Inflation misses estimates but rates still elevated

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the June inflation report and what it means for mortgage rates.   Related to this episode:   July rate hike should be off the table with big June inflation miss  https://www.housingwire.com/articles/june-cpi-monthly-inflation/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   The Top 5:   July rate hike should be off the table with big June inflation miss  https://www.housingwire.com/articles/june-cpi-monthly-inflation/  What the ROAD to Housing Act means for agents, homebuyers  https://www.housingwire.com/articles/what-the-road-to-housing-act-means-for-agents-homebuyers/  JMG Brings $5.9B Teamerage Platform to Keller Williams  https://www.housingwire.com/articles/jmg-brings-5-9b-teamerage-platform-to-keller-williams  Iran Conflict Lifts Mortgage Rates but Housing Demand Stays Positive  https://www.housingwire.com/articles/iran-conflict-lifts-mortgage-rates-but-housing-demand-stays-positive  MBA analysis finds minimal pricing impact from single credit score approach  https://www.housingwire.com/articles/mba-single-credit-score/   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.

Transcript

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

00:16June inflation report and what it means for mortgage rates. First, here is the recap of

00:21the top five trending stories on housingwire.com. At the top is Logan's article, July rate hike

00:26should be off the table with big June inflation myths, followed by what the Road to Housing Act

00:31means for agents and homebuyers. And JMG brings 5.9 billion Team Ridge platform to Keller Williams.

00:39Wrapping up the top five is the tracker, Iran conflict lifts mortgage rates, but housing demand

00:44stays positive. And MBA analysis finds minimal pricing impact from single credit score approach.

00:50Great content over there. And remember, you can get 20% off your subscription with the code

00:56podcast 20. Okay, we're ready to focus on today's discussion. Logan, welcome back to the podcast.

01:02Again, it's wonderful to be here. We're going to have a very, very nerdy discussion because

01:08a lot just happened this morning. And it wasn't just the big inflation

01:16miss. There's a lot going on because initially, the 10 year yield had a waterfall dive because it

01:23was elevated. Because, you know, as we talked about yesterday, it was Christopher Waller that said,

01:30oh, my Lord, if we get another month to month print, or, you know, inflation is hot, we got a

01:35hike race in July. So if you're making vocal policies off of a number that you don't have,

01:42then all of a sudden, it comes as one of the biggest misses in history. Then it's like, well,

01:48wait a second, homie, y'all been talking about core inflation month to month. And look at that

01:54super core is even negative. So bond yields had a waterfall drop. But then it's slowly moved up

02:00throughout the day as Kevin Walsh was talking about it. And I'm sure there's other Fed people

02:06making still hawkish tone. So I understand that people are confused. They thought rates might be a

02:13little bit lower in the bond yields. But just remember, until the Federal Reserve makes more

02:20dovish statements, and we're not going to have like supposedly any more forward looking statements.

02:25We're kind of up here. And, and when we wrote that article in May, it just said the base level

02:31six and a half to 6.75. We've stayed in that range, regardless of what oil prices have done,

02:38because the Federal Reserve literally did not say anything positive about oil prices falling. They said

02:42negative things when oil prices are up and not positive. So we're going to go over that today

02:47and, and talk nerdy. Okay, you know, we love that. Okay, so just to follow up from yesterday,

02:54and, and your article July rate hike off the table.

02:58If Williams and Waller are saying that the month to month data is what matters. And if we get another

03:04hot print, you know, July has to be on the table. You cannot with any kind of integrity,

03:13like hike rates now. And that's the problem of relaying a message to the marketplace with a

03:19data line that you don't have. And then all of a sudden, it comes as a huge miss. Now people

03:24are

03:24like, hey, guys, what's this? You're, you're all we know is that mortgage rates have gone up,

03:31oil prices are down, that inflation had a big miss, and you're all talking hawkish.

03:36It's confusing, right? It gets confused. And this is one of the reasons why Kevin Warsh doesn't want

03:40people talking. Because it's, it's like a slap in the face, like, well, hello, McFly. Now what?

03:48Why don't you come on air right now? So it's, it's complicated, right? So that was a very,

03:57very big miss. And in normal times, the 10 year yield might have dropped 10, 11 basis points,

04:03because we are working from an elevated level. But just, just from my point, I don't think the Fed

04:09even cares about this. They want to sound as hawkish as possible until they see, you know,

04:16the conflict ending, and then a few reports like this. So even Kevin Warsh came out and said, you know,

04:23job's not finished. You know, we, this is just one report. But this was a very, maybe a good wake

04:32up

04:32call to some of the Federal Reserve on, you've got to be a little bit mindful if you're going

04:36all in. And then you have a report like this, you can't, you're not going right back on the mic

04:41and

04:42saying, hey, so it is what it is. Well, let's talk about why mortgage rates didn't, or, you know,

04:4810 year yield didn't fall that much. Mortgage rates didn't fall that much given this. Is it that,

04:52is it the conflict? So when we start every year, we always talk about, I don't care about a forecast.

05:00I care about like a model or how we track things. We don't forecast mortgage rates here. We forecast

05:07the 10 year yield and basically around Fed policy. So, so to me, the labor market improving first was

05:14the most important thing in terms of where mortgage rates could go this year. And it did. Then on top

05:20of everything else, the conflict happened. Now, before the year started, the Federal Reserve as a,

05:27as a whole told the marketplace that we believe that inflation is going to be a one-time price off

05:34and that it should start rolling off. It started rolling off. So what happened was what the Federal

05:40Reserve has talked about. And because it was rolling off, they had basically said, okay,

05:47we could maybe get two to three rate cuts at the end of the year or toward the end of

05:52the year,

05:53something to that nature. Well, here is something. Then the, see, the conflict has,

05:59has incorporated a, a high chaotic variable. I mean, just for example, yesterday, the president

06:06with a pirate hat said, argh, 20% fees for coming in here. Arr, give me that booty, you know?

06:15And

06:16people are like, what? Like, what do you mean 20% fees on, on, on, on transport? And now he's

06:21walked

06:22that back. We're just making stuff up now in the Middle East. We're just throwing stuff up in the

06:26air. So because it doesn't look like the conflict is ending. So it's not like oil prices are a hundred

06:33or 110. I mean, when we talked about oil prices, we thought 67 could be the bottom, right? You know,

06:39if, if, if things are, are, are, are, are back to normal. Well, 67 to 82 is a very perfect

06:44trading

06:44range. And here, here we are in that, in that range. So to me, it's the federal reserve is still

06:51sounding hawkish. And because of that the 10 year yield can, can stay up here, right? You know,

06:59closer to the peak of the forecast until you get a little bit more dovish tone from them or the

07:05labor

07:05data gets softer, but for right now they're running the show and they move the curve up higher.

07:11So even on a day where inflation was a big miss, we didn't see too much movement.

07:17So you mentioned the fact that Warsh was speaking, he's testifying before Congress. He's in a tough

07:23spot. Right. Although at least with inflation coming in as a mess, then it's like, okay, he's probably

07:30good for taking the rate cut off the table. But, you know, do you hear, how does he, how does

07:34he

07:34position this going forward? I mean, we have to see how much he wants to talk first. You know,

07:42I don't know when they're going to kill the dots and when they're going to bring in these new rules,

07:46but he kind of talked about, you know, mortgage rates. These, I mean, he wants rates to go lower

07:51to help housing. And he said, well, if we tackle long-term inflation, then the 10 year yield can go

07:57lower and mortgage rates could be more affordable. Okay. Well, in theory, you still can't get below

08:025.75% mortgage rates if the Fed funds neutral policy is 3%. So there's limits to what even he

08:10says. And I was bringing charts out. I did a little Instagram reel video trying to teach the history of

08:14mortgage rates and Fed fund policy, but that's all he can say right now. So his tackling of making

08:22rates lower is if we tackle inflation, long-term yields go down, they're going to try to do some

08:27operation things that are a little bit different, a little bit too nerdy for this audience. But

08:33that's his only take. But I think when we get the new Fed meeting coming up, we'll see how much

08:39change he's going to really have for this year, or is all this going to be ready for 2027?

08:45Nobody's sure yet, but for sure he's going to talk less and there's probably going to be no more dots.

08:52How do you get the different Fed presidents and how do you get them to talk less? Does he have

08:59the

08:59ability to say that? I don't know if he can legally say to them, shut up, nobody talk. Because the

09:09Fed's

09:09job is to go to different cities and events and talk to business people. So I don't know if they're

09:14going to have a policy that you do not talk about monetary policy at all, ever. So we'll see. Again,

09:21this is why the task force was created to go over some things. So we'll see. I mean,

09:26we're kind of in limbo land. I mean, he could go up there and say, hi, we did this, goodbye,

09:31walk out. And it wouldn't shock us because he wants less conversations. He might even say,

09:38we're not going to do a Fed press event every meeting. We're only going to do it four times a

09:43year. He could come out and say that, or he could say, we're not going to do any more press

09:47events.

09:47We don't, we're not sure yet. So, but he did address the housing issue about trying to get

09:55mortgage rates lower. But I just, I caution everyone, just remember, we don't have a lot

09:59of history with mortgage rates getting under 5.75% with Fed funds policy being neutral at 3%.

10:05We're not there yet, even with neutral. And this is why it's not, it's not, there's a really good

10:12reason why mortgage rates never got below 5.75 is because we don't have policy for it. Unless

10:16we only get under 4% on the 10-year yield is when the labor market, people think it's breaking.

10:20So

10:22that's, that's where we're at. So it'll be a good Federal Reserve meeting just to get an idea of

10:26where we're heading with all this. And just remember, I'm still hashtag anyone but Warsh.

10:32Like I would still, I would still tattoo that on my chest and go, no, not this guy, but this

10:37is where,

10:38this is where we're at right now. So we're just going to deal with it.

10:41Listen, we're in a much better spot than this time yesterday when, when it was like, listen,

10:46if it comes in hot, we might get over 7% mortgage rates.

10:49Well, you know, it's interesting. The spreads, the spreads have kept rates at, back to back peak

10:55is 6.75% this year. That was the peak of the forecast. But it's the spreads that are keeping

11:00that. If the spreads, if the spreads were even at 2025 levels, we were already above 7%. But

11:06the spreads could only do so much, but it is interesting. We, with a 10 year yield was above

11:11460 and everything, but now it's like 458. It's not that big of a move considering the totality

11:16of the miss on the inflation data. When the Federal Reserve members said before the, Hey, we're going

11:21to hike. We're going to hike in July, man. We're going to do it. If we get another hot print

11:26and it's

11:26like, Whoa, it was flat. And the course core non-services were negative. So I know it's confusing. I feel

11:34bad for everyone because this is, this is a very complicated Fed year. Like this isn't an easy

11:39year. There's a lot going on. You got to know what break-evens are for jobs and kind of their

11:46lingo and no longer Powell and Warsh and stuff. So, so it's, it's, it's complicated. So don't feel

11:53bad if it didn't make sense what was happening today. Okay. So, you know, we hopefully dodged

11:59a bullet in July, but let's look forward. What's the worst case scenario you could see for mortgage

12:04rates with the Fed going out from here? Well, I think what the Fed is that now that the conflict's

12:09picking up, even though oil prices are in a very suitable range right now, you, all of a sudden

12:15the Fed starts talking about it more. Like they didn't say anything about oil under 70, except Beth

12:21Hammock, Beth Hammock said, Oh, this is bad. This is inflationary. People have more money to spend.

12:25They didn't even go like in a positive thing, but when it was rising, they're like, Oh man,

12:29it's the conflict, the conflict, or we might have to raise inflation higher, longer and higher,

12:35you know? But so it's like, do they do this again? You know, I mean, say, you know, 67 to

12:4082,

12:41perfect trading range for oil, you know? Uh, uh, but, uh, I, I I'll keep an eye on if that

12:47happens

12:47again, 6.75% was the peak forecast for 2026. Of course the conflict was not part of anybody or

12:56the

12:56duration, but now that that has happened with the labor market, I could go maybe 0.375 to 0.43%.

13:04So a tad above seven, if all of these things are in play, uh, out there, because we have a

13:10lot of

13:10things priced in today. We have a lot of Fed hawkishness priced in today. This is why when oil

13:16prices were below 70, the 10 year yield, you know, didn't move too much lower out here. So

13:21we'll see, you want to keep an eye on kind of what the Fed governors say, but I just don't

13:26trust any

13:26of them right now. Like, you know, they were just full blown into the CPI report and then it whiffed.

13:32And then it's like, you know, you can't hear anything from them because you know,

13:35they only talk so much. Okay. So I know on social, you, you've shared the chart of our oil reserves

13:41and,

13:41you know, they've gone down quite a bit because of what we've been doing to keep gas prices low,

13:45stuff like that. How does that fit into this picture? If at all.

13:49Oh, we getting nerdy, Sarah, you know, let's do it. Let's get it. It's, it's, you know what we

13:55should do. You see, you won't let me do the, uh, two shows a day thing. So, you know, I

14:00need to,

14:00I need to create a, like, cause I never sleep go 1-800-1-800 call the chart daddy. Let's

14:06get,

14:07let's talk nerdy about inflation oil and oil reserve charts. That's what we need. Uh, which oddly enough,

14:14that's what I do on Instagram. Um, in any case to your question, I think, uh, one of the biggest

14:20reasons why oil prices didn't get to 150 to 200, like a lot of very smart oil analysts, uh, not,

14:27not the normal doomer people. Um, China has done the, as best as they could of not importing as much

14:36and using their reserves. And there are massive player in the oil markets. So, um, you know, uh,

14:43you know, in, in the back of my mind, I always think about, you know, why did Trump really do

14:48this?

14:48You know, is it really nuclear weapons like that? That doesn't make sense. The nuclear weapons have

14:53been here for a long time. It's not, it's not, it's nothing. But if you were thinking that Trump

14:57did this to go against China, um, and why do you say this? Well, they went after Venezuela and

15:03they went after Iran. Um, if China ever got out of line, you know, Trump could say, we could shut

15:09down your oil tankers from here and Venezuela, you have nothing you're running on reserves and this

15:15way it would be a tactical, but then that ruins the oil market for everyone. So there there's all

15:19these things, but China in itself imported less and they use their reserves. And that was one of the

15:26reasons why the total oil market. Now we we've used our reserves as well. And the world has put in,

15:32uh, uh, oil now, but, um, uh, it's, it's a, it's a big factor on, you know, uh, uh, why

15:40oil prices

15:40didn't really take off. Cause everyone assumes that things get back to normal. This is why oil

15:45prices went down so much so fast. If you get things back to normal again, uh, the world will have

15:50ample

15:51amount of oil and you don't, you don't have to worry about it. So, uh, again, the, the conflict is,

15:56is, is, is the X variable that happened, you know, in February and it's still here.

16:02So, uh, uh, China in a sense has done their job of trying to keep it low. Cause you know,

16:07they, they use so much energy there. Of course they have what 1.3 billion people too. So,

16:12um, but you know, again, the longer this goes and oil traffic, right. We show these oil traffic

16:21charts, the oil traffic was recovering pretty good. And then, uh, you know, so we'll see.

16:25It is interesting that some of the hardliners in Iran lost their part of parliament positions.

16:32If you really want to call it parliament, uh, today, you know, so maybe there's a little bit

16:36more internal fighting, uh, there, you know, because Iran needs the straight to work, right.

16:43You know, that's, that's a big source of their money and, you know, blockades for not letting any

16:48of their ships in and out is a problem, uh, longer term. So it's, it's, we're, we're at this squeeze

16:54phase, you know, kind of who blinks first. And as a country, we can handle oil prices better than

17:00anyone. Right. And this is why I always show those oil charts back in 2010 to 2014, when we were

17:06credit

17:06deleveraging and wage growth was lower and the labor market wasn't that great, but we still had

17:11consumers still consuming goods and services here. We have much better balance sheets. Wage growth is

17:16better. One thing about inflation data coming back down to 3.5% headline is wage growth and inflation

17:22are now par par, right? So, you know, we had negative real wages. Now you don't on that side.

17:28So, um, we'll, we'll see how this conflict, uh, uh, handles itself over the next few weeks, but, uh,

17:35the oil reserve story, uh, China was a big player of that. So complicated. I'm glad you're here to

17:41explain it to all of us who knew we would be diving, uh, this deep into oil prices this year.

17:46I don't think that was on my bingo card for sure. And especially when you think about,

17:50we are mid July and the midterms are just right around the corner. It's wild to me.

17:55You know, we talked about this, uh, for the past few years, um, political cycles, right?

18:02Political cycles, business cycles. Uh, the U S has a two year political cycle and people vote

18:08where China doesn't matter to them, right? Doesn't matter to Russia or other countries because

18:14they don't really have that issue, but with oil, Mad Max, it's, it's an issue. Oil is one of these

18:22things where it's never a good thing when oil prices escalate, or it's really never a good thing

18:28when oil prices collapse, right? Because, you know, obviously something's wrong. Uh, um, COVID is a good

18:36example, of course, but you know, there's the shale boom in America. We have so much natural gas here

18:43as well. And, and, and the oil boom, you know, Ukraine is taking out so much refining, you know,

18:49energy capacity off of Russia. The world still revolves around oil and energy. Uh, uh, so it's a

18:57big part of everything. So why, while you might not have a political cycle, uh, in other countries,

19:03if people don't have gas, you know, like I think what's happening in Russia, they're,

19:08they're buying more horses and bicycles, right. You know, because, you know, the, uh,

19:14they can't get gas over there, you know, they're importing jet fuel for the first time. So,

19:18I mean, Ukrainians really doing a number. Um, so, but energy is one of these things you can't really

19:24mess around too much with because there's so much of the world revolves around it.

19:28Interesting. Well, we will talk to you again soon. Thanks for writing, uh, for us and getting on here

19:32and explaining it. Love it and appreciate you. Pleasure Wheeler.

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