- 3 months ago
On today’s episode, Lead Analyst Logan Mohtashami talks about Kevin Warsh’s first Fed meeting as chairman and what his comments mean for mortgage rates.
Related to this episode:
Warsh era at the Fed begins with rate pause amid spiking inflation
https://www.housingwire.com/articles/fed-holds-rates-inflation-mortgage/
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The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.
Related to this episode:
Warsh era at the Fed begins with rate pause amid spiking inflation
https://www.housingwire.com/articles/fed-holds-rates-inflation-mortgage/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
Want more from Sarah? Don't forget to subscribe!
https://www.housingwire.com/subscribe/
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.
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NewsTranscript
00:09Hello, everyone. My name is Logan Moshami, lead analyst for Housing Wire. We have a special
00:14event today. Sarah Wheeler is not with us, so we're going to have some fun. We just got off
00:21the Fed Presser today, Kevin Warsh's first Fed Press meeting. A lot of interesting things to
00:28talk about, just remember with Housing Wire, we break all the news daily. If you go to the Housing
00:32Wire website, you can get the latest updates, especially the pending home sales data that I
00:38just wrote about as well. Not shocking to all of you that have listened to our podcast that pending
00:43home sales did beat estimates and showing almost 5% year over year growth. But let's get to the big
00:49picture. Kevin Warsh's first Fed event, and a lot of things are going to change. But we're going to
00:58start off by saying for the first time ever, Powell never really did this in the last few years. But
01:06it was somewhat of a pro kind of housing tip. He tipped his hat off. When they talked about,
01:13is monetary policy too tight? And they mentioned stock markets at highs, GDP still growing, job
01:22growth is still there. Kevin Warsh twice kind of hinted that when I look at policy, it's uneven.
01:30The housing market, based on the data, policy is too restrictive. That's kind of how I read it.
01:37For everything else, not so much. So the unevenness, that term that he used is similar to what he
01:46talked about many, many months ago. And this is why it was said for housing specific, Kevin Warsh is
01:50much better than Jerome Powell, because he talked about, well, housing has been in a recession and
01:56policies are too restrictive in that regard. That is basically him tipping his hat and acknowledging
02:04the obvious. Where Jerome Powell, when they asked him this question, if you go back and listen,
02:10he'd go, well, even it doesn't matter what we do, there's still going to be a shortage of housing in
02:16America. That's not the answer you want a Fed chairman to say like, come on, homies, that the
02:21best you have. You have all these staffers and everything. That's the answer you get for housing.
02:25In any case, for realtors and loan officers, that was a positive statement because that is something
02:31that he wanted to get across on the first day. A lot of things are going to change the dot
02:37plots
02:38and forward guidance. Forward guidance is over. This is where I agree with Kevin Warsh. I've not
02:43been a fan of the dot plots. I've not been a fan of Powell talking too much and people misinterpreting
02:52what he said. And all of a sudden, they have to play cleanup on that. So that to me is
02:59also a
02:59positive going out in the future. I'm pretty sure the dot plots will be terminated. There'll be no
03:05questions given if there are going to be any more questions given on forward guidance. They are not
03:10going to talk about forward guidance. That I totally agree about. But with the dot plots today, you had
03:17probably a lot more hawkish people than what others have estimated. Now, of course, the conflict is
03:24ending. Oil prices last time I checked was about $76. We're going to sign something Friday, whatever
03:33it is. There was an acknowledgement by President Trump today that for all of you that have listened
03:39to the podcast during this whole conflict, we said, if this goes past the second week of June
03:44and heads into the summer months and goes into September, we have Mad Max problems around the
03:50world even. He kind of re-edited that. I'm pretty sure the White House has oil analysts and oil
03:57people telling him, hey, listen, you could push it to about here and then you're really getting. So
04:01looks like something's going to be done. There are going to be people that are probably going to try
04:05to sabotage everything and all that stuff. But for now, the conflict is or oil prices are going low.
04:11That is very important because a lot of the hawkish members of the Federal Reserve over the last
04:15three months have noted that the conflict going up or lasting longer is a detriment and is a
04:23negative for the United States of America and against the fight against inflation. So we have
04:27taken one huge variable off the table for now and going out in the future, that'll be more of a
04:34consideration where Kevin Warsh kind of hinted that he can't give his dot plot estimation. He said,
04:41listen, you might as well have an eraser. Things are changing so quick. So going down the line,
04:46it looks like there'll be some realization that the worst is over on that. But there's no rate cuts
04:53in 2026. There are rate hikes in play. The market has properly priced in that the last few weeks. And
05:02when we talked about on Sunday night, when I wrote the article about where should mortgage rates go this
05:09week or where should the 10-year yield, if the conflict is done, the 10-year yield really should
05:13be between 4.46 and 4.48. We've been a little bit underneath that before the Fed press. The Fed
05:19presser just reaffirmed what I've been talking about, what a lot of other people talk about. All
05:23the rate cuts are off the system. Inflation is too strong and the labor market improved. Okay. So in
05:29that context, everything looks right where the 10-year yield is. As Kevin Warsh started to talk more
05:37and more toward the end, the 10-year yield went up to about 4.48. That's the last time I
05:42saw it.
05:42Looks pretty normal to where policy and inflation and labor is. Now that the conflict is over and
05:49the worst case scenario is off the table, we can go back to labor data, inflation data, economic data,
05:55but we're going to have to get used to a Federal Reserve that's not going to be that talkative.
05:59He also talked about creating a task force, bringing other forms of data into the equation
06:09of figuring out where inflation is, where the labor market is. The old ways of looking at data
06:15are not sufficient enough to a modern day economy. So I joked about this on X that,
06:21oh, if you want housing, get the fastest housing person in America right now with our tracker data.
06:26Um, in this regard, we're going to get something much different, probably, you know, especially
06:31going out 2027 and on and, you know, uh, Kevin Warsh will be here for a while. So there are
06:36going
06:36to be some material changes, but those material changes in terms of killing the dot plots, not
06:42giving a forward guidance. I I'm all for that, that, that to me, I believe that'll be a positive
06:49because we always get some conflicting views and takes when Powell says something off cuff that he
06:55didn't really mean. And then it's just confusing the marketplace. So in that regards going out in
06:59the future, that's good. But what we all know for sure is that the growth rate of inflation
07:04was too strong this year and the labor data did improve. Now, when, when Kevin Warsh was talking
07:11about the labor market in regards to what some of the hawkish people were saying, they weren't saying
07:16that the labor market is just okay. They were saying, Hey, it's good. It's accelerating.
07:20This goes back to what I've talked about over the last, uh, um, two months. I believe the federal
07:27reserves break-evens break-evens are the amount of jobs you need tied to the labor force, uh, to keep
07:34the unemployment rate at bay. I believe their break-evens are around 33,000 because of labor
07:40force growth, uh, uh, is so slow. My break-evens are a little bit different. They've been at 78,000.
07:46So the labor data looks fine to me in terms of what the break-evens are, how jobs are being
07:51created. If I take the 12, six and three month, I average it out. We basically the second half of
07:572026, the labor data was, uh, getting softer, negative reports. Now we've come back. I attribute
08:04that to what I've always said. First year of a trade war, all hell breaks loose. Nobody knows what
08:08to do. The second year tends to improve. We're seeing an improving slope here. Average it out looks
08:14okay, right? Um, I, I'm pretty sure the people who say it's robust is Beth Hammock,
08:20Lori Logan, and Austin Goolsby. With all that said, uh, uh, we have to think of this now going
08:26out and forward on the economic side. The growth rate of inflation has to come down, right? You
08:32cannot have commodity prices, copper prices, steel prices, all these things without paying the
08:38consequences. And we've seen that already. The federal reserve went into this year saying,
08:43well, we believe the tariffs are a one-time price off inflation. We accept that the inflation will
08:49be hotter because of that. And then it kind of wears itself off. So that is something that for
08:54the second half of 2026, now that the conflict is over oil prices are last time I checked with
09:00$76. I mean, we were ranging between 67 and 82 for a while there. And the federal reserve was not
09:05saying anything about energy prices. So the faster we get oils, ships flowing and oil out there,
09:11we could get that part of the equation. But now it goes off to, if the federal reserve really
09:16believes if their tariff one-time inflation wipes itself off, then maybe we could get a little bit
09:23more dovish tone by some of the hawkish people. But for now, uh, going out, just kind of think of
09:29this. There's no more rate cuts this year. The question is rate hikes. So you got a 50 kind of
09:3550
09:36split really on that. Uh, there's some people that want to hike rates probably right now. Uh,
09:41there's some people that want to just hike once or twice, but whatever it is, getting the fed funds
09:45rate back to neutral policy, 3%. Uh, uh, nobody kind of sees that right now currently. So it's just
09:53going to get harder to get mortgage rates under 6%. Very difficult to get it under 5.75. That's the
10:01mindset you should all be working off right now. Now, the only thing that changes this variable,
10:07if the labor data starts to get softer. Now we're going to have one or two months of job growth
10:12being
10:12pushed by world cup hirings. Okay. Uh, uh, so once you exclude that, it really depends on what the
10:18federal reserve is looking at in terms of the breadth of jobs. Is that going to be the main indicator?
10:23Uh, because in 2023, 2024, and even, uh, um, early this year, the 10 year yield really is only broken
10:33under 4% when we have a labor growth scare, right? When the economy is faring, it's going into
10:39recession, labor markets getting away. That's the only way we get under 4%. I always say it's very
10:44hard for me to get the 10 year yield under 380 with neutral policy at 3% out there. So
10:49fed or fed funds,
10:51neutral policy 3%. Now it's not the case right now when nobody's talking about that anymore. So
10:56we have to change our mindset going out. And because of that, because the market adjusted
11:02where the 10 year yield and mortgage rates are right now looks pretty acceptable. Uh, it'll be
11:07more interesting to see what Kevin Walsh, if he wants to discuss about this, his statements of
11:15monetary policy is uneven. It's basically in short, he's saying it's too restrictive for housing,
11:22but for everything else, it's okay. Right. That is the most interesting aspect of what I saw because
11:28of all of you that are listening to this are pretty much a real estate or mortgage or consumers,
11:34maybe, uh, looking into the housing market. That is something we'll see what the task force
11:39or Kevin Walsh wants to highlight what that means. But as of right now, the 10 year yield where it's
11:45at, where mortgage rates are at with spreads, but by the way, hug a mortgage spread. Think about the
11:51housing data this year of mortgage spreads. We're at 2023 levels, 2024 levels, 2025 levels,
11:57right? We're above 7% the whole time. So to reemphasize Kevin Walsh's point, that restrictive
12:04policy is really more of a housing thing than anything else that makes more sense. But because
12:09mortgage spreads have improved and have gotten better, uh, um, it is less restrictive than it
12:14would have been the last few years out there. So that is kind of the short and sweet version of
12:21looking at, uh, uh, what this Fred press meant. There's a lot of things going to change, but a
12:27positive, the dot plots are ending positive. The Ford guidance are ending. I don't know what the hell
12:32the task force is going to come out with. That'll be probably something down the line, but they're
12:35going to look at more private sector data to get more, uh, information that doesn't need major
12:41revisions and stuff like that. Okay. Cross that bridge when we finally get there, uh, uh, in that
12:47regard. So I thought in general terms, it was a positive in terms of some of the things that were
12:54said for the housing market. Uh, obviously there was a little bit more hawks than what some market
12:58participants were looking for, but also take it with somewhat of a grain of salt. It's just this
13:03week that the conflict is ending. We'll see what happens six weeks from now, but it's going to be
13:09a much more condensed, less talkative federal reserve going out of future. The statement paper
13:15that used to be one full page is this condensed to just a few sentences, uh, out there. Besides of
13:22that, uh, let's just think about the economic data that came out today. Retail sales, 6.9% year
13:27over year growth, uh, uh, uh, beating estimates on a month to month basis. Uh, uh, the economy,
13:32not only is the labor market, uh, picking up retail sales has picked up the last and all of this
13:36going
13:36with, you know, higher energy prices as well. Uh, housing pending home sales came in as a beat
13:41of estimates and not shocking in everybody, uh, year over year growth, almost 5%. Always remember
13:46not the biggest fan of the NAR is pending home sales percentage. Sometimes it accelerates too much
13:51to the upside to the downside. I always, I'm biased here. I always prefer our weekly pending sales
13:56data to give you a trend, uh, but not shocking to any of you that have listened to us. Uh,
14:01housing
14:01data is performing a little bit better with higher rates. Uh, in the article that I wrote today, I gave
14:06you the two key variables. I showed the charts. Why, why is it different this year than the last few
14:11years? Uh, of course, inventory being high, not inventories down three weeks in a row, negative
14:17year over year, but we are much healthier levels like 2020 to 2023 was the unhealthiest housing inventory
14:23levels of my lifetime. You know, and I'm not talking about what it was in 2008. I'm talking
14:28about price inflation with inventory that low with over 162 million people working, not a good thing.
14:34Uh, but because we're, uh, at elevated levels from the lows that we had in March of 2022, positive
14:41that price growth has really cooled down, uh, and wages have outgrown or outpaced, uh, home price
14:47growth. That has given a little bit more of a firmer footing and also mortgage rates. It's the
14:52lowest mortgage rate curve. Just, uh, start the year in the first six months in, in 2026,
14:58then in 2023, 2024 and 2025. So the basic principle has always been that when mortgage rates get below
15:046.64 head down towards 6% housing data tends to improve because it's working from a, a kind of
15:11a
15:11softer negative trend of data. The improvement gives you that slope. We always talk about waves
15:17and channels, right? Housing data, sales data has been waves and channels, right? You get near 6%
15:21demand picks up. You go above 7% demand fades. Now rates went up 75 basis or 76 basis points.
15:29At one point housing held up firmly. Like my forecast was only for 237,000 more existing home
15:34sales growth this year. If rates stay six and a quarter under, we might be able to still hit that
15:38today with even rates going up higher. So we'll take it as is going out for the second half, uh,
15:44purchase application data had its traditional week to week decline. It does this, uh, this week,
15:48goes down 3% of 5% a year of year. Normally at this time, the seasonality is over with
15:54purchase
15:55application. Usually after the end of May volumes tend to fall, but that was pretty much a normal
16:00slope, uh, uh, in the last decade, but that's usually the case with purchase. That's what we'll
16:05keep an eye on everything on our weekly tracker. Again, for all of you that are listening, that are
16:09not subscribers, uh, podcast 20, you could get a 20% discount. Not only do you get my tracker that
16:15we
16:15teach economics, right? I'm hopefully by now, right. If you guys go to X and look at my, uh,
16:21pinned, uh, profile tweet, when I went on CNBC a few months ago, I said, housing data is positive
16:26guys. We're, we're seeing year over year growth. Uh, the only way this really, uh, uh, uh, goes away
16:31is if mortgage rates, if the conflict takes rates above, you know, uh, 6.64 ahead above 7%. Now that
16:38we're here, I highlighted pretty much every week of our work. We like to show our models, right?
16:43We like to show our work. And now that it was well over a year ago, we said the housing
16:49market
16:49shifting. What do we know right now? Inventories down year over year, slightly, uh, home sales are
16:55positive slightly on a year basis, but this is with rates down here. Now if rates got back down
17:00near 6%, all of you know what the data typically looks like at some point in the future, the sale
17:05levels are going to be higher and the bar isn't going to be as low, but for this year, hopefully
17:09the first six months makes sense. And the pending home sales data wasn't a shock to all of you out
17:14there, but to top it all off, the last thing I want to say, we have a new regime. Kevin
17:21Warsh was not the guy I wanted hashtag nobody, anyone, but Warsh, but I thought he did a good
17:26job in outlining what he wanted to do, uh, which is going to be much different. And there
17:31are some things about him that, uh, in terms of killing the dot plots. Yes. Uh, in terms of
17:37forward guidance, yes, you know, uh, going, going ahead for that, uh, is good. My confliction
17:43with Kevin Warsh is that I believe when president Trump leaves and if there's a Democrat in my
17:47house, we're going to get Kevin Warsh 1.0. I hope I am so wrong. I hope I am so
17:53incorrect
17:53on this that he kind of stays in the even keel out there. Uh, but time will tell we'll cross
17:59that bridge. That's a long way out out there, but for now, um, stable housing demand, stable
18:05inventory prices aren't accelerating or anything like that as healthy as you could get in this
18:09current situation. Uh, the federal reserve chairman gave a nod to housing twice. I thought
18:13that was interesting. Uh, uneven policy is, is going to be a good talking point going out
18:18in the future and we'll take it from there and we'll take the weekend tracker when it
18:22comes up. But, uh, I miss Sarah, but I got to be able to talk fully without being interrupted.
18:28So hope all of you, uh, read the tracker and read the article, and then we'll see you guys
18:33very soon.
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