Will Kevin Warsh be better for housing?

HousingWire

On Today's episode, Logan Mohtashami will discuss whether the new Fed Chairman, Kevin Warsh, will be better for housing than Jerome Powell. Also, we will discuss the recent purchase application data and pending home sales data.   Related to this episode:   Lower rates boost applications, mortgage intent rebounds  https://www.housingwire.com/articles/mba-mortgage-applications-rise-2/  Senate questions Warsh on $100M-plus holdings and Fed ethics  https://www.housingwire.com/articles/warsh-fed-independence-hearing/  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.

Transcript

00:09hello everyone my name is logan morshawmy lead analyst for housing wire and today's topic is

00:15going to be is kevin warsh going to be better for the housing market uh more than jerome powell

00:21we're also going to talk about pending home sales data and the recent purchase application data as

00:25well however before we dive into all that i want to thank our sponsor total expert for making this

00:31podcast possible well everyone here we are i am a solo act today there is no sarah wheeler with her

00:39finger being pointed and telling me what to say what not to say so i get to be myself a

00:44little bit

00:45more uh sarah will return uh on next week when the gathering starts but today's topic kevin warsh

00:53we had the congressional hearings um for those who don't know i was hashtag anyone but warsh

00:59so wasn't a fan of him being a pick a lot of people even conservatives were somewhat confused

01:05because he's he tends to be very hawkish but as soon as i start telling people yeah he's married

01:10to the estee lauder's granddaughter they've been friends with trump for a while so you know trump

01:15likes loyalty so if you think about it just in that context hopefully that makes more sense why trump

01:21picked him trump likes loyalty people but now the question is you know you know if trump wants him

01:27in he could just drop the lawsuit against powell and then you know uh or the whatever that criminal

01:33case is i don't know what they call it these days um worse is going to be the next venture

01:38so uh we're

01:39going to initially talk about is he going to be better for housing because for me personally you

01:44know uh that after president trump won in november of 2024 sarah and i did a podcast talk about the

01:51trinity impact if trump really kind of wants to do this kind of trade war thing he's going to need

01:57a

01:57lower u.s dollar to export stuff he's going to need lower energy prices you know because people that's

02:03what they look at all the time and he needs lower mortgage rates well the dollar did go lower we

02:07did

02:08have lower energy prices until recently and uh mortgage rates have had they're actually the

02:13lowest mortgage rate curve going into a spring in midpoint of of the year out of out of all the

02:21recent years but what can kevin warsh do so we're going to address it in this way the federal reserve

02:28chairman cannot unilaterally cut rates i know a lot of people still think that's going to be the case

02:33that he's just going to go in there on day one and cut rates because trump keeps on saying it

02:37and

02:37that's just not the case uh kevin warsh is somebody who criticizes the federal reserve a lot over the

02:44last eight years and now he's got to work with some of these people you know so there's going to

02:48be

02:48some animosity in that light um but what kevin warsh can do and i say this because uh we go

02:56back to uh

02:572023 early 2023 after the fastest crash in home sales ever just a vertical down draft nothing you have to

03:05do

03:05with covet it was just you know demand was just uh crashing what occurred was uh rates got down to

03:12six percent and neil kashkari one of our favorites the president of the minneapolis head he came out

03:17and said hey listen oh my god six percent mortgage rates oh my god if housing shows life how are

03:22we

03:22supposed to balance the economy no you know um and jerome powell's own take has always been

03:28well the housing market's weak and you know it's no matter what we do we're still going to have a

03:34shortage so he kind of always wants to deflect from the housing market why because this is the one

03:40sector that the federal reserve can't have control on but also they don't make policy around the

03:46existing home sales market or the new home sales market not until the labor market breaks or

03:50and the inflation is taking uh its toll on the economy so here we are we have an incoming fed

03:57chairman who's going to be very loyal to trump or as i called the trump's uh got his whip out

04:03he's

04:03gonna be his whipping boy but he did say well the housing market needs help that is something jerome

04:11powell has never said in fact that's something not a lot of fed people have said that aren't loyal to

04:17kind of trump uh michelle bowman who was you know part of labor over inflation uh team logan camp

04:24she did say something awkward i thought last year where she said oh look it looks like home prices are

04:29falling we i'm worried about housing national home prices are not falling they never were falling last

04:35year guys we have 84 years of data on this it's not that difficult to read when home prices are

04:41falling

04:42nationally on a nominal basis it's very easy you'll see it in all the multiple home price

04:47indexes that we have so try not to you know uh take one person's line and think oh well you

04:53know

04:53the fed has to cut rates no they don't care they shouldn't care about that labor and inflation now

04:59the context is you have two people who are loyal to maybe trump's side talking about the housing market

05:05needs help in that context you're going to get a more dovish fed chairman than what jerome powell has

05:13been over the last few years so at press meetings and everything i imagine kevin warsh is really going

05:19to hype up the ai disinflation it's going to be one of the most magnanimous economic events that we've

05:25had in recent history he's kind of going with the old 1990s playbook which means that productivity

05:31gains are really going to take off so that'll keep a lid on inflation and you get a more you

05:36get a few

05:36more rate cuts into the system but that should be the extent of what we think he's positive for for

05:45housing um as long as president trump's in the white house or as long as a republican is in the

05:51white house you'll get kevin warsh 2.0 there's a democrat in the white house you're going to get

05:56old kevin warsh back cross that bridge when we get there i hope i'm wrong about that but kevin starts

06:02getting very critical of things when there's a democrat in the white house and he gets very kind of

06:06positive on things when there's a republican in we we we know those cast of characters but in this

06:12light you can have a fed chairman who might want to get those last two to three rate cuts into

06:19the

06:19system um i don't see anybody else really i know uh stephan meyer and who i still can't believe he's

06:25part of the headboard is still saying neutral policy should get us down to two and a half percent

06:31that's a bit of a stretch with inflation picking up uh as it has recently uh in that context i

06:39think

06:39you know maybe it's a much better uh fed chairman for housing but realistically there's not too many

06:47rate cuts left in the system for this cycle uh if the growth rate of inflation was running at two

06:54percent

06:55uh and the labor data was still soft maybe the fed you know can change their tune uh if wage

07:02growth

07:02gets under three percent i believe the federal reserve will change their tune but none of that

07:07is happening right now so just think about kevin warsh being maybe a better facilitator of those last

07:15two to three rate cuts and that's it of course he's got to get other fed governors to go on

07:21board

07:21and there lies the problem because they look at kevin and think oh lord he's just gonna know i don't

07:28like him he's just doing this for trump and whatever it is you could get a lot of conflict out

07:33there and

07:34there's some operational things that you know it's a little bit too geeky for for this kind of podcast

07:39to go into that kevin might want to change but in any case kevin warsh scott percent trump all of

07:47them

07:47kind of together want lower rates uh trump of course says crazy things about you know we need

07:53the fed funds rate at one percent whatever it is the emergency no we're not going to get any of

07:57that

07:57but just think of it as maybe get that two to three rate cuts left in the system and then

08:02i never

08:03actually change any of my kind of forecasts with my bond market and mortgage rates because

08:09380 to me on the 10-year yield and 5.75 percent with mortgage rates to me is like the

08:15bottom of

08:16neutral policy so whenever we get the 10-year yield between 380 to 410 it's like okay we're

08:22pricing in neutral policy maybe the economy's looking a little bit weaker so that's as as good

08:27as it gets now the big difference now is mortgage spreads uh now this is a wild card i don't

08:32know if

08:33there's anything in the works there's supposed to be an announcement you know uh some things that

08:37maybe improve mortgage but that story is mostly you know kind of uh taking its course too uh so we

08:44should just think about kevin warsh going out as better for housing than jerome powell who jerome

08:51powell just always says oh it's there still will be a shortage of homes when we're done no he doesn't

08:57want to he doesn't want to deal with that kevin has actually gone on tv and talked about it so

09:02you

09:02might get a little bit of kick there and then we're just going to wait and see how the economic

09:06data

09:06plays out of course with the conflict going on uh you know uh it's wednesday morning and there's just

09:13more headlines that are on shooting ships and you know they better get a deal in any case the 10

09:18-year

09:19yield is not really acting too much and neither is oil uh for those that follow us you know we

09:25talked

09:25about the 10-year yield maybe having a double top around 448 it's kind of been in a downtrend so

09:30a closure with this uh a conflict will be a positive for rates it doesn't necessarily mean

09:38the 10-year yield is going to go back down to four percent or uh uh we're going to get

09:43uh 5.75

09:44mortgage rates where the 10-year yield is right now looks perfectly normal with a labor market that

09:50isn't breaking right we get these adp weekly numbers jobless claims it's not getting worse

09:56uh with inflation above target still uh so uh we've seen this move lower on the 10-year yield

10:03and rates go lower i think from 6.64 down to 6.29 it's okay you know that's that that

10:09that looks

10:10normal out there so i don't i don't know if we're going to get like a very very big move

10:14let's just

10:15say hypothetically let's just say there was a deal that everyone believed in we're not going to have

10:20the 10-year yield go down like the 3.95 or 3.96 uh because some of the economic data

10:25has gotten a

10:26little bit better retail sales beat estimates you know jobless claims are still looking low

10:31some of the jobs reports uh data that people are tracking are are stabilizing uh but kevin

10:37warsh will be a positive in that sense as long as there's a republican president but now um with that

10:44said what's happened with the recent uh housing data uh the nar came out with their pending home

10:49sales it did beat estimates just remember we're working from an extremely low bar take all these

10:53moves with context but the nar's pending home sales to me uh always uh is a little bit too wild

11:00for my taste but also this year whenever we have a negative uh pending home sales the last few months

11:06we have a positive existing home sales report when we have a positive pending home sales report the

11:11existing home sales been negative in fact some of the revisions with the nar's existing home sales

11:16data is a little bit more than what i'm accustomed to uh uh and i don't know if that's just

11:22the

11:22the tracking's a little bit different i know we have all these new rules and everything that has

11:26happened in the real estate market but either positive or negative the revisions are a little

11:31bit more than what i'm accustomed but for what it's worth pending home sales did beat estimates

11:36still down year over year nothing dramatic is happening in housing on that front uh purchase

11:42application data came out today positive 10 percent week to week uh double digit year over year

11:48growth positive 12 percent it was very visual on on the charts here um just remember the housing

11:55market sweet spot 5.99 six and a quarter we had that whenever we get near six we just stay

12:02there you

12:03can get some traction of course we had christmas and new year's we had the snowstorm and then we had

12:07the war if kind of those things weren't part of the process you know we get a couple hundred thousand

12:13uh home sales growth to me if rates just stay under six and a quarter for the year you get

12:18237 000 more

12:19existing home sales there's nothing going to be magnanimous or anything like that but it's good

12:24enough to get the first year of growth so we'll see if this could continue i like to look at

12:29forward

12:29looking housing data when our tracker data gets at least 12 to 14 weeks of positive weekly data

12:35uh it's been very confusing with purchase application data uh post covid uh it used to have a very

12:42boring steady trend every single uh year and very easy to read but things have gotten a little bit

12:48more hectic after covid uh 2024 is a good example not a lot of people thought sales were growing in

12:54the

12:54second half but our forward looking data was getting positive however purchase application data was

12:58negative for a lot of those weeks so that wasn't the case the demand picked up there in 2025

13:03everybody remembers the housing market shifted mid-june or looking data got better we got a nine month

13:09high in sales always remember if that last month is your high month and you had christmas and new

13:14years coming in you're going to get a a withdrawal of activity because everyone is not going to be

13:19working in full force uh that should be common knowledge by now uh the snow storm impacted the snow

13:25states we got out of that data lines and demand was picking up and then the war happened shot rates

13:30up so we'll see if this is the start of another trend last year at this time or in mid

13:36-june when

13:37the 10-year yield mortgage rates got below 6.64 we saw a steady growth in sales in the second

13:43half of

13:442025 uh we'll see if that happens but again uh this is the lowest mortgage rate start of a year

13:51but it's

13:52not under six and a quarter uh or near six percent that's for for what it's worth that has been

13:59the

13:59sweet spot we don't usually get here and stay here long enough but we have a lot of rate cuts

14:04in the

14:05system uh mortgage spreads right now hopefully everyone could understand why i've highlighted

14:09mortgage spreads so much uh uh i can't get to low sixes without mortgage spreads getting better or

14:16getting close to normal if the 10-year yield is going to be uh above four percent well we finally

14:22got

14:22mortgage spreads close enough to normal again they've gotten better but such a difference from

14:26the last few years the last few years mortgage rates are already being above seven percent we

14:30don't have good positive data when rates shoot above seven percent did not happen this year even with

14:36the war even with the 10-year yield getting up to 4.48 for those of you that read the

14:40tracker i'd like

14:41to show people context 2023 spreads 2024 2025 most of that is above seven percent in some cases in 2023

14:49we'd be up at 7.75 so hug a mortgage spreads positive a lot of rate cuts in the system

14:56positive

14:56also remember that the federal reserve if they really wanted to talk hawkish they could i mean

15:04they have the backdrop to right pce inflation is above three percent ppi inflation is at four percent

15:11even the cpi data which has the rental disinflation is still elevated and the job data is firming up

15:19they could be a little bit more hawkish if they wanted to they're choosing not to so uh in this

15:26case uh the fed is kind of just keeping things intact uh waiting for the tariff disinflation to

15:32kind of run its course and maybe when the war happened a war gets done you get lower uh oil

15:38prices and

15:39diesel prices it's starting to filter into the food data that we saw this morning so uh get ready for

15:45some food inflation highlights that'll probably pop up as well but hopefully when the when the when

15:50the war gets uh finished and boats are finally sailing we could get rid of that uh inflationary

15:57pressure and then kevin warsh is there so uh i think in that light for housing he's going to be

16:03a little

16:04bit not a little probably a lot more pro housing he's going to really push the ai disinflation which

16:09the funny part is lisa cook is the big ai disinflation person on the fed uh and she's still

16:15there so a lot of underlying possible positive things but kind of just remember keep keep things

16:22simple with housing rates just get near six percent and picks up a little bit uh uh and we get

16:28a little

16:28bit of growth of home sales remember affordability is still an issue affordability is the total cost of

16:33housing it's not just a rate variable it's home prices taxes insurance everything uh housing tenure

16:39has uh doubled uh in some cases tripled right from 1985 to 2007 it was five to seven years from

16:462008 now to 2026 11 to 13 years some states 15 18 that is a really big deal people just

16:53don't buy a

16:54house in 2021 and covet and go oh i'm gonna buy another house if the housing tenure sticks with them

17:00it might not be till 2030 uh until they start moving so kind of think of that with the mortgage

17:06rate lockdown discussion uh but some very interesting things uh that happened this week i think uh the

17:12kevin warshe hearings a lot of people have their own takes on it uh i'm just going to say that

17:16for

17:16housing he'll be a little bit better just because he he'll he'll talk about the need to get housing

17:21going again and also if the economy is getting weaker you expect kevin warshe to be a little bit more

17:29dovish if the labor data starts to get better and then he can get christopher waller and michelle

17:35bowman and some other people on his team and then you could get maybe more dovish but as is

17:41you know 380 410 even if you get two or three more rate cuts that's kind of the bottom we

17:47should

17:47look at but if the labor data got weaker or the fed started talking more dovish or wage growth slows

17:52out we could have a different conversation but for now that's how we should look uh going out in the

17:57future and thank you everyone this is a solo act see sarah wheeler if you're watching this i'm not

18:02crazy i'm not totally out of control you don't have to point your finger you're probably ready

18:06to point your finger watching at this but we're all good and then uh we've got some uh uh we

18:12have

18:12a great event coming up in austin texas the gatherings where the top mortgage executives real

18:16estate executives government officials everybody in one place we got a lot to talk about of course

18:21with all the drama that's happening now my presentation has changed a lot for those who are going

18:26there see you all in austin and thank you all for listening to housing wire daily

18:31you

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