Will higher oil prices and rates slow down the economy?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about whether higher oil prices and mortgage rates are set to slow down the economy — the outcome the Fed is hoping for.   Related to this episode:   Mortgage rates over time  https://www.housingwire.com/mortgage-rates/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   The Top 5:   We are not ready for the next housing downturn  https://www.housingwire.com/articles/housing-downturn-servicer-liquidity/  Will Trump’s new Canadian tariffs add cost risk for builders?  https://www.housingwire.com/articles/canada-tariffs-trump-homebuilders/  Mortgage rates hold near 6.85% ahead of Fed meeting  https://www.housingwire.com/articles/mortgage-rates-685-fed/  CFPB eyes reverse mortgage disclosure overhaul; attorneys warn of costs  https://www.housingwire.com/articles/cfpb-reverse-disclosures-rfi/  How high can mortgage rates go with Iran conflict 2.0?  https://www.housingwire.com/articles/how-high-can-mortgage-rates-go-with-iran-conflict-2-0/   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

00:12Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about whether

00:16higher oil prices and rates will slow down the economy. Before we dive into that topic,

00:21here are the top five trending articles on HousingWire.com.

00:25First is the contributor piece by Sam Valverde, formerly of Jenny May and now at Urban Institute,

00:31with the headline, We are not ready for the next housing downturn.

00:35Next is, Will Trump's new Canadian tariffs add cost risk for builders? Followed by,

00:40Mortgage rates hold near 6.85% ahead of Fed meeting. Then we have, CFPB eyes reverse

00:46disclosure overhaul, attorneys warn of costs. Finally, we have Logan's, How high can mortgage

00:52rates go with Iran Conflict 2.0? Okay, let's dive into today's topic. Logan, welcome back to the

00:58podcast. It is wonderful to be here. This is a very, very fun day for me because there's a lot

01:03to talk

01:04about. And first thing, 10-year yields at 4.66. Right now, mortgage pricing is just a tad higher

01:14today. I think the last quote I saw was like 6.77. And again, this is why we all hug

01:22a mortgage spread.

01:24This is why it's hard to get rates really above 7% unless this conflict really starts to

01:30take off again. Mortgage spreads are doing their thing. I was thinking about, you know,

01:36nobody's ever seen like a normal mortgage spread, you know, downturn in it because it's been like

01:43over 20 years. Like we had a great financial recession, we had COVID, but how does mortgage

01:49spreads react in a normal kind of setting? And I think a lot of people are now starting to get

01:54why it's so important and why it's kept things kind of at bay compared to what it was the last

02:01few years when rates were already been well above 7% in 2023. We'd be near 8% today.

02:08So I guess that's my question. I mean, do you consider this a normal environment for

02:13mortgage spreads?

02:14We're not quite back to normal in recent history. There's been times where mortgage spreads have been

02:22under 160. There was one point in 1980, it was below 0%. It was negative. There was a lot going

02:29on in 1980. But this is how mortgage spreads react. And I think it's just, it's just a brand new

02:36thing

02:36for everyone. And not a lot of people like to talk about it because not a lot of people know

02:41how it

02:42operates. So it's a confusing topic. But here it's been a big part of our work for many, many years.

02:48And that's why we incorporated it in the tracker. But now I think now more than any time this year,

02:52you get to see, like, we are slightly lower than where rates were last year. But, you know,

02:58bond yields were lower at this point.

03:01So really interesting considering where oil prices are today. Those are elevated. We still have,

03:07like, this unknown situation happening in the Middle East. So with all that, I guess we should be

03:13happy rates are where they are. Yeah, I think, you know, I thought, from my observation of people,

03:19I thought people thought that because of the conflict, the conflict itself would push mortgage

03:25spreads higher. But nobody's kind of afraid of a recession. So there's not like an early payoff risk

03:33because of massive job loss. And just remember, it's 2026. If it really wasn't for COVID, we'd have,

03:40we'd still be in the longest economic and job expansion in history. So you have to be very,

03:45very careful on who you listen to who talk about a recession every 17 seconds, right? Because it's

03:51now, it's going to be almost two decades that people's recession theories are wrong. And I think

03:57just like, you know, the housing doom porn network for home prices crashing, we have this recession

04:02doom porn network. And that was my thing in the last decade was always fighting the recessionary people

04:07more than the housing bubble people. But here we are. And I think that's, that's going to be the

04:13topic of today. Will higher rates and higher oil prices slow the economy down? We don't want to go

04:19into a recession talk without certain triggers going off first, but slow it enough down to where

04:24the Federal Reserve feels like or the bond market feels like they need to bring yields lower.

04:29Yeah. So in that case, we could also just talk about the fact that like the Fed has gotten what

04:34it wants out of this, right? Yes. That was my talking point on, on, on X today, where I said,

04:40Hey, listen, the Fed won, they got everything they wanted. And you know, when the labor market was

04:45getting softer, I always said that the bond market will do a lot of the heavy lifting early on for

04:50the Federal Reserve. And the bond market has done a lot of the heavy lifting already for the Federal

04:55Reserve. 10 year yields up, two year yield is up yearly highs right now. Even the three month has now

05:01gotten a rate hike into the process. And, but the three month is really correlated itself with

05:06a rate hike. So, so the bond market did a lot of the heavy lifting already. A lot has been

05:11priced in

05:12when I talk about a lot has been priced in, you see it on the tens, twos and three months.

05:16And now

05:17we're going into the Federal Reserve meeting next week. So they kind of got what they wanted.

05:23When I look at real yields today, take the 10 year yield, compare it versus core inflation CPI at 2

05:29.3%.

05:31Real yields are at the highest levels we've had since 2023. Now, typically what happens is usually

05:37you get a growth scare at some point, you know, and that's, we saw that in 2022, 2023,

05:422034, 2025, even early this year. And that's been the only thing that's ever drawn the 10 year yield

05:48below 4%. But without that growth scare, we never had policy warrant, you know, the 10 year yield trading

05:56between 380 or 4, 420 in a, in a kind of normal fashion. If we had three more rate cuts,

06:03it'd be

06:03easier to do that. But a lot has changed. And with real yields up two year yields up three months,

06:10the Fed got what it wanted and it, and it won this battle.

06:14So does that mean, and I want to get into the slowing economy, but does that mean that,

06:19you know, we're safe on a rate hike?

06:22For July, I think there's a lot, I think, I think the two happiest people in America right now are

06:28Beth Hammock and Lori Logan, you know, and the third and fourth happiest person in America right now is

06:33Neil Kashkari and Austin Goolsbee. You know, they, they, they wanted rates to go up. They wanted the

06:39easing bias gone. And now you have to, you know, it's a blackout period for them right now talking,

06:46but after the Federal Reserve meeting, if they're allowed to talk, they would probably talk up this

06:52conflict being a negative for inflation and, and, and, you know, needing to make, to stay aggressive,

06:59to stay hawkish. So it's, it's, it's going to be a very interesting Federal Reserve meeting,

07:05but post Fed, we'll see what the rules are, but real yields are, are, are, are elevated in the two

07:11year is. So again, the bond market, like it usually does either to the upside or downside,

07:16and a lot of times it could go too aggressive on the upside. And a lot of times it could

07:20go too

07:20aggressive on the downside. 2024 was a great example. The Hodor line that I had at 380 was

07:26broken. And a funny part was like, there wasn't any recessionary labor data. Like the labor data

07:30was just coming back. I remember to my forecast, I was like, what is everyone worried about here?

07:34But then they thought the Fed was behind the curve. So they pushed yields way too aggressive and

07:38then yields just shot right back up. But now volatility is compressed because of mortgage spreads.

07:44And also, you know, rates aren't above 7%. And we have a lot of things priced in and right before

07:51the Federal Reserve meeting. So it'll, it'll be interesting because, you know, they see it just

07:55like everyone else does. Boy, two years up, 10 year yields up, three months up, we got what we wanted.

08:02So talk about a slowing economy. That's not a recession. What are you looking at there? And

08:11you're like, but that doesn't mean, you know, we're sliding into a recession.

08:14So I have a little bit different take on the labor market than other people. In 2018,

08:20what occurred was President Trump waited until he got the corporate tax cuts in. Then he went into

08:26the trade war. And he thought with the corporate tax cuts, you know, the economy will be able to

08:31handle the trade war a little bit better. Even with that, the economy slowed down. And there's so

08:37much chaos. Stocks had a near 20% drawdown. And things don't operate normal in that environment.

08:44We had that last year, but that was with Godzilla tariffs. And then on top of Godzilla tariffs,

08:49we fired a bunch of government workers, then we shut down the economy. So I look at the data as

08:55it was an authentic slowdown in the labor market, but growth and investment never really broke.

09:02We would have had 800,000 jobs lost last year if it wasn't for two sectors. But typically what

09:09happens the second year gets a little bit more calmer. I know it's crazy to say that a little

09:13bit more calmer. And then, you know, as long as consumption and investment are there, you've got

09:18to hire some people back into the process. I know some people like to say that, well, we're not kicking

09:24out as much people anymore. So the labor, I can't prove that theory. So I'm not even going to go

09:29there. But now we've just come back a little bit. And if you just average out the last 18 months,

09:37you take the negative data and the positive data, you're just basically kind of really around the

09:42break-even points of where employment is. But what I see is that the ADP weekly data is slowing down

09:48already. And so if I believe in my theory that it was just kind of the normal rebound from a

09:54slow

09:54period, it's going to be a little bit more interesting looking at the jobs reports going out for the rest

09:59of

09:59the month to see if it was just a rebound and that, now you've got the World Cup stuff out

10:04of there.

10:05And now that rates are up and oil is up, what does it do to the comment? Does it slow

10:09enough down for

10:10the Lori Logans and Beth Hammocks to say, okay, we might not want to get too aggressive here on Fed

10:17to maybe guide the 10-year yield lower? So a lot's going to go on in the last six months.

10:23But again,

10:24the conflict runs the show. We're like 12, 13 days of straight attacking. So no more respect for

10:33market hours anymore. This is full-blown guns of Navarro at this stage. And here we are. And I

10:39think that it gets more interesting if this keeps on continuing out there. And oil prices, even though

10:44oil prices are not back to the recent highs around 94, 95 WTI, of course, it does become interesting that

10:51real yields are now at the highest level they've been since 2023, which to me, the Federal Reserve

10:57will take that into consideration about what to do going out in the future.

11:02So we did have some, you know, some more complications with the tariff story this week,

11:07because President Trump has proposed a 50% tariff on all Canadian imports, right? Which we have a story

11:15about that, how that affects home building. But aside from that, you also have a lot of the tariffs

11:20that were put into place last year that are now expiring around this time, you know, and it's

11:25like, okay, are those going to be re-upped? Are we going to see that happen? And there's a lot

11:30of

11:30uncertainty about that. Do you expect any of that to affect this economic picture?

11:34So we can't ever get Godzilla tariffs anymore, because that's illegal. So but you can do some,

11:41you know, trickery stuff. Now, our tariff revenue collection, what the percentage is,

11:46has come down noticeably. So it's really tricky to like increase tariffs while you have a conflict

11:55when people are worried about inflation. It's like, that's something you don't traditionally

11:59want to do. So cross that bridge when we get there, because I think the dynamics of this conflict

12:07might change when things are, remember, all that matters is when the tariffs come in and what the

12:12revenues collection, because the White House lost a Supreme Court case. And there's some logistic

12:19issues on trying to maybe re-up the tariffs to 10% and collect that now. But the conflict runs

12:25everything, because that's what people talk every single day, and we're getting closer to midterms.

12:29So I know President Trump talked about, I don't really care about the midterms. He does. He cares about

12:33voters. So at some point, either this becomes a protracted, long conflict that'll be here for many

12:41years, or the popularity of the president will go down so much that the Democrats take a good portion

12:47of the House, some of the Senate, and they find a way to kind of end this. But it gets

12:54a lot

12:54interesting with the tariff story if this conflict keeps on going up and oil prices keep on rising up.

13:00And what we see is the traffic in the Strait of Hormuz is coming down back to zero again, not

13:05a good

13:06thing. Are the Houthis going to try to block the Southern Passage? So too many variables to set

13:13anything in stone. But one thing we do know is the 10-year yield is up, real yields are up,

13:20two-year

13:20yields are up, three months are up, oil prices are up, not back to over 100, but enough to get

13:26everyone's

13:26attention. And does this slow consumption down a little bit, or this train keeps on moving along there?

13:36So, so interesting, because anytime we talk about what's happening macro and then like how that

13:40affects housing, right? Like a slowdown is usually good for housing in the sense of, you know, as long

13:45as it's not like some depression, because then rates fall, affordability gets better. But it doesn't

13:51feel like we're at that point right now. This is a little bit different. Usually by summer of every

13:56year, we always talk about, oh, people start to get worried about the economy, right? You don't have

14:00that vibe yet right now, and the 10-year yield is not acting. So it's a whole different story.

14:06Now, if you get a few softer labor data prints and softer inflation prints, the bond market will

14:12react differently. But as of right now, it's, you know, the conflict, the conflict really changed how

14:18bond traders are looking at this, you know, even when oil prices were falling down, the Federal

14:23Reserve guide everything to go up higher. But when as soon as a conflict, any negative knows, boy, you

14:28just, you're just heading up higher. And God, you know, it's not like oil's above $100. You know,

14:35this is, we just recently broke above that 82 trading range that I thought would be perfectly

14:40acceptable for the Fed. So one day at a time, but it is, it is interesting that some of the

14:47things that

14:47you would think about being a little bit more restrictive policy-wise are here right now, where

14:53the 10-year yield's at and the two-year yield. And again, I know a lot of people say, well,

14:57the Fed's

14:57never going to hike rates in this, you know, it already happened, guys. It already happened

15:05on things. You just haven't seen the Fed funds rate follow. Now, that's the next question. Like,

15:09does the Fed follow through with it? Or do they just kind of play Russian roulette with what's going

15:15on with the marketplace? This is why I think July is, you know, not going to be a rate hike,

15:19but they will stay hawkish if they're allowed to speak. You think about this conflict might be going

15:25on for 20 straight days in terms of bombings into a Federal Reserve meeting where the Fed hawks made it

15:31their main thing about, you know, being more hawkish. So very, very, very interesting next seven days.

15:41And next week, next week's Fed meeting is going to be wild. Could be fireworks. Could be nothing.

15:46We'll have to see. Like you said, depends on what Warsh allows or how he wants to schedule things or

15:55organize things because we don't really know that yet. He's only had one meeting. So we'll see what

15:59happens this time. Is there anything Warsh could do right now? You know, he could join me in asking you

16:05to have me five times a week, you know, and twice a day, you know, which you just get rolled

16:11the eye on

16:11me when I did that. Yeah. Okay. So I have to say, so for those of you who follow Logan

16:17or me on social,

16:18he put the funniest AI meme video up where I'm like, I don't know. I don't even remember what

16:24that meme is called, but I'm rolling my eyes and you're just laughing hysterically. And it's like,

16:29you know, because you're going to get five days a week. It's the Nicolas Cage, Pedro Pascal kind of

16:36mean that, you know, where we're driving a car and you're just, and you do this all the time

16:40whenever I ask for five days. So I just thought, let's just make a AI video of it where you

16:45just

16:45look at me and I just give a smile and stuff. And so a lot of generations love that one.

16:50Cause

16:50they got that because of the movie scene, but I'm never going to get that five days for now,

16:55but one day, one day Wheeler, one day I've never gotten so many comments except on that AI video,

17:03which is hilarious. It's like, I put out stuff, you know, that's serious, whatever. No,

17:07what I get all the comments on is like, just laughing at that. So good job there. Okay. Well,

17:12I don't think Warsh is going to do that. So we don't, he, there's really nothing he can do. Right.

17:17I mean, he's, he's kind of stuck right now with a bad situation. With this conflict going on,

17:22it becomes much more difficult, right? That's, I think that's, that's the problem. You can't,

17:26you can't, if you don't know what's going to happen here, because let's say the Strait of Hormuz

17:32is shut down complete. Let's say the Southern part of, of the Middle East is shut down. Let's

17:37say oil, the Chinese have to import and we're at 130, 140 and diesel prices go up. And you know,

17:44there's nothing, this, this conflict keeps going up to another phase. So just like the Federal

17:50Reserve might not want to hike rates, Kevin Warsh can't do anything. And Kevin Warsh can't do anything

17:54anyway, right? He's just one guy, right? All that matters is the voting count. He could try to

18:01rowel people up, not to hike rates, but if he doesn't have the numbers, he does not win,

18:05right? That's why, you know, when, when Christopher Waller went hawkish, Trump lost his game plan about

18:12trying to take over the Federal Reserve. So there's, there's no, there's nothing going to happen

18:16about what he can do is tell everybody to shut up. And you know, that, that's, that has its own

18:22set

18:22of problems anyway, especially with all this chaos out here, but we'll, we'll, we'll see what,

18:27how the next Fed meeting goes. But what, one, one other thing, purchase application data came out

18:35today and positive 6% week to week, slightly up year over year. Just remember last week it was down

18:447%. A lot of people thought it was rates, but that's the purchase application is one of these

18:48weekly data lines that has seasonal weekly declines. Always doesn't matter what happens

18:52and has seasonal increases. So kind of don't get, I know it confused a lot of people because rates

18:58were rising. The week after July decline, it gets the rebound effect. It's basically a wash.

19:05There's not much going on, right? It's just basically flat on both sides, week to week and

19:09year over year. So don't kind of make anything too big about the 6% week to week increase or

19:15slightly

19:15up year over year. Once you get the two week data off the grid and then you move forward. So

19:20things will be a little bit more clear now. I think that's one of the huge advantages of having

19:25the housing market, housing market tracker every week, because we do get those weekly numbers,

19:30but then you're also able to be like, here's what you should pay attention to. And here's what's just

19:34noise. Like if we have a big up or down, a lot of times it's around, you know, holiday or

19:40you're able

19:40to guide people through. So it's not just like they're trying to make sense on their own because it

19:45can be very confusing. It is. I saw a lot of people last week make a big deal about the

19:51week

19:51to week decline. And I just, I just don't think they track purchase application data. And then

19:55last yesterday, they kind of said, okay, rates are higher. We should see a big decline in purchase

20:02application. And then it was positive 6%. And I said, guys, guys, you got to understand there's

20:09some seasonality to this and the week to week has nothing to do. It's just kind of some, sometimes

20:13the holiday will impact the data in a way that you might not think. So a lot of people were

20:19confused

20:19about that because, you know, but it's just think of it as a wash. Just think of it as, you

20:25know,

20:25we're not growing anymore in terms of purchase application data being popular. We used to have

20:30a 12, 11, 10, 8% year over year growth. We're basically flat the last two weeks. And what's the

20:36one thing that we know for sure is that housing market slows down when mortgage rates are above

20:416.64. And part of that is when you're working from lower rates, you're running a positive demand

20:47curve. And now you're going with higher rates and that positive demand curve tends to slow down.

20:51So right now it's not a big slowdown or anything like that. It's pretty much flat. It's something we

20:56keep an eye on going out, especially if rates go higher, but hug a mortgage spread because we've

21:01been over 7% already months ago. And housing just does not grow in that environment. We saw that

21:11the last few years, we have these really big moves, right? The labor scare rates go down to 6%

21:17that

21:17shoot up and you don't get any stability on the rate side. So it's really hard to grow. You just

21:22basically are flat. And that's the flow of data that we try to always talk about with the 10-year

21:27yield mortgage rates and everything. And this is why now that we're above 6.64, keep an eye on it.

21:32Of course, home sales aren't crashing anymore. It's very nitty gritty. And this is kind of how

21:38housing acts, which I know frustrates a lot of people because they want something with higher

21:42velocity, but housing is just not that exciting of a sector. You say that. It's been really exciting

21:49the last couple of years, right? Well, this is a great opportunity for you guys if your listeners

21:55become a subscriber by going to housingwire.com and using the code PODCAST20 because there is so

22:03much going on every single day. Logan writes an article almost every day about this stuff. Of

22:08course, the Housing Market Tracker. So we'd love to have you guys join us as subscribers. I write a

22:13newsletter just for you guys. Oh, and look at that.

22:16Here's Puff. Puff, the main coon who does not like Southern California weather during the summer

22:22because he should be in a mountain, but he usually sleeps during the podcast, but he got up just to

22:28say that hug a mortgage spread too or give it some cat wet food. Oh my gosh, we got a

22:35Puff sighting.

22:36That's awesome. Hi, Logan. Thank you so much as always for keeping us up to date. We'll talk again soon.

22:41Pleasure.

22:46Pleasure.

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