kind of
02:17these doomsday newsletters didn't even have enough time to write their second or third week. And here
02:23we are. We're back into where, you know, the spreads are getting a little bit better as well.
02:29And what does housing, what should we expect, you know, now that, you know, hopefully if the war
02:35has ended and we see oil and a 10-year yield go down, what do we need to see to
02:39kind of get back?
02:41This was my first question to you this morning. We were starting to talk about what we should talk
02:44about. I was like, okay, can we actually think that we should talk about the war ending? Because
02:49there have been so many false, like, oh, we signed something. Oh, you know, we've agreed to a ceasefire.
02:55But this seems like a wholly different thing that we could maybe trust.
03:01You know, the markets, I thought the bond market was ahead of oil on this and kind of just, hey,
03:09listen, this is going to resolve itself. Again, it's very difficult for Iran to basically stop the
03:20world economies. You know, either you get through resolution or everyone is going to have to go in
03:26there. And, you know, and it's every week that goes by for them, you know, their economy does get
03:33hit. If they if I thought the blockade was a was more of a clever tactic here because financially
03:41the strain that it would put on a country and their currency, the revenues and all that stuff.
03:45So in any case, hopefully. Right. You know, we're not sure until it's over. But
03:52if it does occur, you know, the 10 year yield is back to a range that I thought can be
03:59workable
03:59because of the spreads. If the spreads weren't improving the last few years, we're having a
04:05different conversation today. But since the spreads were getting better in 2024, 2025 and in 2026,
04:12six, and I thought we could get to about 180, maybe toward the end of the year. And that happened
04:17a little bit earlier. You know, it's the best it's the best outcome you can hope for under the
04:24current environment, because, you know, the we have so many hawks on the Federal Reserve that don't want
04:30to cut rates. And I think one of the things about even Kevin Warsh coming online that I thought,
04:39you know, they won't have them on here if the war is still going on. Well, it looks maybe cross
04:44fingers that this is coming to an end and you can get Kevin Warsh in there. Now, Kevin Warsh can't
04:51unilaterally cut rates, but he's going to be more dovish than Jerome Powell. And we had that our last
04:58podcast about, you know, the blitz that they're going to do about talking about lower rates. And,
05:04you know, some of the people are giving maybe a little bit of cover to make sure that, you know,
05:09the war is over. Once the war is over, they could go into it. But, you know, no rate cut
05:12discussion
05:13while this is going. So there's an interesting backdrop for the second half, definitely for 2026.
05:19So how does this, we've talked about inflation over the last week quite a bit,
05:23but okay, let's say this is the end of this conflict, of this war, or we're winding this down.
05:30What does that mean for inflation? So headline inflation is impacted by energy and food costs.
05:38So diesel prices, oil prices, gas prices, those things will affect that. But if it's a shock and
05:46it gets recovered or, you know, once you start to get, you know, below $80, you know, and in the
05:5470s again, we kind of been there for a while now, we were like $56 in oil prices before the
06:02war
06:02started. So you don't necessarily have breakaway inflation unless oil stays elevated for a longer
06:10period. But we had that, you know, in 2011 to 2014, you know, core inflation didn't break away
06:17because oil prices were elevated back then. Wage growth was much lower, the labor market was softer
06:22back then. But here, you know, we already have PC inflation at 3%. We have PPI inflation elevated.
06:29So the bond market is keeping in line with what Fed policy is. Again, it's very hard for me to
06:36get
06:36the 10-year yield above 460 where all the rate cuts in. So inflation is sticky. It's going to be
06:42stickier for a little bit longer. But in any case, what matters to everyone here is number one,
06:48Fed has a lot of rate cuts in the system. Number two, the mortgage spreads are better,
06:51hug and mortgage spread. They've been improving the last few days. And as long as the Fed doesn't
06:57talk hawkish, you know, the Austin Goolsby's, the Beth Hammocks, the Lori Logans, the Schmitz and
07:04those kind, you know, then we could be somewhat workable here in the bull. Because I say the bull
07:13because I still can't get the 10-year yield under 380, but just because the labor market isn't
07:18breaking. And some of the labor data has improved, you know, from people were worried about massive
07:24layoffs and stuff like that. And jobless claims, again, low. Some of these numbers are not getting
07:31worse. And that's what the Fed is talking about. So it doesn't matter what I think, what I want,
07:36or what anybody else wants or what anybody thinks is what kind of the Fed governors think and how they
07:40want to talk to the markets. From your perspective, you know, you've said all year that you can't see
07:46a case for rates going below 575 in the current, you know, in the current environment of like,
07:54that's just talking about like Fed policy, where we are and the other things. But do you feel like
07:59we could get under 6 again? I mean, getting under 6 is not out of the question. It's getting under
08:055.75 and making that next leg lower. I was in, I'm still in Richmond, Virginia. And we're talking
08:14about, we're talking to a lot of home builders here. And I kind of, I said, look at, look at
08:19the
08:19new home sales from 2018 to 2026. If you take the COVID burst away in the 2022, new home sales
08:24have done
08:25nothing for years. They just literally go back and forth. It's just a wavy chart, you know, up sales,
08:30down sales, up sales, down sales. So that's because mortgage rates are at a sub 6% mortgage market.
08:37They're at 2019 sale level still. That is so elevated from the existing home sales, but that's a sub 6
08:43%
08:43mortgage market world. So that, you know, has proven to work. If I take the history of US economics and
08:51think neutral policies at 3%, you know, just to get to 5.75 is difficult. You need normal spreads.
08:59You need a lot of things to happen, but making that next leg lower with all the hawks on the
09:05Federal Reserve side, it's, it's, it's very difficult and we've never done it, right? We've
09:10never broken under 5.75%. You know, in 2023, when we brought the Gandalf line, remember the Gandalf
09:17line, how much fun we had with that? You know, this wasn't a thing about back then, like me not
09:23wanting rates to go lower or, or higher. It was just that, that 3.37 line should hold unless we're
09:29going to a recession. Like the Fed is still like not done hiking rates, you know, and the market
09:35really thought we were going into recession and bond yields are falling. But the Gandalf line held
09:39like eight times, managed, boom, boom, you know, homie was like, Balrog, you are not passing. You
09:45shall not pass. Here, the 3.80 line only broke in 2024 when the growth rate of inflation was heading
09:54toward 2%, but the job market was missing estimates and revision. So the bond market, and it, and it
10:01happens, it, it over, it overdoes it to the upside and downside at times. Bond market really thought we
10:06were going into recession. Now, if we had 3.62% 10 year yield, like we had, then you can
10:12get under
10:135.75% rates where the spreads are at. But as you can see, it's just harder. So if you
10:18get,
10:19if you get like material weakness on the labor data, that's worse than what we see right now,
10:24or the Fed starts to talk dovish, then, you know, at least you can get down toward that 384%
10:30range.
10:31And that gets you sub 6% here. But I just, I caution people on, you know, a lot of
10:37people,
10:37not a lot of people, but a few people talk about, you know, rates are going to go to four
10:40and a half
10:41to five, you know, you have to stick with the history of how the 10 year yield and the slow
10:46dance,
10:46right? The slow dance with, you know, the 10 year yield and mortgage rates and Fed policy and spread.
10:51So it's an encouraging Friday morning. And, you know, you know, we had, you know, toward the end
10:59of 2024 or 2025, you know, we had like a nine month high in sales in December, that nine month
11:07high in
11:07sales in December is roughly kind of like where the peak I thought we can get with six and a
11:12quarter
11:12and under. But, you know, we just had that short burst in rates. And now we're back. So we just,
11:17we need duration. Duration is always key. And I've, I haven't seen housing data. If I take the
11:23seasonality out of the equation where, where rates six and a half or seven and a half, it doesn't work
11:29as well, but six and a quarter and under does and calm, right? When things are calm, people start to
11:36make choices. They don't have to worry about things. It's just the, the unfortunate aspect, it was the time
11:43right into the spring selling season. And then rates shot up and the war and, you know, so it
11:49didn't really impact the data too negatively, but the growth rates that we saw, once you take the snow
11:56data and the holidays, and hopefully now everyone realized December and January, Christmas and New
12:03Year's are going to shut things down like they always do. So we ignore that, but the snow storm,
12:09of course, was a major storm, but you know, that's gone. So maybe we just get back to trend
12:13and get a little bit of growth into 20, 20, uh, uh, six.
12:18Well, that's good. Also, I think that, you know, again, psychologically, if you were looking to buy
12:23a house and you're like, Oh, and then you, and then you see the rates come up six, six and
12:27a quarter
12:27now sounds really good. Again, people get used to like, I know you always say it's what they can
12:32afford. And that's absolutely true. But I also think that people will be like, I, you know,
12:36this is actually a good rate right now. Millions of people buy homes every single year. If you look
12:43at the housing data after qualified mortgage, especially in the last decade and you're wherever
12:49the 10 year yield goes, the housing demand goes with it. But we're talking about that marginal
12:53buyer, either growth or that marginal home buyer that goes negative. 2022 was a, 2022 still to me was
13:01the craziest housing year ever. We had the sharpest, fastest crash in sales in history.
13:07It was kind of similar to COVID, but COVID, we just had no activity because for a few weeks,
13:12nobody was doing anything. That wasn't a COVID thing, literally the market. And whenever we've
13:19seen housing data get better, it's because a 10 year yield is lower and stuff. So I like that slow
13:23dance, a little Jodeci, you know, um, and we take it with the 10 year yield, but now we got
13:30better
13:31spreads. So it's, it's a little bit of smoother Jodeci song we're playing with now because now the
13:37spreads are better volatility. I mean, think about this. We had rising inflation. We had above 3% PC
13:44inflation, near 4% PPI inflation. We had an oil shock that took oil to $117 WTI. And even with
13:54all
13:54that, the 10 year yield did not hit 450, nor did mortgage rates get above 6.64. Pretty crazy. So,
14:01so that's why I say I don't change my forecast for yield ranges because it could be volatile with
14:08the vent, but as crazy as it sounds, the, the, the channel is still holding and we could possibly
14:17get, you know, under six and a quarter again soon. And then we take it from there, right? It,
14:23the housing doesn't move as fast as, you know, as stocks is, of course, stocks made such a sharp
14:29rebound to highs that, you know, if you blink housing takes time and duration, it's not, like I said,
14:34housing, when housing's normal, it's not a very exciting sector.
14:38If, you know, it's, it's, uh, if it's exciting, then something's wrong, right? When, when it's
14:45normal, it's, it's pretty, pretty kind of boring, kind of slow moving, but, uh, um, just, we've got
14:52crazy years. There's nothing normal after 2020. Given everything that's happened. I think we dodged
14:58a bullet here when it comes to the 10 year old, the mortgage rate. I mean, it feels like it
15:02could
15:03have been much, much worse during this short period. It could have to a degree. I, I still, I still,
15:07I'm just, I'm always in the belief that fed policy really runs 65 to 75% of it. So, uh,
15:13uh, even with
15:14oil price and I, I, I try to give this example on the nerd tour. We had oil prices from
15:192011 to 2014
15:21were here, were elevated. We had, we had high energy costs, but mortgage rates were three and a quarter
15:27to 5% in a range in the last decade. Uh, they were sub 5% the entire time with
15:33elevated oil prices.
15:34Why? Because fed policy was, was, uh, less restrictive. And also the labor market was softer.
15:40Wage growth was softer. Nominal growth was softer back there. So we try to, you have to incorporate
15:45all those things. This is why we created the slow dance just to make it easy for everyone, you know,
15:49think fed policy and think of spreads and just go with there. So, I mean, we're here and, uh, I
15:56know,
15:57I know inventory is, is, is, looks like it's on the verge of being negative. I just want to remind
16:02everyone that I don't want anybody in America to fall for the line that we have no homes to buy.
16:10Okay. Okay. So this was my next question. Our next topic is we have not talked since that whole thing
16:16of like, uh, I think the white house put out a report that said that we are 10 million homes
16:21short
16:21in this country, which is far above like what the NAR says, what, um, uh, other, other outlets,
16:28other, uh, data points would say. So let me get your take on 10 million more homes.
16:36This is like, uh, is it a family show?
16:40It's a family show. I mean, I can't, I can't really like, like, I was like, I don't know.
16:48I shouldn't say this, but I mean, the person's on drugs. I don't know who wrote this.
16:55There is no 10 million. I don't know. They just randomly threw up a number, right? 10 million.
17:00It sounds great. I mean, they couldn't make it like 9.23 million or something. So the fact that
17:05they highlighted 10 million is your first clue that something isn't, isn't right there. So
17:12I'm, I'm a little bit different than everyone else. Of course, the way I look at inventory and it was
17:16good talking to a lot of home builders. There were a lot of politicians at the event in,
17:21in Virginia as well. And I said, I'm a market guy. I have never read any of those reports that
17:29say
17:291 million, 2 million, 3 million, 4 million, 10 million. I just don't, as a market guy, all I see
17:36is active inventory is what really matters. And we've always had between two to two and a half
17:42million active inventory inventory has gone lower, uh, over the last decade. You know, um, a lot of
17:49that I believe is qualified mortgage 70, 70 to 80% of home sellers are buyers. And then the millennials
17:54were the biggest home buyers in the world. They do not give you a house. So naturally inventory
17:58slowly moves lower, but to say 10 million, you know, like me, 1.52 to 1.93 million active inventory
18:08with over four months supply, I'm good. Done. I'm, I have no inventory shortage, nothing. What
18:14happened in COVID was a historic event that we've never seen before. So we are not a supply driven
18:20first economy where we build a bunch of stuff and wait for people to come here. We are, what are
18:26the
18:26builders, Sarah? They're not the March of Dimes. That's what I was telling these home builders. I said,
18:31you guys are not the March of Dimes. You are here to make money, right? And now you have,
18:37as they should be. Yes. And multifamily construction is, is lower now. So people say,
18:43oh my God, we're going to build all these apartments. And what I'll go, oh, you're such
18:45cute little kids. No, you're not going to do any of that. And I say, look, rental vacancies are up.
18:52Wage growth is slowing down. Migration and immigration is slowed down a lot. So,
19:00you know, you're not building, right? There's a lot of things that
19:05are having rents go down. You had a, you had a little multifamily construction boom,
19:10which was cool to see. And then, you know, we, what was it? June, June, 2021. We said,
19:15you know, why we're not going to be building when rates go up, it's all going to end. Rates are
19:19up.
19:20Housing starts and permits are at early COVID-19 recession levels. We're not
19:24growing. We're still keeping that pace there. But so with, with less wage growth, less migration,
19:31less immigration, multifamily construction is down. You're not getting 10 million. And that was like
19:3510 million single family homes. That's never going to happen. The builders as, as you know,
19:39as, as I was showing home builders, and I, we love the chart where it's just, I care about completed
19:45units of sale more than the monthly supply, just because how the builders operate. And it's just not,
19:50when we get to 120,000, we don't grow really much from there. That's, that's where the builders start
19:55to pull back. Well, and I, I think the, the thing to point out there is they pull back at
20:00that point,
20:01because there's not more demand that keeps their homes at a certain level that makes them, but like,
20:07if there was, if there was demand for 10 million more homes, they would figure out a way to build
20:1210
20:12million more homes. But that number is so egregiously high. It's like, there's just no way.
20:18So first of all, the 10 million is just like, it's, it's optical, it's visual, you hear it,
20:25you think, wow, like nobody's, nobody has anything close. So I know what the, what the White House is
20:33talking about. They say, why aren't the builders building with, that's not how the private sector
20:39works. I, one of the greatest history lessons in America were early, early in the scene in the movie,
20:45Ghostbusters 1984, where Dan Aykroyd says, guys, you don't realize what it is on the private sector
20:52out there. They want results. This is not the public sector. So a lot of times government thinks that,
20:58you know, that the public sector, we should be building in the private sectors are homie.
21:03My margins here, man, my, you know, that's not how it works. And oddly enough, this is where the
21:09government is making up a number and this should, we don't, we don't operate kind of that way. So I
21:14think
21:15it's, it was more theatrical than anything else. And I just, I just refuse to read any of those
21:20things, any of those reports from anyone. This isn't, I'm not picking on the White House. I don't,
21:24I just, as a market guy, I see the history of data and data tells me that when we get
21:31to this level,
21:32you're not doing it. And that's why we wrote that article in June 1st. I think
21:35if you guys really want to read a little mini dissertation on why I'm not a construction
21:39boom person, June of 2021, why can't we build ourselves out of this hot housing market back
21:45then prices were escalating out of control, but we just, we just don't put our heads down and build,
21:51build, build, build. A lot of people like to use Austin as an example, but you have, you have to
21:56remember Austin has less migration. It's not like people are leaving Austin, but they have, you know,
22:02home prices went up like 76 and a half percent in like two years or some crazy thing like that.
22:07So
22:08less migration, higher rates, you know, uh, uh, prices are down almost like, I think 25% from the
22:15peak from there. But as a national thing, it's just, we just don't operate that way. We've, we've
22:21never operated that way. So, um, so it was, it was interesting live, but always, but I think the main
22:27thing I want to say is the reason why I tell people not to fall for the, there's no homes
22:32to buy.
22:32The lowest inventory ever in the history of America had, you know, 6 million existing home
22:39sales, 2 million higher than where we are. Why is that the case? Um, we finished transactions faster,
22:47right? You know, back in the days, people had fax machines and trans boxes and little paper,
22:53low, you have to, you know, now transactions could close in eight to 11 days. We close things faster now.
23:00Uh, um, so the inventory doesn't stay on the market when demand is flat or positive. Uh, so,
23:06so the inventory channels work a little bit different, but because that was the case and
23:10you had first time home buyers, uh, you had 2 million more existing home sales with inventory
23:15at all time low. So do not ever like one of the top five Logan rules is do not ever
23:21let anybody tell
23:22you there's no homes to buy, you know? And we, I had this battle in the last decade with a
23:27lot of
23:27people. And I said, don't worry about it. When demand picks up, there are no, that's going to
23:32happen in COVID. You saw that inventory crash, but home sales were higher than what they were
23:37pre-decade, uh, out there. So that, that's one of the things as a market person, which is different,
23:43maybe from the academic world is the, you know, there, how could people buy, there's no homes to
23:48buy. And yet we had much higher home sales with a lower inventory levels. It's how the transaction
23:53models have worked. Amazing. Well, Logan, we are coming up, um, getting closer and closer
24:00to the gathering. I will say that a programming note for, uh, this week, because this will come
24:04out on Monday. Um, I am not going to be the host this week. So we have some surprises this
24:09week. It's
24:10going to be fun. Um, yes, I know you're so excited and, uh, we have some good things lined up,
24:16but, uh, I'll be back of course, uh, next week and we have the gathering. And I just want to
24:21remind
24:21everybody, if you are a subscriber, you get a substantial discount on that gathering ticket.
24:27That is the hottest ticket in town. We are, um, we're over 900. We've got, you know, we've got
24:32just a few, you know, capacities, I think a thousand, something like that. You get a great deal. And if
24:38you're not a subscriber, you're like, I don't know what you're talking about. It's like, you need to be
24:41a subscriber so you can read all of Logan's, um, housing market trackers, all of his other analysis
24:48pieces. So I would just encourage you to go to housingwire.com, become a subscriber, get a
24:54dis a huge discount on, um, the rate for the gathering and come see us there. Cause we're
24:58super excited. Well, that's kind of the top executives in real estate and mortgage all in
25:03one place. So, uh, that it's, it's, it's a rare event to have everybody there. And also next week,
25:08I will be able to do one of the podcasts by myself.
25:11So we are going to party chart daddy style and Sarah can't put out her finger and go,
25:18no, Logan, cut this off. Our podcast, cut it off. No, we can't play that. No, stop that. No,
25:24no, we start over again. I still have Rebecca, our very intrepid producer on who is going to make sure
25:31that we, uh, that we stay within some guidelines. No, I'm really excited. Um, got some different voices
25:36on the podcast coming up this week. And, uh, Logan, as always, thank you so much.
25:41Pleasure as always, Sarah. See you in Austin.
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