How jobs data will impact mortgage rates

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about jobs Friday and what it could mean for mortgage rates.   Related to this episode:   For mortgage rates, it’s not labor over inflation anymore  https://www.housingwire.com/articles/for-mortgage-rates-its-not-labor-over-inflation-anymore/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   The Top 5:   The housing markets that missed the pandemic boom are quietly outperforming  https://www.housingwire.com/articles/pandemic-housing-boom-2026/  Sam Valverde: Pulte’s DNI role won’t sideline GSE reform  https://www.housingwire.com/articles/markets-pulte-dni-gses/  Small investors, not Wall Street, are tightening the path to homeownership  https://www.housingwire.com/articles/small-investors-rents-up-30-percent-squeezing-first-time-buyers/  New York AG probes Compass-Anywhere acquisition  https://www.housingwire.com/articles/ny-ag-compass-anywhere-probe/  Who can buy a top-20 builder now? Berkshire resets board calculus  https://www.housingwire.com/articles/homebuilder-buyer-universe-berkshire/   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

00:11Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about Jobs Friday and

00:16what it could mean for mortgage rates. First, let's recap the top five trending stories over

00:21on housingwire.com. The top trending story is the housing markets that miss the pandemic boom

00:27are quietly outperforming, followed by Sam Valverde on why Pulte's DNI rule won't sideline

00:33GSE reform. Then we have small investors not Wall Street are tightening the path to home ownership

00:39and New York AG probes Compass Anywhere acquisition. Wrapping it up, we have who can buy a top 20

00:46builder now? Berkshire resets board calculus. You can read all of that with a housingwire

00:51subscription and you can get 20% off of that with the code podcast 20. We have another exciting day.

00:57So Logan, welcome back to the podcast. It is wonderful to be here. You are in Miami,

01:03right? Right now still in Miami. I do leave today and exciting news. So I went to the award program

01:08last night, the National Association of Real Estate Editors awarded the Real Trending Podcast,

01:14a silver award, huge deal. This is such a big organization. All the big guys are here in New

01:19York Times, Bloomberg, Wall Street Journal, every real estate thing you can think of. And so really

01:25proud of Tracy, our producers that help on that podcast. So yeah, exciting. Excellent. Excellent.

01:33I'm in lovely Irvine, California, which I always consider Irvine Babylon. It's the greatest city in

01:39America ever. So I'm always biased. That's a very funny reference. Okay. Well, we have a lot to talk

01:44about jobs, jobs, jobs, jobs. Tell us. Yeah. So of course it's Thursday morning.

01:51More headline news last night, the 10 year yield fell a few basis points, oil fell a few, a few,

01:57a few dollars lower because Israel is going to make peace with, you know, Lebanon and Hezbollah has

02:06already shoot that back. But in any case, where are we right now? 446, right? So when we,

02:12when we wrote that article about, you know, where, where can mortgage rates go if the conflict is

02:18over, that 446 to 448 is where I think it should be. If the market believes it's over, if they

02:25think

02:25it's going to escalate, it should be a lot higher. So we're kind of where we should be regarding where

02:32the bond market and the Fed is thinking about the war right now. I know there's a lot of hawkish

02:38Fed

02:39statements this week. But now that, you know, by the time this podcast comes out, jobs Friday is

02:45going to be released. So the question is, how do we look at jobs Friday and the Fed and this

02:50conflict

02:50going after the rest of this year with mortgage rates? And how important is the labor data now

02:57if the conflict is trying to end itself? What do you think we're going to see in jobs week?

03:04I mean, to me, it's ADP report was, was, was, was good. Job openings was up. Jobless claims ticked up

03:13a little bit. But one of the things I, I, I try to stress today is that if you look

03:18at the seasonality

03:18of jobless claims, it always kind of rises at this time. It took the last three years and then it

03:24kind

03:24of fades off. So jobless claims have not really done anything for a very, very long time. In fact,

03:30it's at a, the, the, a very low bar right now to, to work upwards. Um, we're going to have

03:37reports

03:37that are, that beat estimates that are, uh, uh, uh, lower than estimates. We had that one report that

03:44showed 92,000 jobs lost. Uh, we get revisions, all this stuff, but to me, the key is the Federal

03:53Reserve made it clear that they don't need a lot of jobs to believe that the labor market isn't

03:59breaking because they're jobless claims people. Right? So we've always said this for years that

04:03the Federal Reserve needs to see jobless claims head toward 300,000 before they start turning.

04:08And I'm a, I'm always going to be a labor over inflation person. That's never going to change,

04:12but the jobs data is better than it was last year. And the growth rate of inflation is much higher.

04:17So those two is you can't get rate cut in that, in that environment. Things have to change. Either

04:25the labor market gets noticeably weaker or the growth rate of inflation starts to fall back. So

04:29anything above 33,000, that's how I'm viewing it is okay for the fed. Uh, and that's how everyone

04:39should see it. Now, my break evens is 78,000 jobs per month. If we get 78,000 jobs per

04:47month,

04:47or population growth is, it looks fine to me. This is why I was, I was, I was kind of,

04:52I almost disrespectful to the fed talking about this last year that we could have zero job growth

04:57and we'll be fine. No, there are people out there looking for work. So, uh, we have to adjust the

05:02break evens higher than what they think. So anything above 33,000 to me is keeps the story the same.

05:09Um, the wage growth, that's the story that I want to see because I'm a big believer that the Federal

05:15Reserve wants wage growth at 3% and under, and that their structural dynamics will change if that's

05:21the case. So keep an eye on anything above 33,000 and wage growth. Um, uh, if wage growth could

05:29keep

05:29on going lower, the fed will like that. And the bond market will react a little bit more positive

05:34to that, uh, data line. Can you speak to the fact that like two years ago, what we expected on

05:40job

05:40growth was just completely different than now? Like the, the number of jobs created every, every

05:45month, I mean, such a different number. And then last year it was so shocking to be like, oh, even

05:49if

05:49it's zero and now we're like, oh, you know, 33 might be good for them. You're saying 78. How does

05:54something change so fast? Well, to, to, to be honest with you, um, I always have lower job

06:01estimates than everyone else because population growth is slowing down and most people are working.

06:06I'm not one of these people that believe like we used to have like crazy people in the last decade

06:11talking, there's 96 million people out of work looking for jobs. Those are just people that, you

06:16know, they go to school, they're, you know, 65 and over when population growth is slowing down

06:22and most people are employed. It's really hard to have big job numbers. So the COVID-19 recovery

06:29model, we always said all the jobs should be recovered by September of 2022. And we're pretty

06:35much, we like hit that right on the needle, but all we're doing is working back our job growth data

06:42to trend. And if that's the case, then job growth should slow down noticeably over time. Uh, in 2024,

06:502024, I had like 160,000 job growth estimates. We, we pretty much kind of got there. And a lot

06:57of

06:57people thought that as a deceleration, but when most people are working and population growth is

07:02slowing down and people are retiring, right. You know, it's a wash when the baby boomers leave and

07:07somebody replaces them, right. You're not really growing jobs. You're just kind of washing that out.

07:11So it's not shocking to me if job growth is running at 78,000 or up because that looks,

07:19that looks normal to me with population growth out there. Now you can also make a claim that

07:24because we've, you know, we're not letting a lot of people come in and we've kicked out a lot of

07:29people as well. Both those two together, there's a lack of labor for certain, uh, industries. They need

07:36to hire those and you see kind of the job openings in some of those sectors. So it's not a

07:42shock to

07:43me last year though. I think to me, it's Godzilla tariffs through everyone in a, in like, you know,

07:48what's going on here. I mean, Godzilla tariffs, if that, whatever biblical trade thing, you know,

07:55a percentage went through all hell would break loose. Uh, um, but again, I'm not a, I don't believe

08:01Trump or any of his team really believes in tariffs because if you really believed in tariffs,

08:05you would put them in no negotiation. It's going to take years and years and years to have tariffs

08:14work like you think they do. I just think Trump likes bully ball and, you know, tries to get some

08:19deals out here, but the job growth, if it got to 78,000 looks, looks normal to me with population

08:25growth. So, uh, it might be a shock to some, but most people are employed and the baby boomers leave

08:30the workforce every month. Uh, and we just basically replace them. If you had a growing

08:36population, I mean, we, we still do, but if you have a bigger population growth and you have more

08:40people looking and then you have probably more demand because those people are going to be

08:44consumers, uh, in that context. But outside of that, the jobs data kind of looks right. If we're

08:4978,000 and above. It's really helpful because I, I'm just like, you know, I understand population

08:54growth, but I'm like, how does it change so much over two years? But your explanation about, you

08:59know, like we're getting back from the COVID-19 we have, we have all these things happening. That's

09:03good. So from your perspective, even like, unless we have some new, you know, uh, something happened,

09:10like another, uh, another tech boom or something like that, like this is about where we should be.

09:15And maybe this is, this is the normal going out. Well, when you, when you look at it, for example,

09:20what's the one sector of our economy that's booming data centers, right? We have just when

09:27chat GBT, it's a really crazy chart. When chat GBT was created, data centers started to blow up

09:33higher. Like we spend more on data centers than we do commercial now, you know, uh, a building. And,

09:39uh, uh, so you have employment those that's something a robot can't do. They got to go build

09:44those things, but pretty much everyone else is kind of employed. Uh, and this is, this goes

09:50back to my work in the last decade. You know, people who followed me last, like I always said,

09:54job openings are going to be 6 million. They're going to be 7 million people. No, there's all

09:57these people unemployed. No, they're not. Like if it's, it's like, I used to make this argument.

10:01It's 10 years in this expansion. If you're still not working, that's you, right? It's not the economy

10:08homies. It's you. All right. Everyone else is working. And here we just have to realize when,

10:13when, when a country gets older, population growth slows down. Most people are employed. It's really

10:18hard to have high unemployment rates. Uh, so, but I think the break evens is where I differ from the

10:23federal reserve. Uh, so 78,000 above to me. Okay. You're, you're, you're, you're fine. 8,000. No,

10:30last year wasn't the case last year. We're just, but a part of that is, and again, I'm a labor

10:36over

10:36inflation guy, but the labor data needs to get weaker to me. Jobless claims is the key to everything.

10:42If jobless claims were heading to 300,000, that's one thing. But when we think about jobs Friday,

10:48they think wage growth, 3%, right? Fed wants 3% or under wage growth. Uh, and then breadth,

10:54right? One of the things that's happened in the ADP report and the last few positive jobs report is

10:59that the breadth of the labor data is picking up. The Fed loves to see that it isn't just, you

11:06know,

11:06healthcare services or, uh, social service jobs anymore. If you get breadth, they feel more

11:12comfortable. So wage growth, jobs over 33,000 and breadth, you know, you want more, more jobs

11:19being created in different sectors, uh, of the economy. And then you just kind of move it with

11:24that. Okay. So maybe clarify because you always have been a labor over inflation guy, but you wrote

11:29an article this week and we talked about it yesterday that you don't think that it's labor

11:33over inflation for mortgage rates right now. So maybe clarify that.

11:36Just because the jobs data is better this year than last year. If the jobs data was just as bad

11:41as last year, labor over inflation. I mean, you think about right now we have

11:46rising inflation before the conflict. Then you have the conflict. Now you have energy prices.

11:51The 10 year yield is at 4.46 because the Fed policy does not, they haven't gone to that.

11:58Let's get more restrictive stage because they want to make sure that the labor market is still in,

12:04intact. The labor data is better than what it was last year. So as an analyst, you are supposed to

12:09turn, right? We have, I still think we have too many people who are telling people that the labor

12:14data is we're going into recession and they're telling mortgage and real estate people what they

12:18want to hear. But if the data turns and you don't turn with it, that's on you. So job data

12:24is above

12:2533,000. Uh, you have breadth. Those things are not the things that happened last year, last year,

12:31labor over inflation. You could work with that, but the growth rate of inflation has picked up more

12:34in the jobs data. So those two things changed this year. You have to go with that and then model

12:41what

12:41you think about the economy at this point, which is different than last year. But hypothetically,

12:46let's just say we're only averaging three jobs, 3000 jobs a month. Jobless claims is at 280,000.

12:53Then the 10 year yield will simply go down because in a recession, you consume a little bit less

12:59and the growth rate of inflation can't really sustain itself. And usually oil prices tend to

13:04fall because kind of less demand for, for, for energy. Um, but in, in this case, everything kind

13:11of looks okay. Uh, uh, with the jobs data, it's really how the fed looks out for the rest of

13:17the

13:17year. Ooh, the fed is going to be so interesting all summer, right? Like it, you know, it is. And

13:25one

13:25thing we have to think about, there are conservatives out there that want to take away the dual mandate

13:31and, um, uh, remind us of the dual mandate mandate is basically, uh, maximum employment and price

13:38stability. So this has been brought up. This is part of that. I don't know the, that 25 playbook.

13:44I don't know. I've never, I never read that, but you know, there are people that want to take away

13:49the dual mandate and make it just about inflation. So I got that question yesterday and people said,

13:56well, why would they do that? Who's going to benefit the most? Uh, if you take the, uh, uh,

14:03jobs out of the dual mandate companies, right? What do companies hate a tight labor market? Why do

14:09companies hate a tight labor market, Sarah? It's because they have to pay more and they have to

14:14make sure that they keep their labor in check. So, uh, if you see this discussion going out for

14:22the rest of the year, and if this does get traction, so you have to be mindful if Kevin

14:27Ward starts to talk about this or, or, or people want to remove this, uh, if you take the dual

14:33mandate

14:33out, then, you know, uh, we can have a higher level of unemployment because, uh, uh, the labor market

14:40isn't tight and, uh, uh, uh, companies will love that because they don't have to fight for labor.

14:46That's something down the line, just keep an eye on it. But, uh, uh, the federal reserve is changing.

14:52There's going to be a lot of switching with Kevin Walsh. Kevin Walsh wants to change a lot of stuff

14:56out there. So the conflict within the federal reserve is going to get even more interesting.

15:01And then the labor data gets, I mean, what if the labor data starts to get softer and growth starts

15:05to slow down? How do they handle that? Uh, do you get more hawks turning back to doves? So

15:11we got to keep an eye on this, but the jobs Friday last year was very evident. Uh, this year,

15:18uh, not so much. I think it just, it makes the feds job a little bit more difficult with this

15:23conflict still going on. If the conflict ends and oil prices start to go down and diesel prices start

15:28to go down, you know, the, it's a whole different story, but as long as this is here, it's a

15:34little,

15:34it's a little bit problematic to talk about rate cuts, right? You know, the, the best Kevin

15:38Walsh could do is prevent the fed from hiking rates, uh, uh, later on this year.

15:43I think you've made that, um, you know, in several different articles recently, you've

15:47made that case for like, there is a case for mortgage rates to fall without the fed, you

15:51know, take the fed out of it, right? Just because mortgage prices are still good. If the conflict

15:55ends, we could get down, you know, we're not going to be in the fives, but you know, we could

15:59get down closer to 6.25, maybe even underneath, you know, it's to me, it's, uh, and I'll die

16:08on this sword. It's really rare for mortgage rates to get under 5.75% with neutral policy

16:14at three. So you need a lot to happen just to get to the low sixes. Every time we get

16:19to the low sixes, it's a growth scare, right? Every single time people think we're going

16:24into it. That means the bond market thinks we're going into recession. That's what they

16:29thought in 2022 to early 2023. That's what they taught in 2024. And that's what they thought

16:35last year. So the bond market is thinking, okay, growth is slowing down. Take the 10 year

16:41yield now. Now they're not worried about a recession and inflation is up. So just kind

16:47of remember you get to the low sixes that's, you know, realistically in this environment is

16:52as good as it gets, you know, 5.75 is the lowest I can go. And there's a reason for

16:56that.

16:57We don't just make up numbers, right? We take the history of the federal reserve and the slow

17:02dance between the 10 year yield and the spreads. If spreads were back to 160 and we're staying

17:07there, then you could get under 5.75 at some point. But, um, again, the, every single time

17:14rates got down to 6%, it's always been a growth scare. It wasn't because we're at neutral policy

17:19yet. If we get down to neutral policy, you get two to three more rate cuts. It's a little bit

17:22easier to get to the low six, much easier now with spreads, but almost back to normal, right?

17:27Now you understand why I value the spreads because I can't get to the low sixes without this coming

17:34down here. And, and we're not that far away from the low sixes, but it's, it's just a little bit

17:40more

17:40difficult with the conflict going on. Amazing. Okay. Anything else?

17:45Uh, just, just be mindful of wage growth and also be mindful of changes with the federal reserve.

17:53You know, uh, um, when, what Kevin Warsh is going to try to do, and I'm sure there's other people

17:58working with them, uh, uh, they're going to try to change the whole parameter. This is why Kevin

18:04Warsh was always the choice. The whole, everyone else was just a pony show, right? So in that case,

18:10uh, uh, expect big changes and we'll see, we'll, we'll take them and, and, and see what they can

18:17apply for mortgage rates. But, uh, I think it just gets, we're going to, we're going to enter a

18:22whole new dynamic in the second half of the year in 2027 and 2028 with Warsh and, and how he's

18:28going

18:28to view the federal reserve. But for right now jobs, anything over 33,000, you know, if wage growth

18:35still stays firm, it's hard for kind of rates to make a big move lower, but we're just here.

18:40It's got a 4.46. We're kind of here where we should be, get the conflict over, get oil prices

18:46down, get diesel prices down. And then maybe we could start talking about those two to three rate

18:51cuts. But, uh, remember those two to three rate cuts are just getting you to neutral policy,

18:56right? Just a level to where you think it is. We just have way too many hawks right now because

19:00the growth rate of inflation went up. Logan, thank you so much for breaking it all down

19:05for us. I appreciate you as always. And we'll talk again soon. Pleasure.

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