Will mortgage rates get back to 7% this year?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the chances of mortgage rates getting back to 7% this year.   Related to this episode:   Why it will be hard to get mortgage rates over 7%  https://www.housingwire.com/articles/why-it-will-be-hard-to-get-mortgage-rates-over-7/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   The Top 5:   Why aren’t mortgage rates lower?  https://www.housingwire.com/articles/mortgage-rates-fed-hawks-2026/  When AI listing videos look too real: the disclosure test agents need now  https://www.housingwire.com/articles/ai-listing-video-disclosure-test/  Mortgage rates rise past 6.75% as inflation uncertainty persists  https://www.housingwire.com/articles/mortgage-rates-rise-fed-hawkish/  Kelley Blue Book launches home valuation platform  https://www.housingwire.com/articles/kelley-blue-book-homes/  Why it will be hard to get mortgage rates over 7%  https://www.housingwire.com/articles/why-it-will-be-hard-to-get-mortgage-rates-over-7/   Want more from Sarah? Don’t forget to 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.

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the chances of mortgage rates getting back

00:07to 7% this year.

00:08First, let me recap the top five trending stories at HousingWire.com.

00:12At the top of that list is Logan's article, Why Aren't Mortgage Rates Lower?, followed by When AI Listings Look

00:19Too Real.

00:20Then we have Mortgage Rates Rise Past 6.75% as Inflation Uncertainty Persists,

00:26and our coverage of Kelley Blue Book, Launching a Home Valuation Platform.

00:31Finally, Logan's article on why it's hard for mortgage rates to get back to 7%, which is our topic today.

00:48Logan, welcome back to the podcast.

00:50It is wonderful to be here. You know, we kind of broke the rules.

00:53We're not supposed to have a Iranian conflict during the market week.

00:57That's supposed to be for the weekend. What's going on here?

01:00What's going on here? But it does set up the question I want to ask you today, which is,

01:05given all that's happening, given a potential re-acceleration, maybe oil prices go higher,

01:11do you see mortgage rates, do you think they can get above 7%?

01:16So, we wrote this article yesterday, kind of outlined, why hasn't it been hard to get mortgage rates above 7

01:23%?

01:24You know, we have rising inflation, we have a better labor market than last year,

01:29and we had an Iranian conflict, and oil prices got above 100%.

01:34Now, if I would have said that to any human being on planet Earth in the last three years,

01:41every single one would, oh, mortgage rates are above 7%, I'm going to go, okay.

01:47Except mortgage spreads, right? Mortgage spreads have been better.

01:52And also, we have to remember, Fed policy is actually less restrictive than it was in 2023,

01:58when Fed funds rate was over 5%, and the Fed was still being very hawkish.

02:05Now, they've gotten a lot more hawkish this year compared to last year,

02:09but we're not anchoring our Fed funds rate too much higher than what the market is pricing right now.

02:16So, you know, for mortgage rates to get above 7%, a lot does need to happen.

02:23And we sit here Wednesday morning, the 10-year yield hit 460, bounced off of that,

02:30who knows where it will be by the time this podcast airs.

02:33But it's been difficult for the right reasons.

02:37Policy is not that restrictive yet to get yields to go too much higher than where they are right now,

02:44and the spreads are better.

02:46And this is one of the reasons why, before I start every year,

02:50I have a range of where the 10-year yield can,

02:52and it tries to encompass everything that could possibly happen in that year, the 10-year yield.

02:58The 380 is the low point.

03:00We never go below 380.

03:01That's the corridor line.

03:03And we don't go above 460 because of Fed policy.

03:07Now, clearly, I believe I was wrong this year.

03:11I had 460 on the high end.

03:13We would probably not have reached 460 without the Iranian conflict.

03:17Even with better economic data and inflation picking up, every time we get here,

03:23it's because the conflict is getting out of control.

03:25So today we're just going to talk about what actually does need to happen for rates to get above 7%.

03:31The reason that's important, because in previous years, when rates get above 7%, housing demand slows down,

03:36and we pretty much don't go anywhere.

03:39But this year, we're showing growth.

03:41The forward-looking datas are all positive.

03:42So this could be a big game changer if it does occur in the second half of 2026.

03:49So let's talk about that 460 range a minute, because it's a little confusing to me when you're like,

03:54oh, I was wrong on my forecast.

03:56It's like, but we're at 460.

03:57That was your high level, and we hit 460.

03:59But you're like, no, it's wrong because it got there for the wrong reasons.

04:04So I thought that's interesting.

04:05Like, for you, it matters why we do something, not just that we hit something.

04:10I always care about the why more than the final result, because you could get, you know,

04:17and, you know, a good example is in 2022, my price forecast was for slower price growth and around 6%.

04:29But we ended up around 6% only because we had the biggest crash in home sales within a calendar

04:37year,

04:37and rates went from 3% to 7%.

04:39Because we would have been, again, 18%, 17%, 18% home price growth if rates didn't go up higher,

04:46and they needed to go a lot higher in a very fast amount of time.

04:50So even though the forecast was technically right, I care about the why.

04:53I always care about the why.

04:55I don't care about so much of a forecast.

04:57I care about the why, because every single day you go over the why, you know.

05:01And clearly, of course, the Iranian conflict was not on anyone's radar in December or early January,

05:08when people were making forecasts.

05:10But we have to adapt through things.

05:12Like, we don't ever stop.

05:13We don't ever sleep.

05:14We don't ever not hold your hands.

05:16We're here 24-7.

05:17We don't believe in forecasting without a live model to track.

05:21I mean, that's why the tracker was created.

05:23But here, clearly, 460, or we were briefly above 460, the last time all the drama happened.

05:29But now with oil prices, I mean, oil prices, the last time I checked, was like 74 or 75.

05:34We are nowhere above 100.

05:36And rates never really fell, because policy has gotten restrictive from where it was at the start of the year.

05:43But it's not too restrictive to really, like, push yields to go much higher, or maybe the spreads get much

05:50worse.

05:51And this is one of the reasons why mortgage rates were not part of the forecast of 7%.

05:56And even for me, like, adapting to all this drama, I could maybe go 0.37 to 0.435%

06:05above 6.7.

06:07But you need the economic data to do well.

06:09You need the Fed to get more hawkish.

06:11You need this conflict to keep, you know, happening.

06:14Stuff like that can maybe get you a little bit higher.

06:16But we're not having, you know, what we saw in 2023, or even in 2024, when rates got up to

06:237.5%.

06:24We're sitting here kind of slightly below where the peak of the forecast was.

06:30And we kind of go with it on a day-to-day basis.

06:32But now everyone could kind of go with it every single day.

06:36We don't want people to sit and wait.

06:39We want to be live 24-7, because I don't have a life.

06:43And we could explain these things.

06:47And, you know, if the conflict ended and things come down and bond yields come down, we know the reasons

06:53why.

06:54And then we try to move on with that.

06:56I think it's, you know, this is obviously good news to say that, you know, like, you don't see.

07:01There is a path for rates to get over 7%, but it's a pretty, you know, it's not an easy

07:06path from here.

07:07It's the same reason, you know, people wanted to see mortgage rates fall when oil prices fell.

07:12They wanted them to fall farther.

07:14And it's like, in both cases, what you can see is that it's not the Iran conflict that's driving the

07:19bus here.

07:20It's the Fed.

07:21The Fed getting more hawkish to me was the reason why we said the base level of mortgage rates now

07:27should be 650 to 675.

07:29And the 10-year yield, 446 to 448.

07:32And we just work off of that.

07:33So what happened recently?

07:36Well, the 10-year yield started to go up higher.

07:39Why?

07:39Because the conflict came back into play, right?

07:42It wasn't because of anything in the day.

07:44We started shooting missiles.

07:46We started shooting a lot of missiles.

07:48And we're talking back and forth about this and that.

07:51And it took the 10-year yield all the way to 460.

07:56Now, we bounced off of that level.

07:59We're a little bit lower right now this morning.

08:01But you can see how much everything has changed due to the conflict, which nobody was thinking about.

08:08But we have to operate in it, right?

08:10I don't have to try to figure out why Trump is doing this or what was the baseline to get.

08:16I just have to figure out how does a 10-year yield of mortgage rates act?

08:20So we listed a bunch of things that I need to see happen to get rates above 7.

08:25And we're talking barely above 7.

08:27And they have to stick.

08:29Those variables have to stick.

08:31Because if those variables aren't there, then things change.

08:35It just makes this next July, at the end of the month, the Fed meeting, much more interesting.

08:41Okay, so what are those things?

08:43Outline what those things are that you have to see.

08:45Well, first of all, the Fed stays hawkish like they have.

08:49You can't have some of the hawks peeling off in the next Fed meeting because oil prices have fallen.

08:57Right?

08:58So I'm not weighting oil prices falling as much as other people have.

09:03I'm weighting the Fed policy because the labor data got better.

09:06So the labor data is another variable.

09:08It has to stay good.

09:10It can't be.

09:11Now, again, I believe the Federal Reserve is saying 33,000 jobs per month is okay.

09:17Right?

09:17My break-evens are different.

09:19But at 78,000, you know, you take the last six months, we're slightly above that.

09:25So the labor data has to stay for, and the consumption data, right?

09:29The U.S. is a consumption-based economy.

09:31It has to be able to consume goods and services for the cycle to move.

09:34That has to stay very solid for these things to actually work.

09:39Fed stayed hawkish, elevated economic data.

09:44And no matter what happened to oil prices, we never went anywhere close to 6%, even with oil under 70.

09:52Right?

09:53The 10-year yield, things have to change.

09:56And for me, it's like my job is to try to get people off of the one-to-one with

10:02oil trading kind of thing.

10:03Because that's very common.

10:05A lot of people are so used to that.

10:06But we've never had a period where we went into the year, two to three rate cuts being priced in

10:13at some point.

10:14Then all of a sudden, a conflict happens, oil's over 100, and the Fed got more hawkish during that period

10:21of time.

10:21And they haven't let it go.

10:23If Beth Hammock came out and said, well, now that oil prices, I could be less hawkish, that would be

10:29a big, big-time change.

10:31Didn't happen.

10:31If Neil Kashkari said, I have no rate hikes penciled in, I have no hikes, maybe a cut, that would

10:41be a big change.

10:41That didn't happen.

10:43Christopher Waller, Fed Governor Waller, who was labor over inflation, he basically said the labor market flipped and inflation's rising.

10:51So the Fed governors are changing policy through their language.

10:55Those have to stick out there.

10:56So trying to explain why rates aren't above 7, the spreads are the big thing.

11:01But to get it above there, you need these things to keep pushing higher, and they can't alleviate, right?

11:08Economic data can't get softer.

11:10The Fed can't get more dovish.

11:12And that's why we're still roughly in this range in the forecast.

11:17And I started doing this 11 years ago, where we just take the 10-year yield and work off kind

11:23of the spreads of where policy is.

11:24Back then, we had zero interest rate policy.

11:26So we eventually raised rates a little bit, and yields got to the higher end of the forecast.

11:33But here we are, and it kind of makes sense if you believe, like I do, that 65% to

11:3975% of where the 10-year yield and mortgage rates can range is Fed policy, right?

11:44And the Fed was the big driver, and the big driver for the Fed is the labor data got better.

11:50So I think, you know, you've talked about mortgage spreads.

11:53Hug a mortgage spread.

11:54You've been like, you know, they're the reason that we don't have rates above 7% so far this year.

12:00And I think the interesting thing is the fact that they absorbed the volatility on the way up and on

12:05the way down, right?

12:05Like from both sides.

12:07Do you see anything so far this year with the Iran conflict that is changing the mortgage spreads?

12:14I think what's occurred is people thought the Iran conflict would push spreads much higher, except that's not really how

12:23it works.

12:25Unless the Federal Reserve is guiding rates to be aggressively higher, but you need like a market stress event, something

12:33where credit is breaking.

12:35You know, like what we saw in 1986 when mortgage spreads went above 3%.

12:40We didn't have a recession.

12:41It wasn't like the Fed was aggressively hiking or anything like that, but we had credit stress.

12:46And that was a bane event back in that time.

12:49In fact, it's how we track spreads.

12:51It's really rare to be above 3%.

12:53We saw it in 1986, and we saw it in 2023.

12:56What happened in 2023?

12:59Silicon Valley.

13:01What happened in 1986?

13:02Banking crisis.

13:03So they could get the spreads higher, but the Fed was hiking rates into a banking crisis event that they

13:08were trying to clean up.

13:09So I think a lot of people just thought the spreads would just shoot right back up high.

13:13That's really kind of not how it works unless you have like a credit market stress.

13:16Or let's say a really quick recession comes out of nowhere, and then all of a sudden people are worried

13:20about they're not going to get paid, you know,

13:22because people are going to start losing their jobs.

13:24We saw that with the great financial recession and COVID, but we've had recessions where the spreads go lower.

13:31I think a lot of people think that when you always have a recession, spreads get worse.

13:35That's not the case.

13:35We've had many times where the spreads actually get lower into a recession.

13:38So I just think everyone has a life but me, and because everyone has a life, they don't study the

13:45history of spreads.

13:46And, you know, I'm trying to like explain this to even traders out there.

13:50It's like, guys, guys, you are like incorporating new models for spread of behavior, and that we just, it's not

13:57the case.

13:57And then when you look back in the history, you're like, ooh, why?

14:00And this is why we believe the history of human civilization.

14:04Those that read have an advantage over those who don't.

14:07So the spread should behave unless the Fed gets really hawkish or we have some kind of credit event, right?

14:15You know, like to start the year off, a lot of people thought, well, mortgage rates will go lower because

14:19private credit is breaking.

14:21And this is the big reason for the recession because everything is credit data to 2008, and nothing's happened.

14:27You know, we got no AI taking all the jobs.

14:32We didn't get the credit.

14:33Remember the commercial loans that people were talking about?

14:35Oh, yeah.

14:36And the commercial bank is going to break.

14:37And, you know, I said, listen, the Fed could clean this up anytime they want, and the market knows the

14:42Fed could clean it up.

14:43So why would markets trade knowing that the Fed could just snap their fingers and clean all the mess up?

14:49You know, who wants to lose money for their clients so they get fired, so they get no bonus,

14:54and somebody back home gets mad that you're not working?

14:58Right?

14:58Bond traders are here to make money, people.

15:01They're not here to do ideological.

15:03That's why the bond vigilante things that people have been talking about for decades and decades,

15:07oh, where are they at?

15:09No.

15:10Fed policy runs the show.

15:11We can have market events, but for now, spreads are intact.

15:16But we'll keep an eye on everything going on in the future.

15:19So we are going to have such an interesting Fed meeting.

15:22That's going to be the end of this month.

15:24It is being set up, in my opinion, to be just a fascinating meeting because you do have all these

15:32Fed hawks who have said,

15:33like, you know, they tied it to oil.

15:35Oil has changed.

15:36They haven't changed their mind.

15:38Then you have, you know, of course, our new Fed chair, Warsh.

15:40He's going to want to see lower rates.

15:42Like, it's going to be tough.

15:44So let me kind of give Kevin Warsh a bit of advice.

15:49If you are going to allow the dots to go on for this Fed meeting, you're going to have to

15:57vote, homie.

15:59If you're allowing your coworkers to do the dots and the Fed chairman is not putting it on, you've got

16:07to step up and play ball.

16:09You're the guy.

16:10You don't have the luxury of not saying anymore, well, I'm not going to say because my things can change.

16:15A lot has happened.

16:17You've got to own it now.

16:18Now, if you're going to take the dots off, I get it, right?

16:22But if you are allowing your coworkers to do the dots, because there's a lot of people say, why didn't

16:27he vote?

16:27There's a lot of conspiracy theories why he did it.

16:29But in any case, you know, boy, the shift of hawks versus doves can change if you want to play

16:38ball and put it up there.

16:39So it doesn't take much to have more doves than hawks, but it just makes it interesting now that oil

16:46prices are stopping.

16:47Even today, it's 75.

16:47So I just think there's a lot of hawkish people that didn't want to do that extra rate cut last

16:53year, and they were kind of forced because we were at the lowest job growth in the 21st century.

16:58Mind that only two sectors kept employment up.

17:01That was the softness of the labor market.

17:02Okay, a lot of things were happening.

17:04Godzilla tariffs, government shutdown.

17:06So those things have changed.

17:08So now I think it's a little bit more.

17:09They feel a little bit better about that situation going out in the future.

17:14Fascinating.

17:15Okay, Logan, thank you so much for staying on top of this.

17:17I think you're writing – you're averaging an article a day for the last couple of months.

17:23You've just written so much, which I really appreciate.

17:24That just means there's a lot of drama that, you know, doesn't need to probably happen.

17:27But this is the world we live in.

17:29No normal years post-COVID.

17:31So, you know, but again, all analysts need to take the role of being a leader in a time of

17:39chaos.

17:40Right?

17:40I've always said I'm an agent of chaos.

17:42I love it.

17:42You know, when COVID happened – remember COVID?

17:46COVID-19 recovery model, game's on.

17:49The 10-year yield is above 62 basis point.

17:51The St. Louis financial stress index is lower.

17:53The recovery is starting today.

17:55Y'all, people are like, you crazy.

17:57We aren't – I'm not crazy.

17:59You're crazy.

18:00This behavior can't last, right?

18:02So the markets are already telling you, game's on.

18:05So – and that was pretty much the bottom of economic activity and the markets and everything.

18:11And the rest is history.

18:13So, again, chaos.

18:15People have to step up in chaos.

18:17Because like in the movie Gangs of New York, blood stays on the blade.

18:21We never look away.

18:23Never look away.

18:24You bring that out on Twitter quite a bit, don't you, the Gangs of New York stuff?

18:29Hey, my Twitter account is silent, man.

18:31Nobody wants any – they finally smartened up.

18:33They realize I'm baiting people into live debates so I can get their namespace of forecasts and models.

18:38And they have none.

18:40So I actually enjoy the quietness of X now.

18:46Amazing.

18:47Okay, Logan, thank you so much.

18:48We'll talk again soon.

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