How inflation is impacting mortgage rates

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the hot inflation numbers and whether he thinks rates are headed up or down in the second half of the year.  Related to this episode:  Why mortgage purchase apps are holding up even with rising rates https://www.housingwire.com/articles/why-mortgage-purchase-apps-are-holding-up-even-with-rising-rates/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  To learn more about Total Expert click here. https://www.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

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about more inflation data

00:15and what that's doing to mortgage rates, as well as what he thinks mortgage rates are going to do

00:19by the end of the year. Are they going to go up or down? Before we get into that, I

00:23want to thank

00:23our sponsor, Total Expert, for making this episode possible. Logan, welcome back to the podcast.

00:28It is wonderful to be here. I did my civic duty today. I saved a squirrel.

00:33Oh my gosh. Okay. You are like Dr. Doodle Little. You have so many animals at your house that you

00:37have rescued and saved. Yes. And it reminded me, I took in two stray cats about two years ago and

00:43it

00:43took me about a year to get both of them in. But when I'd feed them at night, you know,

00:48possums would

00:49come, you know, and then like, you know, at one o'clock at night, I'd go down, open the door,

00:53there's like three big fat possums and they look at me like, what? You've left the food out here.

00:57What do you want? You know? So I called them the league of extraordinary gentlemen. And like one

01:03night I was coming home and one of the possums was walking right with me, you know, and I was

01:07looking at him like, Hey, what's up homie? What up? You know? And then it went up the tree as

01:11I was

01:11going up the door. But yeah, this, this squirrel is just like, it's a little baby squirrel sitting

01:15outside the garage. And the police said they're lost its mom looking for food, but I did my civic

01:21duty. And we're off now to the PPI inflation report and purchase application data, mortgage rates.

01:27I don't know. I like the squirrel story. That's, that's, uh, that's why I brought it up. You're a,

01:32you're a big animal person. So I am. Okay. Well, if we're talking about inflation,

01:37what did the today's inflation report say that was, you know, that stood out to you?

01:42So today the PPI inflation report was very commodity, uh, uh, induced in terms of the

01:49increase, the core inflation, of course, just like the CPI data wasn't as extreme, but of course,

01:55you know, it's tough in 2026 when you're still dealing with the, you know, pullover effect from

02:01tariff inflation, and then you have a commodity induced conflict. And now you're dealing with both

02:07at the same time. So the inflation data is going to be, um, uh, not beneficial. However, with that

02:14said, we still haven't gotten to that four 50, four 60 level on the 10 year deal. I really thought

02:19with the escalation of the war that keeps on going on, we can get to four 50 to four 60,

02:23but we're

02:24kind of at four 49. So people are joking with me on Twitter about the Gandalf line. You know, I

02:30was

02:30like, this is a tough, they're playing tough right here. And you know, people brought up, you shall not

02:35pass. And, um, I think it's, there's still some, you know, people are just wondering why aren't

02:41rates higher? You know, inflation is really picky. Like it looks like it's really accelerating. And I

02:46think part of it is a lot of people still think that pushover from the inflation one time. And then

02:53if the conflict ends, then you take that second, uh, variable out of the equation and eventually it,

03:00it, it works itself out, but we, we, there's so much discussion about this as one of the

03:06fed governors have came out and said, I can see a scenario where there'd be a rate hike

03:11if it, uh, if it persists. Uh, and even with all that, I think the last time I saw the

03:1610

03:16year yields at 4.48 mortgage spreads are doing its thing. Mortgage rates are, uh, um, 6.57.

03:24I think, uh, we haven't hit the yearly high in mortgage rates, even though the 10 year yield

03:30is, is, is at a yearly high. So all that said purchase application data came out positive year

03:37over year, positive week to week. So, uh, we're here to kind of explain that, uh, data line and

03:42can it continue? Okay. So, so walk us through how many positive versus negative versus flat weeks we've

03:48had with purchase application data. Cause for you, you're looking for a specific number. That means

03:53that triggers something as far as what we're going to see for sales. And, and if this is a trend

03:58or if

03:58it's just a week to week thing. Okay. So my running joke is last year purchase application data was

04:04working really from the lowest bar ever. It's a trend survey. And the joke I always use is that

04:09it was back in 1995 and back in 1995, no doubt was like the number one new band and gangster

04:16paradise

04:17was like the number one song and I had blonde hair. So things were different back then. That's a long

04:22time ago. So the year over year growth we saw last year, uh, uh, needed context, but the housing

04:28data didn't get better until we saw more week to week growth. And that's what we've seen really since

04:33the end of 2022. We see, we see if you get 12 to 14 weeks of positive week to week

04:38data to go with

04:38positive euro, you got something. So last year we got about to a nine month high in sales in December.

04:45This year we've had like nine positive week to weeks, eight negatives, 15 positive year over

04:51years, only two negatives. Uh, some of that, you know, the, of course there's, there's always the,

04:56uh, uh, uh, holiday impact and then there's the snow storms and now the conflict, but for the most

05:02part, purchase application data on a year over year basis has been positive every, every single

05:06week. In fact, the, the two weeks that were negative, we're, they were working from a,

05:11from a high comp. So that's, that's still there. Weekly pending sales as the last week,

05:16you know, multi-year high, just a little bit of growth compared to other years. So housing is,

05:20is, is doing better with elevated rates for the first time for now for a six and a quarter and

05:26under, and, and, and we had no snow storm, no, uh, uh, uh, conflict. The fed was talking about

05:33cutting rates and everything, you know, we're rolling, but we're only probably going to get 237,000

05:38more homes. Is there still a chance to get that growth level, but you, you probably need rates

05:43to go lower. So it's just holding up firm. And again, every single year where wages outgrow home

05:52prices, housing gets more affordable, right? It's like, you know, we talked about, you know,

05:57for the first time in a while, um, inflation is running higher than wage growth, right? Inflation

06:02was running at 3.8% wage growth is running at 3.6. However, the last like 18 months before

06:08that,

06:08you know, uh, wage growth was running above, uh, uh, inflation. So, uh, real wages have been better

06:15that, that is, that is guaranteed that's in there, right? We just had one month of negative so far.

06:20So we've had a very, very good amount of time where wages are rising faster than home prices.

06:26So that gives you a little bit better affordability. And the main thing is mortgage rates for now have

06:32been between 5.99 and 6.64. It's the lowest mortgage rate curve for the start of a year

06:39in many years, even with, you know, inflation rising oil prices up anything because mortgage

06:45spreads are better now. So we talked about that last time, but housing tends to do a little bit

06:51better in this. It's when rates get above 7% and rising above 6.64 heading to 7 is when

06:56the demand

06:57slows down. So now it's, you know, tug of war. Can we get the conflict done fast enough to get

07:02oil

07:03prices to come down and the feds stop talking hawkish or is this going to get worse? And the

07:0910 year yield goes above 460, my peak forecast and mortgage rates get above 6.75, which is my peak

07:16forecast. Uh, and then what, when that happens, housing demand tends to slow down. Like we've seen

07:21in the last few years, not, it's going to be not as terrible as the previous years, because we're

07:25working for a low base and affordability is better, but hopefully that could kind of explain

07:29why housing data is still, uh, uh, uh, uh, still firm. I think a lot of people were really

07:35anticipating this to be a negative week to week and maybe a year over year, but not the case.

07:40I think this year illustrates how important data is and looking at data versus vibes or anecdotal.

07:46We talked about, you know, I, yesterday I was like, what about the price of groceries?

07:50Because if you just showed somebody the headlines from this year, especially with the Iran conflict,

07:54especially where oil prices are a lot of these other things, I don't think a lot of people would

08:00be like, yes, purchase applications. Demand is going to be strong and we're going to get a little

08:06bit more volume. I just don't think we would do that, but that's why you, you have to have data

08:09to say, to show what's actually happening. Not what you think is happening.

08:14Imagine if there's no chart daddy and the orc goblins of the doom porn nation out there are running

08:20around and talking about, you know, uh, it's so interesting. You say that Sarah, because yesterday

08:26some guy tagged me on an Instagram post and some guy was like, it's the highest amount of sellers

08:31ever. Home prices are about to crash. You know, uh, you don't buy a house, oil prices, you know,

08:37all that stuff. And if you just listen to that guy on Instagram and my, my best advice to all

08:44of you,

08:44people just do not follow any of those people. If you, if you really wanted to like, just devoid

08:49yourself from doom porn trash. So I told the person, I said, this is doom porn trash. You don't

08:54just, you want to ignore this stuff. So then the person said, how do you know it's doom porn trash?

08:59Well, first of all, uh, it's not the highest amount of sellers ever in history. Home prices

09:04aren't crashing. And the weekly pending sales data has actually been positive with purchase apps. And he's

09:08like, well, how do you know that? Well, I track this, this is my job. So this person can't

09:13actually, I'm going to tell you how mortgage purchase application data is. It's too boring.

09:18You can't grift on that stuff. So if you didn't have the data and you got sucked into the headline

09:23world, then yeah, you wouldn't know what's going on. But the tracker, again, my work is designed to

09:29look current and forward, not backwards. We don't want to wait for the existing home sales report,

09:34nor do we want to wait for the Case-Shiller index. We want to look today. And this is why,

09:38you know,

09:38all these times where we talk about, Hey, Sarah Wheeler, when did the housing market

09:43shift? That's right. And that's where I say mid June, 2025, 2025. We still have people today

09:49talking about national home price crashes because they don't read books. They burn books,

09:54but they don't read them. So if you don't read, you wouldn't understand that's not happening, but

10:00that's what the weekly tracker is for. So, so far our job is to find out what kind of equilibrium

10:05between the 10 year yield and mortgage rates and spreads and demand and affordability, how you can

10:10only get that with like a weekly data because it gives you a head look. And again, our weekly

10:15pending sales is 30 to 60 days out. This is not like a booming housing market sales aren't going,

10:20but it's just a little bit better where a few years ago, because of the spreads were so bad,

10:27mortgage rates get above 7%. And we, you know, we, we don't have any positive week to week data.

10:32We have negative year over year, positive negative week to week, nothing's going on. Not the case

10:37anymore. And it's not been the case really since mid June. Like if you look at the mid June,

10:42all the way to now we're in mid May, it's a whole different ball game. And we've thrown a lot

10:47of

10:47stuff at it, right? We threw a snowstorm. We threw a conflict. We have a hundred dollar crude and a

10:52hundred dollar plus WTI oil prices. Inflation is rising with all this madness. If somebody told you

10:59purchase application data is basically positive year over year, every single week outside of two. And then

11:05the week to week data is still slightly positive and pending sales. People like, no, I don't believe

11:09that. So I think that's, that that's to your point, Sarah, it is valuable to have data, but you have

11:16to

11:16look at data in an unbiased way and you have to look at data. You want to present it just

11:20for the

11:21facts. You don't want to present it for attention, right? That was a whole goal, right? The whole,

11:25you know, you know, the chart daddy's here to tell you the truth, whether it's positive or negative

11:30doesn't really matter to you. My job is to focus and model and, and get things going. And here we

11:34are,

11:35in mid may. And usually what I do is I take the purchase application data at the second week of

11:40January to the first week of May. That's usually the demand curve for the year. And then total

11:45volumes tend to fall. Well, we're working from social levels. And if rates go lower, lower the

11:50second half demand tends to pick up. So we always want to keep a track of this on a week

11:54to week basis.

11:54But if you didn't read books, you threw books into your fireplace, then yeah, it'd be like,

12:01I don't know, but I see some jackass guy running around saying home prices are crashing 40% this

12:06year. Don't buy, by the way, we debated one of those people this year. You did this week.

12:12Homie, that homie, that guy was literally off the rails. It was like new world order,

12:16dungeons and dragons, shipping lanes and all this. Oh, earlier this year. Yes. Earlier this year.

12:21Yeah. And just remember, these are entertainers. They're not analysts. An analyst doesn't talk

12:28that way. An analyst has a dick. Okay. Well, you're an entertaining analyst. Okay. So you

12:32combine that. There you go. I mean, I try to make it as fun because I realized that if you,

12:38as an economist, go and talk about, well, today the mortgage purchase application data was

12:464% week to week. And it was upset. And you just like, you know, I mean, I mean, listen,

12:53I love my fellow economists. Like I fall asleep within the first two minutes of them. Some of

12:57them talking, it's just like, come on, man. Y'all got to get people up and riled up. But

13:02in this case, it's just holding up. It's holding up. Well, in the previous years, like a 2024 was,

13:07was a really good example. We had negative week to week and negative year over year data for like

13:12majority of the time. But spreads, hug and mortgage spreads, 10 year yield is still

13:19not high enough to where rates could get us above seven with normal spreads and affordability got a

13:24little bit better. And you take that little tasty looking enchilada, you put it together,

13:28kind of makes sense if you look at it that way. I don't think that's a sexy enough story

13:33to talk to people on the YouTube or Instagram every day, but economics done right, Wheeler.

13:42I know, it's supposed to be boring. It's boring. It's not designed to be this hot,

13:46fun, sexy thing. So we are trying to make it as entertaining, but as educational as possible,

13:51because if y'all finish my sentences, then you know, right, I'm doing my job as a teacher.

13:57Well, I wanted, I want to ask you about something you said about, well, if rates can go lower in

14:03the

14:03second half, because today, and you said this earlier in the week that we were going to have Fed

14:07governors coming out and sounding hawkish. Today we had, is it Fed Governor Collins?

14:12Susan Collins, you know, we said we might, we might do rate hikes this year. So give us your

14:18over under, are we going to see rate cuts? We're going to see rate hikes.

14:21So we don't really care if non-voters are talking about hikes, but there's not enough

14:30hawks to do hikes. There's not enough doves to do cuts. So what do we have? We've got a stalemate,

14:36you know, it's like, what are the good, the bad, the ugly, the old Clint Eastwood movie? You know,

14:42you got everyone looking at each other. Nobody can really pull the trigger because nobody has enough

14:46numbers. What you do have is Kevin, Kevin Walsh is going to fight tooth and nail on any kind of

14:55rate

14:55hike discussion. So if you, if you're in the mortgage and real estate industry, this is the

14:59one benefit of Kevin Walsh where Powell, Jerome Powell might have already been saying, listen,

15:05we might talk about a hike because we remember 2023, like 2023 was a really interesting year because

15:11the growth rate of inflation fell faster than what the Fed forecasted. But the labor data and the

15:20economic data did better than they thought. So with all that said, when the 10 year yield was at

15:25like 4.43%, Powell went very hawkish at a Fed meeting. He didn't need to, but he went so hawkish

15:32that the 10 year yield shot up to 5% in a very quick fashion. And I remember this because

15:37I was in CNBC

15:37that morning saying Powell's going to go hawkish today. 10 year yields go because the labor market

15:42is not weak enough for them. They have to hit the labor supply. So he did that. And then all

15:47of a

15:47sudden they cried, uncle, like the 10 year yields at 5%. What's going on? Like, homie, you what hawkish

15:52Hawk, man, Buck Rogers, go back in time. Watch that. All right. So now without Powell,

16:00see you later. Um, Walsh won't be that hawkish. If there was a Democrat in the white house,

16:07war should be super hawkish, but for now he's going to fight tooth and nail. So there's just

16:12not enough votes for every, for either side. But again, hypothetically speaking, if the conflict

16:19is over and oil prices start to fall and we get things moving again, right? The longer this goes,

16:26the longer oil prices are going to stay on. That's, that's part of the problem with this thing

16:29moving, moving out so long, but then you could go back to the tariffs and then the one right,

16:36and then we can maybe, and maybe hopefully that explains why the 10 year yield isn't

16:39much higher right now. Um, there's still that tug of war. We're still kind of in this, you know,

16:44who's going to, what, what side's going to get what they want? You know, a lot of,

16:48a lot of stock traders want the 10 year yield up because they say, don't put money in bonds,

16:52put money in stocks, inflation, you know, why would you put money in bonds? Then you have the,

16:56you know, we need rate cuts because the economy is weaker. The jobs are revision. We have all these

17:01different groups wanting what they want, but as of right now, we're in a stalemate. Inflation is

17:06rising above target. Oil prices are still elevated. The conflict is on the labor data stabilizing,

17:11but there's not enough hawks to push it to the next level. And there's not enough doves

17:16to take it down. It, we are in a very interesting space with the fed. So today we're doing this,

17:21uh, Wednesday morning. We expect Kevin Warsh to be, um, his nomination to go through it already got

17:26through some, some key committees. Uh, today I think is the day we'll see if, if that actually

17:30happens today, but we are treating it as such because, um, he it's all but done. It's just

17:36procedural at this point. Kevin's first year, man. Wow. You know, I mean, you don't, I don't envy the

17:41guy, you know, I I'm hashtag anyone, but Warsh. So there's a part of me that goes, Oh, Kevin, homie,

17:48look what you, what you got yourself into. Cause I know, I mean, he just, he was just playing the

17:52book

17:52to, you know, the loyalty to Trump pledge or whatever he probably did in any case. Um,

17:59it's very, very difficult for Warsh, even Warsh to say, our job is for rate cuts right now. I think

18:08if the, I think if the conflict is over, then the Kevin Warsh is and other people will say, okay,

18:14well, the commodity inflation that we're seeing in PPI and CPI and everything that's going to go down,

18:19right? So we're going to move off of the tariffs and then we could just get back to

18:22neutral policy. But again, neutral policy, three 80 to 4% is easier, but it's just really hard to

18:29go below that. But if you get normal spreads, like if you get one 60 spreads, you can get under

18:345.75%.

18:35We're not, we're not there yet, but, um, again, we're here, right. And it's the Trinity impact

18:41is reversed, right? We talked about this, that Trump could make this work, but he needs oil prices

18:46lower. He needs mortgage rates lower. So now he's lost the oil price discussion. He's lost the

18:51inflation discussion. Mortgage rates are creeping up higher, but if it wasn't for the spreads,

18:56you know, Trump should hug a mortgage spread. That's what he needs to do. He needs to go out

19:01on the white house lawn and get it like a mortgage spread and give it a big hug. Like he

19:05hugs of

19:05American flag and go hug a mortgage spread. A national holiday after what's happened for the last,

19:13and then Trump will probably do it. He'll put his name on the mortgage spread and face. And you know,

19:18there you go. We've been at a lot of industry, uh, conferences where people in the audience do not

19:23know about mortgage spreads now more this year. If they listen to us, if they're reading your stuff,

19:27they more this year, but it's always interesting to me, uh, industry conferences, how many people

19:32are like, they don't really know what it is. So, you know, we'd have to do some education.

19:35I would tell you a lot of market people I know don't really know spreads or how it operates. I

19:39mean,

19:39again, that's part of my failure because it was never really an issue. And,

19:44you know, naturally I just think, I think people, I, I assumed people knew that the spreads get worse

19:49when, you know, the fed starts hiking rates, but when the fed starts hiking aggressively,

19:54you know, it's just really rare to have mortgage spreads above 3%. Normal is 160 to 180 in recent

19:59history. I mean, we've had times where the spreads are under 1%, but, you know, getting the spreads

20:03above 3%, we didn't have that during COVID. We didn't have that during the, uh, uh, um,

20:092008 financial crisis. I think 1986, May, maybe 1986 was the last time we went through. So that

20:15was an abnormal level. And that happened because the Silicon Valley banking crisis, like the spreads

20:20were getting better in 2023, better spreads. And then the Silicon Valley banking crisis. And then

20:25that happened in the fed hiked rates after the Silicon Valley banking crisis. So yeah, that pushes

20:30the spread higher. Now, now people get to see, I think, I think that's, that's the beauty of talking

20:35about the spreads last year. It's trying to get people to realize, wow, it's much different now.

20:40Right. We need to get used to much different where back then it was really bad. It was a terrible

20:44story. Now it's a positive story. So bad spreads. Now it's good spreads. So here we are.

20:51Now we like the spreads.

20:522026.

20:53Logan, thank you so much for getting on. Once again, we will talk again soon.

20:56We'll talk again soon. And you and I are going to be in San Diego at the Meridian link conference.

20:59Yes. Can't wait to-

21:01We'll be talking about all of this data that came out. And I love it that I get to update

21:04my charts right

21:05before an event because, you know, I like the freshest data line out there.

21:08I know. And I love to talk to everybody who's there, find out what's on their mind, find out

21:12what, what problems they're trying to solve, how we can help them with our news and information. So

21:17it's going to be great.

21:18And what color, what color silk shirt should I wear? Hmm. That's always a, you know,

21:22there was one conference where they took bets on what color shirt I wear and nobody won because

21:27nobody had bronze.

21:29No, nobody's going to think bronze. We need a whole, we need a whole prediction market for

21:35your shirts. One of my fellow economists. Cause like, you know, there was a thing about,

21:38you know, you have to teach economists to talk, you know, cause the economists want to be more

21:41valuable to a company. They have to learn how to talk to people. Uh, uh, and they were talking

21:45about that in Twitter with some of the more well-known economists. And I've, I've, I've done

21:49more speaking gigs. This is like my 30th event of the year. I said more now than I did all

21:53last year.

21:54And I showed a bunch of pictures and, and Adam was a economist. Uh, uh, um, you know, said you

22:00look like a villain. And I was like, yeah, I kind of like that James Bond world media villain back

22:05in

22:05the days, you know? Uh, uh, but yeah, you gotta, you gotta make somewhat entertaining and make it

22:10fun. And then you make it very entertaining, Mr. Motoshami. I just got to get you to say chart

22:15daddy one day, one day, Sarah Wheeler, the editor, the boss, you know, eventually, eventually I win

22:23Sarah. I love all the comments on YouTube are like, why is she your boss? And, and, you know,

22:28you don't need her. You could do this by yourself. It's so funny, which listen, you do a great job.

22:33I know. I said, she's my, she's my editor. She's my floatist, man. You know, we got to do this

22:38together. Okay. No, I am not your floatist. That is, that is a demotion. That would mean I'm the

22:44first late. No, I am the actual, I'm madam. I know, I know, I know, I know. But the person,

22:49the person framed it as a podist and I was like, okay, she's, she's my editor without trust me,

22:53people, I would be writing like 2000 word, little mini dissertations. If Sarah didn't come

22:58and clean it up because I was like, you know, Oh, like let me write three to 5,000 words.

23:03You're

23:03like, nobody reads so fast. That's the craziest thing is you can do that so fast. Okay. Thanks.

23:15Thanks.

23:17Thanks.

23:18Thanks.

23:19Thanks.

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