What will mortgage rates do if the Iran conflict is really over?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about what happens to mortgage rates if the Iran conflict is over.  Related to this episode:  What happens to mortgage rates if the Iran conflict is over? https://www.housingwire.com/articles/what-happens-to-mortgage-rates-if-the-iran-conflict-is-over/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  The Top 5:  What happens to mortgage rates if the Iran conflict is over? https://www.housingwire.com/articles/what-happens-to-mortgage-rates-if-the-iran-conflict-is-over/  Housing demand stays firm, pushing inventory close to negative YOY https://www.housingwire.com/articles/housing-demand-stays-firm-pushing-inventory-close-to-negative-yoy/  FHA will keep tri-merge credit reports amid shift to new scoring models https://www.housingwire.com/articles/fha-tri-merge-credit-reports/  New Fed Chair Warsh loses dove as Waller turns hawkish https://www.housingwire.com/articles/new-fed-chair-warsh-loses-dove-as-waller-turns-hawkish/  New federal funding a mixed bag for housing programs https://www.housingwire.com/articles/new-federal-funding-a-mixed-bag-for-housing-programs/  To learn more about Total Expert click here. https://www.totalexpert.com/

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Modashami to talk about what happens with

00:15mortgage rates now that it seems like we have a peace deal with Iran. First, I want to thank our

00:19sponsor, Total Expert, for making this episode possible. And I want to do a short recap of the

00:25top five trending stories on HousingWire.com. Coming in first is Logan's story on today's

00:30topic, which is what happens to rates if the Iran conflict is really over. Next is the tracker from

00:36this weekend on housing demand holding steady, followed by the story the FHA will keep tri-merge

00:42credit reports amid shift to new credit scoring models. The story on Fed Governor Christopher

00:47Waller going hawkish just as Kevin Warsh becomes new Fed chair is still getting some traction from

00:52last week. And then we have a new federal funding, a mixed bag for housing. Congrats on topping the

00:58charts as usual, Logan, and welcome back to the podcast. That's when they call me the chart,

01:02daddy. You know, wow. So how was your Memorial Day? It was lovely. It was great. What about you?

01:08I had a donut and a slider. And I'm just like, my body don't know. You are very disciplined about

01:17eating. I don't know you having a donut would be hilarious. Yes. So it was just a weird feeling.

01:22I was just, it's been a while since I had an apple footer and a cronut. So, and then I

01:27had,

01:28I don't remember the last time I had a slider. So it was just, yeah, it was a good day,

01:31but I mean,

01:32so much drama, right? You, you know, so much drama. And I appreciate you writing, you know,

01:37not only did you do the tracker on Saturday as usual, but yesterday on Memorial Day, you know,

01:42we, we got what seems to be, seems to be, I was just looking and every, you know, every five

01:48minutes,

01:48there's like, Oh no, now Ron says, you know, they'll retaliate now we'll do this, but it doesn't

01:53matter because that's sort of noise, which you talked about in the, in the article yesterday was

01:58that things are moving through the straight and that is, is the economic, you know, engine that's

02:04going to affect housing. Maybe talk about that a little bit. So, you know, the irony is our last

02:10podcast on Friday was, you know, talking about Warsh and, and Waller being a hawk now, but it was,

02:16it was outlining how last week was, you know, probably it, you know, that we had too many

02:22variables happening in one week. You can't continue this. This kind of, this whole episode was

02:29somewhat sloppy. So the, the, the deal that, you know, eventually will happen is going to be crazy

02:35headlines and not the most fluid. But what's really happening is that the world economies,

02:43Iran and the U S cannot drag this out without inflicting more pain with everyone. Right. We

02:52don't hear the Iranian side, but that's, that's why they, they, they need to make a deal. And we have

02:57a lot of things that are happening here, but around the world, you just can't take the inventory,

03:01oil inventory drawdown. So we're going to see a lot of crazy headlines. There are people in the

03:06United States and in Iran who want the war to continue because that's their thing. So expect a

03:12lot of probable sabotage or stuff like this, but the writing was on the wall last week, you know,

03:20tenure yield got over four, 4.60 oil inventories are drying down. So this is a, the mark, the marketplace

03:27in a sense dictated this ending because nobody kind of wins if this progressed from June all the way to

03:36September. And here we are today. The tenure yield is last time I checked was four 50 oil prices are

03:44down off of the lows of last night. And this is a process. Now this whole thing was a process

03:50going

03:50all the way up with all the market drama and everything. And then it's going to be a whole process

03:56coming all the way down because this lasted past March 21st. It said, if this thing lasts past

04:01March 21st, something went wrong and it could get a lot worse. And the main thing is that

04:09if this is done, trust me, you do not want what was going to happen from June to September. If

04:14this

04:14conflict continued, it would be, it would be detriment to, to a lot of people, uh, not just in

04:20mortgage and real estate, but, uh, the world economies as well.

04:23Okay. So I, I think this was a really good point you made yesterday in this article, which is,

04:27you know, like what happens now to rates, because you were, you outlined why it's not just this really

04:32quick fix. You shouldn't expect it to go down to pre-conflict levels on the tenure yield or,

04:37or for mortgage rates. Maybe talk about the different levels that you outlined in that story

04:42about what we should be looking for. So we don't like, I had four 60 on the tenure yield and

04:486.75%

04:50with obviously no conflict. Cause this is going into 2026. Is this your forecast?

04:54Yes. The forecast for 2026. So the growth rate of inflation was getting stronger before the

05:01conflict started and the labor data, like not only stabilized with the federal reserve is looking at,

05:06it's double what the federal reserve break-evens are. So assuming there's no conflict, there's

05:12nothing abnormal to me with the tenure yield being between four 30 and four 60. So we have to keep

05:19that in mind because I think some people are thinking, well, rates are going to go back down

05:22to under 6%. No, it's not going to be that easy. The conflict as it progressed on and on changed

05:31the

05:31entire rate curve discussion. So we went from again, two to three rate cuts to one rate hike.

05:38It's going to take a while to get things back. So we had key levels going up. So right now

05:44in the

05:45article, I wrote first things first, if you get a deals talked about or signed or whatever done

05:50to take a look at the tenure yield about 4.46 to 4.48. We hit that last or Monday

05:58night or early

06:00trading, then we have to wait to see what happens. Because to me, what was going on is when we

06:07got

06:07headlines of the deal being done, the tenure yield went to 4.24, then it went to 4.35. And

06:13then we

06:13broke that quadruple top. So it's going to be a process to move down and we need a bunch of

06:20other

06:20things to go right to get rates lower because this has gone on too long. And a lot of this

06:28embedded

06:29inflation is here. And we have a lot of hawks now in the Federal Reserve. So it's going to be

06:34a

06:34process to get yourself down. But don't think about this as a tenure yield getting below 4%

06:40or under 6% mortgage anytime soon. That might not even happen this year. You're going to need

06:46economic weakness and labor data to get weaker and stuff like that, because this went on way too long

06:52not to have an impact current. You know, you've always said that, especially the last year or two,

06:57like as we get under 6.25% mortgage rates, then we really see, you know, demand pickup,

07:03we see more volume and getting towards six obviously is great. So maybe talk us through,

07:08like you just said, you don't expect to go there. What are those levels? You have three levels for

07:12the tenure. What are the, what does that correlate to for mortgage rates?

07:15So because of the spreads being better, and I think the spreads are just so, because a lot of people,

07:20I just assume from what I'm seeing on social media for the questions, people are just shocked that

07:25the spreads got better in the last few weeks, not worse. Just, just remember the spreads.

07:32When I talk about yield protection, that when yields go up, the spreads should improve to,

07:39you know, reduce volatility. That is, you know, the prepayment risk or EPO risk. So the,

07:47the spreads getting better the last few days as the, you know, we're trying to find it and is

07:52pretty normal. We've only got like 20 to 25 basis points of spreads getting worse during Godzilla

07:59tariffs and the oil conflict with Iran. So those are two major events and not much. I mean,

08:07the damage was very little because the spreads are doing what they normally do. So right now,

08:11the last mortgage rate, you know, last week was like 6.65. It doesn't take much anymore

08:19for mortgage rates to get down toward, you know, a six and a quarter. It just needs yields a little

08:25bit lower if you get a little bit better spread. So kind of look at it as, you know, the,

08:30we can get

08:31under six and a half, you know, getting the 10 year yield down to a 4.35. Obviously we're here

08:39today,

08:39whatever mortgage pricing is going to be. But to get to six and a quarter, we need that 4.24

08:45and spreads

08:46to, to, to, to improve a little bit. So kind of think of it as that when we get the

08:5110 year yield

08:52at 4.24, then we can like take a look at everything that's happening. But since the spreads were good

09:00this year, it prevented mortgage rates from really accelerating higher and then taking a long time to

09:05get back. So we could get back down, you know, under six and a half to six and a quarter.

09:10And we were

09:11able to have somewhat, you know, still a functioning, the tracker data has shown that, that to be the

09:17case. So we're not too far off from, from, from where we need to be, but getting below six is

09:24going

09:24to be a little bit more difficult than I think people think. Yeah. I thought that was a great

09:27point that you made in yesterday's article. And, you know, it's good because people are like,

09:33they're not sure how much of this was, you know, driven by the war versus what you're talking about

09:39was like, there are other economic factors at play here. And especially what's going on at the

09:42Federal Reserve that yes, the war exacerbated some of it, especially, you know, uh, for the 10 year

09:47yield, but there are other factors at play here that people need to think about. I mean, I mean,

09:52most likely we don't hit four 60 this year, uh, if the conflict didn't last as long. I mean,

09:58that's, you know, I was actually surprised how low mortgage rates got early on, even though the growth

10:04rate of inflation was, was, uh, picking up. We remember we had that one bad jobs report.

10:09That was the anomaly in that, you know, uh, sent you, you take that away. We're kind of,

10:14you know, we're, we're not, we're not that far from, you know, looking very normal with the data,

10:20but at the problem I see is that this conflict made the fed hawks like outside of Kevin Warsh,

10:27there's no doves anymore. And Kevin Warsh is only a dog cause he's Kevin Warsh 2.0 is Trump's boy.

10:34So in this case, um, we got to get the fed governors to start talking, you know, Hey,

10:41listen, okay. The conflict's ending, maybe, you know, we'll, we'll, we'll, we won't weigh this

10:45anymore. So it's going to take time to get back. So don't think that it's just going to be a

10:50straight

10:50down 10 year yield back down to 4%. Uh, and, uh, these things happen, you know, uh, we're not,

10:58my job is not to understand why the president did this or why Ron did that. My job is to

11:03just look at

11:03the 10 year yield and spreads and the economic data and try to make this, uh, work. But so far,

11:10the first reaction, getting the 10 year yield to 4.48, I think it's, is, looks right to me.

11:15It's getting in the next few stages. We need ships moving. We need ships moving. We need diesel.

11:22You know, I know Russia came out today and says, Hey, we might not export as much diesel. You know,

11:27we need to get things flowing again. So the federal reserve get dovish, because to me,

11:32like the big driver would have to be the economic data getting weaker and the labor data really

11:37getting weaker. And that will force the feds hands and bond markets will take it. But for now,

11:42a lot has happened. Uh, uh, and where the 10 year yield now today, uh, and where mortgage rates are

11:49today looks right to me. Um, but to get back to pre-conflict, a lot of things have to happen.

11:55So

11:55everyone's got to be patient with that. And we'll take the data one day at a time. Listen,

11:59we're, we're here 24 seven. We do not stop. We're here four times a week. We have housing wired

12:04daily. We are tracker articles. All these things are here to teach you how this goes. Cause I just

12:09think there's a lot of misinformation out there on the internet and everybody takes their own kind of

12:17group and their own agenda and their own things. I don't care about that. I just care about trying

12:21to get it as most correct as possible. So how many conversations did we have this weekend

12:26over both the tracker and this article where I was like, okay, but can we really trust this?

12:31And, and I think what your point is well taken here is that like, I want like a definitive,

12:36you know, we've all signed it. Everybody came to the table. There's some like in the past,

12:40the way that a war would end and it would be like, okay, we're done. We're moving on. It's,

12:45it doesn't look like that. And so I've been resisting, like, uh, even in the headlines,

12:50I'm like, if the war is done, like if this is really happening, but I think your really good

12:54point was like, listen, all of that can be doing whatever. It's like, if they're getting things

12:59through, then we're on a better path. So that's, that's where we're going.

13:02Iran was going to have trouble over the next few months, especially with their banking system

13:06with no revenues. So, you know, when we talked about, uh, uh, the white house's strategy change

13:11on not letting their oil revenue get out, that forces their hand. I mean, for us, we can weather

13:16the storm better than anybody, but I just think, you know, with polling being bad and oil prices up

13:21and the 10 year yield, Sarah, 10 year yield above four 60 or that level again,

13:26that gets the white house attention. This is the third time. Now I, I, I always like to remind

13:31people that Godzilla tariffs bond market owned the conflict, the bond market owned, even in 2023,

13:38when, uh, Jerome Powell had a fed meeting, I remember that day I went on CNBC, he said,

13:43Powell is going to be hawkish, even though the growth rate of inflation is falling faster than they

13:47forecast. The labor data isn't getting, uh, harder or breaking for them. So expect him to be hawkish

13:5210 year yield went from like four 37 to 5% over the next few weeks. And all the fed

13:57governors are

13:58like, Oh my, what's happening. I said, homie, y'all went hawkish. The 10 year yield should be here.

14:02If you're going hawkish, you're new, you, you, you haven't told the market you're done hiking rates.

14:05So 10 year yield getting to 5% for the fed that was their cutoff. So bond market runs a

14:12lot of things

14:12around the world guys. Uh, uh, so I know a lot of people thought it was a stock market that,

14:18you know, stock market is still up. Trump's not going to fold. No, you get the 10 year yield up,

14:22you get oil prices up, you get consumers thinking higher mortgage rates, higher, uh, food costs,

14:27higher gasoline. These are things that they see every single day. That's not good for two year

14:32political cycles, but Iran was in financial trouble as well. And the world economy is just,

14:38you, you, you could not go from June to September with nothing going. I mean, it's Mad Max their

14:43territory at that point for some countries. So, so hopefully it's going to be a sloppy process going

14:49forward, but the most positive thing is that it looks like it didn't get worse. Getting worse would

14:55have been a problem for everyone. Getting, getting worse would be a problem. Okay. Well, let's turn to

14:58the tracker data where once again, um, really the big story is housing demand amid all of this.

15:06Where are we with housing demand? You know, uh, weekly pending sales for the calendar week or

15:10multi-year highs again, housing isn't booming. It's just, it held up really well during this

15:16conflict. Just remember when you're working from the lowest levels of sales for the existing home

15:20sales market, remember the new home sales market is still at 2019 levels. So that's, that's a whole

15:25different story. It doesn't take much to move the needle, but the last two years wages have outgrown

15:31home price growth. Uh, we, we saw that again, case Shiller FHFA still, you know, the year over

15:36year data is lower than, uh, uh, what, uh, wage growth is running at. So housing gets a little bit

15:42afford for a better affordability and mortgage rates for the most part, like 99% of the time have

15:49been under 6.64 this year. That's the first and lowest rate curve. So the demand just held up a

15:54little

15:55better. And if we had six and a quarter and under easily, I mean, I only had 237,000 more

16:01existing

16:01home. We would have easily had 230,000, 230,000, 237,000 existing more home sales this year than

16:08last year. But now let's see if we could get this back because it was mid June of last year

16:14where sales

16:14bottomed rates got lower headed towards 6%. We had a nine month high in sales in December. Then holidays,

16:22uh, uh, the epic snowstorm, the conflict, all these things, but we're still, we're pushing along.

16:28Right. And, uh, um, of course for, for, for those who don't know the tracker, uh, uh, the growth rate

16:35of inventory is like 0.89%. Like who had that on their bingo card in terms of, you know, that

16:41just

16:42the supply and demand equilibrium changed to where inventory could be negative. This is why I like to

16:46refer people to 2023 because 2022 had, uh, like a super growth with our, uh, inventory data line

16:53because the slope of the curve was very high. We went from three to 7%. Last year, the growth rate

16:58of inventory is good at 33, but it was working from higher rates and that supply and demand equally,

17:03where it doesn't take much to change it. It did. So, uh, maybe next week, uh, of course the, uh,

17:10tracker gets impacted by holidays. So the next two weeks take it with a grain of salt. But

17:13even if we have negative year over year inventory for a few weeks, uh, inventory is at much healthier

17:20levels. Now it's not at the 2020 to 2023 levels. That's that's that, that was not a functioning,

17:26healthy housing market. Now we are much healthier, much better. So I'm not too worried about inventory

17:32showing a little bit of decline year over year going out. Okay. And, uh, you got your new listings

17:38above 80,000, which you love. I think that's what, uh, two, two weeks. Well, I haven't got the

17:43back-to-back weeks. I'm, I'm, I'm a, I don't want to jinx it, but you know, if it wasn't

17:48a holiday,

17:48if we didn't have the holiday this weekend, we probably would have had 80,000 next week. So I'm

17:54not trying to jinx it because the holidays impact the new listings data, but, uh, we could safely say

18:00new listings there, by the way, we had another mortgage rate lockdown debate on X and, uh, the new

18:06listings data came in. And I said, oh, so all of you are saying that there is a mortgage rate

18:11lockdown and

18:12nobody's going to list their home. So the new listings data, uh, is lower. They're like, yeah,

18:16yeah, yeah. I said, okay. So none of you have seen this data, but if I told you the new

18:21listings

18:21data was lower in 2021 with 3% mortgage rates that it was in 2026 and 2025. And then the

18:27period

18:27from 2013 to 2019, would you believe me? They're like, no, that's impossible. Oh, show the chart.

18:34I said, gentlemen, I have hustled a hell of a lot better ballplayers than you guys. Okay. Trust me.

18:39When I say this, I am not going to make up something that I can't prove. Never debate

18:44someone who has charts. This is what I know. There are tons of people who have charts, but we have

18:49a

18:49ton of jackasses who don't know what the charts are saying. Okay. So if the new listings data is

18:54lower in 2021 than it was in the last two years, your premises out the door silence. Nobody said

19:01anything after that. They're like, Oh, what? I said, yep. That's what happens because if your

19:07premise is correct, the new listings data should not be lower when we had 3% mortgage rates than

19:136% plus. So there's a reason I say this is a very complicated discussion, but if you really had

19:20a

19:20mortgage rate lockdown, existing home sales would be so much lower. And this can't be just about death

19:26and divorce. There are literally people who are selling their low mortgage rates and buying another

19:29house because they can't. They make money. They have a lot of equity. Baby boomers, Gen X,

19:34elder millennials were doing it. And this is just a mortgage rate lockdown is the doomsday,

19:40just the absolute doomsday scenario for housing. And it sounds great. And we've got a lot of people

19:45that say, Oh, the housing market's broken forever because no sales could be a lot worse. And that's

19:50why I'm trying to get people off of that discussion because the new listings data just shocked everyone.

19:55X is not a place where people get shocked, but when they saw it was lower in 2021, there was

20:01a point

20:01that, wait a second. Yeah. Just move along. These aren't the droids you're looking for. All right,

20:06go. I love that. Anything else from the tracker before we go? No, I think that, you know, the,

20:13just keep an eye on those spreads. I, so many people the last few weeks just assumed that the

20:18spreads would get worse, right? So the spreads are here to control volatility. Hypothetically,

20:23if the 10 year yield went lower in an aggressive fashion, the spreads could get worse there.

20:28That's what happened in February. Uh, it's, it's job is to compress volatility and keep things,

20:34you know, at base. So it's, it's doing its job. And, you know, when we showed the four,

20:38you know, like mortgage rates would be near 8%, you know, there'd be over seven and a half percent

20:42in 2024, there'd be near seven and a half percent in 2025. So the spreads getting better this year

20:48to the point of where they are almost back to normal, get used to that. Right. So we don't have

20:52to

20:52worry about the 8% mortgage rates or something like that, in that nature. We just need this

20:57conflict to end oil to flow. And we could have a conversation with oil prices coming down and

21:03diesel prices coming down. We're not there. We're still at elevated levels. You know, we're still

21:08over $90, uh, uh, with WTI and diesel prices. So, so it's going to take time. Uh, for those that

21:15are thinking, we're just going to shoot right back down with yields and mortgage rates are going to

21:196%. No, no, there, there, there are consequences to actions and the consequences of going into this

21:26conflict and going past March 21st is this. So we'll take it one day at a time, but just trust

21:33me

21:33on this June to September would have been very bad for everyone. If this conflict didn't end or we

21:40didn't get things moving and gone. Absolutely. No. And I appreciate, um, you have written a story

21:44every day for like two weeks. And I would, I would tell our listeners, if you're not subscribing,

21:49you're missing out on Logan's charts, uh, the analysis he goes into plus all the other great

21:55things that our newsroom does. Um, you can use podcast 20 for a 20% on off discount on our,

22:02uh,

22:02subscription. Well worth it. Um, and Logan, thank you so much for being on. It's a pleasure. And just

22:08remember next time you see a donut have one and they're very tasty. I'm a big fan of donuts actually.

22:16All right. Thanks Logan.

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