Can housing demand grow with higher rates?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about housing demand with mortgage rates at yearly highs.   Related to this episode:   Can the housing market still grow with mortgage rates over 6.64%?  https://www.housingwire.com/articles/mortgage-rates-664-housing-demand/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   The Top 5:   Compass files ethics complaints against Zillow in 26 states   For Homebuilders And Buyers, Private Lender Channels Matter  https://www.housingwire.com/articles/for-homebuilders-and-buyers-private-lender-channels-matter/  Housing Market Spotlight: The local markets behind this week’s national story  https://www.housingwire.com/articles/housing-market-spotlight-local-market-trends/  Can the housing market still grow with mortgage rates over 6.64%?  https://www.housingwire.com/articles/mortgage-rates-664-housing-demand/  Zillow says conspiracy, MRED and Compass say Zillow did this to itself  https://www.housingwire.com/articles/zillow-mred-compass-briefs/   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 m

Transcript

00:10Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about housing demand

00:16with mortgage rates at nearly yearly highs. First, here are the top five trending stories

00:21on HousingWire.com. At the top is Compass Files Ethics Complaints Against Zillow in 26 states,

00:28followed by, for home builders and buyers, private lender channels matter. Then we have

00:34the housing market spotlight, the local markets behind this week's national story. And Logan's

00:39article, can the housing market still grow with mortgage rates over 6.64%. Finally, we have

00:45Zillow Says Conspiracy, MRED and Compass say Zillow did this to itself. Okay, let's jump into today's

00:52topic. Logan, welcome back to the podcast. It is wonderful to be here. It's inflation

00:58week. So, so far, we've kind of survived inflation week. The PPI report came out today, and that

01:04was a whiff as well. Boy, I wonder what Christopher Waller's thinking right now. He was just all

01:09like, argh, we're going to raise rates in July. We got one more bad report. We got to, and then

01:16like, both of them whiffed. So, the 10-year yield is lower, but not by a lot. But mortgage spreads,

01:24mortgage spreads, a good day for mortgage spreads. And it's brought in rates down to 6.64%, which is

01:30going to be the topic of the subject today. But so far, it could have been worse. But it looks

01:38like

01:38we've made it through inflation week. And then the PCE report is going to be toward the end of the

01:44month.

01:45Okay, that's 6.64% level on mortgage rates. That is where you feel like below that is good demand.

01:54Above that, demand falls for housing demand falls. So, what are you seeing right now in the numbers

01:59given that rate? So, we haven't had a lot of time above 6.64%, but just going back in the

02:07last few

02:07years, what has happened in the last few years, rates get down towards 6, demand picks up, and then

02:14rates shoot back up. Shoot, not slowly. They just shoot right back over 7. Demand slows down.

02:22And then within a calendar year, it's very hard to grow sales in that matter. So, last year,

02:29you know, as mortgage spreads started to improve, like it should, the backdrop in the second half of

02:352025. Because when did the housing market shift? Mid-June 2025. Mid-June 2025. And then the second

02:44half of last year, the backdrop for growth was there. And because we were going to have rates

02:50break below 6.64% and spreads were going to get better. So, we had a nine-month high in

02:56sales in

02:56December coming there. So, everything was working just right. But this year, going into 2026, the

03:05forecast was very easy. 237,000 more existing home sales. If rates could stay at six and a quarter,

03:11we're good. And early on in the year, that was happening. In fact, oddly enough, the biggest hit

03:18to demand this year was the snowstorm. You know, I'd take Christmas and New Year's out of the equation.

03:24The snowstorm was actually the big thing that slowed things down. So, we've had some very odd

03:30existing home sales prints. You know, by the time this podcast comes out, we're going to get the

03:35pending home sales. Just be a little bit suspect of the pending home sales from the NAR data.

03:41But we're going for growth this year. Not a problem. But now, we're above six points or we were above

03:496.64%. And purchase application data came out. Now, just guys, remind everyone, every weekly data

03:56line that's out there, there tends to be a seasonal curve where it goes negative. And purchase application

04:02data the last calendar week always goes negative. So, people saw the 7% decline. The unadjusted numbers

04:09were actually positive. But they see that 7% decline. But then we did have a year-over-year decline.

04:15We've only had three weeks this year that have negative year-over-year. So, now it becomes this

04:21topic, you know, as I was reading, well, mortgage rates are up now. Now, housing demand has to slow

04:26down. So, the question is, can this actually hold up better with rates above 6.64%?

04:35Okay. So, what do you look at to see if that's going to happen? Like, we have different, you know,

04:41purchase apps is one variable in housing demand, seeing how many people do that. What else are

04:46you looking at?

04:47So, what you want to see is new listings data has its normal seasonal curve. You don't want new

04:55listings data to go lower. That's one of the problems with 2023 was that after 2022,

05:03the mid-part of 2022, new listings data tanked and tanked to the lowest levels ever. So,

05:10most home sellers are buyers. So, you want to see a healthy level of new listings data

05:14still occur. Purchase application data is a forward-looking data line that looks out 30 to 90

05:20days. It trends well with existing home sales historically, but it also needs weekly and year-over-year

05:27growth. So, we saw that to a degree this year, especially on the year-over-year side.

05:32So, you keep an eye on purchase application data because it looks for it. But then,

05:36our weekly pending sales data and our total pending home sales data, which you can get for

05:41any city or zip code out there with HousingWire intelligence, that gives you another layer of

05:47a forward-looking demand. And just to give you guys an example, the existing home sales report,

05:52even though the seasonally adjusted numbers were missed estimates, their monthly print, what they

05:59sold that month, was actually one of the highest prints in years, kind of mirroring our data line.

06:07So, we believe that we can get ahead of everyone else. And if our weeklies and total pendings and

06:14purchase apps and new listings look healthy, we can get growth here. So, that's something to think

06:19about because, you know, under six and a quarter, not an issue, but we are, you know, toward the high

06:26level of the forecast. And so far, it hasn't really changed the demand curve. And part of that is

06:33housing got a little bit more affordable. Again, when home price growth slows down and wages outpace

06:38home prices, right? On the nominal and real side, I know a lot of people want to make the decision,

06:44but they're both kind of positive. So, housing gets a little bit affordable. And I noticed this

06:49back in the early part of 2025. In 2025, mortgage rates were 6.75 and 7.25, right? But the

06:59housing

07:00demand actually held up a little bit better. That's the affordability working itself. Every year,

07:05more households are formed, dual household income. So, we'll keep an eye on it. If anything kind of

07:11shows a deterioration, we'll be able to see it first. And then the monthly data will catch up to

07:19us. But so far this year, nothing too dramatic outside the snowstorm, right? The snowstorm was

07:26actually the big hit on demand. But you get a little bit of growth out there and we could kind

07:32of push forward. Given everything that's happened this year, that's pretty shocking that the snowstorm

07:37had the biggest hit. I know. I know. It's weird because you hear all these headlines about who's

07:42going to buy a house with a war and who's going to do this. And I said, guys, homies, literally,

07:47there was a plague killing people around the world and housing had the fastest recovery ever as soon

07:54as people thought, hey, I can get out and live again. And it was the sharpest recovery during COVID

07:59with 30 million people unemployed and 5 million in forbearance. So, millions and millions of people

08:05buy homes every year. It's the affordability and demographics and households and affordability got

08:13shot really bad in COVID. This is why the unhealthy, too, very unhealthy, too, savagely unhealthy housing

08:19market. But we'll keep an eye on this. Mortgage rates this year is just very complicated. It's very

08:25complicated with a 10-year yield and two-year yields. And I'm trying to do all these videos

08:29and try to teach people two-year yields now. Oh, my God. We're having a party. We're bringing the

08:33two-year yield out. And it's like me at a disco club with a bunch of people. We're talking,

08:39make two-year yields fun again. But I think it's difficult for maybe some realtors or loan officers

08:47to try to like, because everyone talks about where do you think rates are going? Where do you think

08:55mortgage rate conversation seems to dominate, especially consumers? That's what they're paying

08:59attention to. What do you think that realtors and mortgage loan officers should be? How do they steer

09:05that conversation? What should they be telling their clients about mortgage rates?

09:09So, one of the things I see on the internet, I'm not a big believer of this, but this is

09:15the main

09:15thing I see in social media. When are rates going to get down to five, four, three? When are rates

09:21going to get down, then I'll think about buying. So, I think one of the things how I would explain

09:27this or how I wouldn't explain it, you don't need to say that, well, we need to have like a

09:33COVID.

09:34We need to have a deep recession to get mortgage rates at three or 4%. We had the longest economic

09:40and job expansion in history and mortgage rates were three and a half to four and a half percent for

09:44most of the time. So, you don't necessarily need a recession. But with that said, you do need Fed

09:51policy to change. So, I was telling people, why don't I forecast below 5.75? Well, the Federal

09:58Reserve has told everybody, we're anchoring our neutral policy around three and a quarter percent.

10:05Well, if that's the case, it's really difficult. And if you're a loan officer or realtor, I would

10:11say it this way. If the economy's firm, inflation is above target and mortgage spreads are not back

10:17to normal. We don't have any history of mortgage rates getting below 5.75%. So, whenever we do get

10:25the 10-year yield under kind of 4%, the labor data gets weaker, we have rates under there, that can

10:30happen. If the bond market is really afraid of the labor market like they did in 2024 and spreads were

10:37normal, then you could get rates under 5.75% for a brief time. But as long as the Federal

10:43Reserve is

10:44telling people, neutral policy is 3% and mortgage spreads aren't back to normal, there is no history

10:52of rates going below 5.75%. And that's why I would explain it that way. And then at least clients,

11:00because the problem I see is we get so-and-so person and so-and-so person, oh, rates are

11:05going to go to

11:064.5%. Kevin Warsh is going to cut rates. And they hear that and they think, okay, that's not how

11:13it

11:13works. You know, if the labor data was breaking and jobless claims are up and the Federal Reserve

11:18comes out and we want to be more dovish, yeah, that would be a material change. But it's not by

11:24accident that we get down towards 6% and we don't go lower than that because there's just not a

11:29lot

11:29of history. So, if you're a realtor or a loan officer, you really want to show like a long,

11:36big chart of the 30-year mortgage and the 10-year yield, the slow dance that we do, a little

11:40Jodeci, a little Usher. But, you know, kind of take the Fed funds rate and say, listen, to get

11:47here, boy, you need this kind of policy and we don't have it. You don't necessarily need a recession or

11:53COVID or anything. We had an expansion with rates of 3.5% to 4%. But policy was much different

11:59back

11:59then. So, the Fed runs 65% to 75% of where mortgage rates go. And explain it that way

12:05and kind of like,

12:06don't listen to fake experts who tell you, no, rates are going to go down to 3%, 4% because

12:13AI is going to take all the jobs and we're going to have mass unemployment. Let the data kind of

12:19tell

12:19you this and let the Federal Reserve kind of guide you in that. And that's the history of housing

12:24economics since the Peloponnesian War, Sarah. Well, I also think it goes with the discussion we

12:30had last week about home prices, right? So, it's very rare for home prices to drop. So, if, you know,

12:37if you're talking to somebody, it's like, okay, you know, unlikely that mortgage rates get that much

12:42lower. Very unlikely that you're going to see a big correction in home prices. And so, are you going,

12:48if you wait longer, you're just going to, you know, you're battling home prices as they go up almost

12:53every year? Well, one of the reasons I don't engage that talking point, because I know a lot

12:59of realtors and loan officers do this. They do the timelines of, you know, if the longer you wait,

13:05I always look at it as total payment for affordability and then also put the dual

13:11household income factor into it. Because millions and millions of people buy homes every year.

13:16Even the last few years, total home sales were near 5 million, right? Existing and new. And

13:22the peak in the last decade was around 6 million. So, I don't know if there's a lot of people

13:29waiting. I've not been a big believer of that. I know a lot of people talk about this, but I

13:34look

13:35at the data and I just, I don't see a swath of people that are like on the sidelines or

13:40they come

13:40and say, well, I'm thinking about buying, but, you know, I don't know where, you know, it's just,

13:46I don't see it. I've looked back in history on this and I, it's almost like an urban

13:52legend to me. And I know the marketing is run around this too. People say, well, if you wait,

13:58the longer you wait, it's like, but I never addressed that because I was like, if there

14:02was like this massive amount of people sitting there waiting for, you know, but to me, it's

14:07like the history of housing economics, when affordability gets better, it's usually rates

14:11coming lower. It's usually because of a recession and then housing demand goes off because it's

14:16been sitting at a lull because affordability's hit out there. And that's, if you look at those

14:22existing home sales charts all the way back to 1968, like we show them, that makes, that makes

14:28more sense to me. I feel like we're, I mean, but to me, when you say, oh, there's, you know,

14:34housing demand comes back because there's been a lull, there's people waiting. That's exactly what

14:38I'm saying. There are people out there who would buy if, if conditions were just a little bit

14:44better. We see that every time rates go down, demand goes up. And most of that time prices

14:49were always rising and they always end up buying just because the total affordability and it's

14:56their time to buy, right? It's not, I mean, housing is very demographic oriented. Housing tenure has

15:01doubled and tripled in some cases. That's prevents most sellers, a certain seller to sell their house

15:07and buy. This is why we don't believe in a mortgage rate lockdown because all these first time home

15:12buyers, they're not locked down because of their mortgage. All these people with no mortgages,

15:1640% of the country has no mortgage. They're not locked down. There's a huge swath of people with

15:21very, very low payments right now. They're not locked down. There's a certain time that you buy

15:27a house, right? The whole rent, date, mate, get married, three and a half years after marriage,

15:31have kids kind of thing about housing. And then we just go with it out there. So I think,

15:36I think in that context, I'm just not a big fan of this. I just think when affordability gets a

15:43little bit better, more people buy homes. And COVID was a great example. Like what were we fighting

15:47during COVID? People are saying, Logan, you're crazy. There's 20 to 30 million people unemployed.

15:53There's 5 million in forbearance. There's a global pandemic. I'm like, homie, as soon as we stop

15:59hoarding toilet paper and wine. Game is on. And what happened, it was the sharpest recovery in the

16:07history of not only America, but planet earth for housing demand. Why? Because affordability was

16:14good. And we were at such low levels of sales that we just need to be breathing and living and

16:20just

16:20bam out there. So. So interesting. Okay. A couple of things before we, before we end this,

16:27I wanted to say a shout out to Atlantic Bay. I was on their town hall this week. That was

16:32really

16:32fun. They're huge fans of this podcast. So shout out to all of our friends over at Atlantic Bay that

16:37listen every single day. And we are going to South Carolina, Myrtle Beach in November to do the

16:43Atlantic Bay event. And as, as, as August rolls around, the chart daddy nerd tour is about to gear up.

16:51I think we got 21 cities coming out there. So it'll be a lot of fun. And again, our, our

16:57job is to

16:57teach economics, try to be as fun as possible. Cause it's not the most.

17:01Got it. You got to be fun. You got to be fun. Okay. To that point though, you know, you

17:05said you

17:05put an AI thing of like the two year yield and you in a disco. I'm just having a really

17:09hard time

17:10picturing that you in a disco, not on AI, but in real life, you in a disco. I don't know.

17:15You couldn't picture me. You couldn't picture me with all the silk shirts I have. You couldn't

17:20picture me in a disco thing. Maybe walking in, but like, once you get in there, what are you doing?

17:25Oh, I couldn't do a Bee Gees. You know, that's what I'll do. I'll walk on stage with a Bee

17:29Gees song.

17:30Oh my gosh. Okay. That I can't see. Okay. You, you know, Danny, the whole thing. Okay. We'll do

17:36that Saturday night fever. All right, Logan, thank you so much for being on and we will talk again soon.

17:41Pleasure.

17:42Pleasure.

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