Mortgage rates, housing demand and inflation week

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage rates and housing demand.  Related to this episode:  The housing market defies expectations even with higher rates  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  HousingWire Mortgage Banking Summit – October 1  More info about HousingWire  Top 5 Trending:  The housing market defies expectations even with higher rates  Grand Rapids leads Midwest housing surge as buyers chase affordability  UWM downgraded by Fitch after Q2 loss, Oaktree deal  Real estate’s consolidation wave is coming for proptech  Home equity hits $18T even as delinquencies, foreclosures rise  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

00:11Welcome, everyone. I'm joined by lead analyst Logan Motoshami to talk about mortgage rates

00:16and housing demand. Before we get started, here are the top five trending stories at

00:20housingwire.com. First, we have the latest tracker, mortgage spreads keeping housing

00:25demand intact, followed by Grand Rapids leads Midwest housing surge as buyers chase

00:30affordability. Then we have UWM downgraded by Fitch after Q2 loss, and real estate consolidation

00:37wave is coming for PropTech. Finally, we have home equity hits $18 trillion as delinquencies

00:43and foreclosures rise. Logan, welcome back to the podcast. It is wonderful to be here. I woke up

00:50early in the morning, and I saw, before I even saw the 10-year yield, I saw an update of

00:55me on this

00:56day, August 2021. I forgot. I used to take these big, long summer vacations to these exotic resorts

01:07over the years, and I'm going to the California NBA event right after this. I had this fun summer.

01:17It was Amanara and Turks and Kaikos, and the water was beautiful, and I was just like,

01:23yeah, I can't do those anymore. I got work.

01:26Dang, you never take off now. I mean, even when you were there, you were working, let's be honest.

01:32Yeah, even though I was there. This is how I am. But Monday morning, conflict news. Again,

01:39the 10-year yield really revolves on conflict headlines. And oil prices in the 10-year yield

01:46weren't really doing anything too much, and now we're back and forth on negotiation tactics. It's

01:52funny, because Iran was talking about, you know, we might not even deal with Trump at all until the

01:57presidency is over. You know, that's very 1980s, you know, Reagan-Iran thing. We want all this money

02:03for all this damages. Trump comes back and goes, okay, well, we want all this money for you killing

02:08all these people and hurting Americans, you know. So we're at that stage right now. But in any case,

02:14oil prices went up to 81, 10-year yield was 4.69. We are still here near cycle high. So

02:22the question

02:22is, you know, how does demand look now that mortgage rates are above 6.64% for some duration?

02:30Yeah, I thought the tracker was great. You know, the thing about the tracker is week in, week out,

02:35you're looking at the same things. And you can see over the long haul, because whatever it feels

02:39like, the data tells us what's actually happening. So once again, we had demand hold up.

02:46You know, it's interesting, you know, just for everybody, for some reference, the 2026 forecast

02:54for existing home sales was 237,000 more existing home sales if rates could stay six and a quarter and

03:00under. So how do I come up with that? If you look at the last few years, whatever rates head

03:06down

03:06towards 6%, just stay there. Demand picks up. It's a couple hundred thousand. If you had an entire

03:11year like that, you could solidify that. Whenever mortgage rates get above 6.64% over the last few

03:20years, housing demand slows down. Now, some of that is you go from a positive demand curve to a negative

03:25demand curve. But what's happened over the last few years, of course, as we talked about in the last

03:31podcast, you know, home price growth to slow down, wages are picking up, you know, home sales haven't

03:35aren't crashing at all. After 2022, they're just basically kind of stuck here. And this is why we

03:41like to use those existing home sales charts going back to late 60s. This is not uncommon, but we're

03:47building a better and better base. This year, though, because of mortgage spreads, we haven't had too

03:54much time with mortgage rates above 6.64%. But now that we've had some duration under 6.64%,

04:01you can see the housing data slowing down. First, it's the weekly pending sales data we have. And

04:07then the total pending home sales data kind of lags that, but you can kind of see it,

04:12except it hasn't gone negative, which somewhat surprises me because it's a little bit of more

04:16time, that we could have an 86% bottom to peak move in rates and still not have a negative

04:23curve yet.

04:24We're very, very close. I mean, in a sense, housing demand is flat year over year. Two of the last

04:30three were positive, but just by a smidge. Purchase application data was negative just by a smidge,

04:36the 3% year over year. But so far, it's held up. And again, this is all mortgage spreads related,

04:42really. The spreads basically have kept rates under 7. This is the first time in many, many years that's

04:47not been the case. We've written and talked about why is it hard for mortgage rates to get above 7

04:53%

04:53now because so much is priced in, the Fed, you know, all these things, but it's still kind of

04:58intact. And just imagine if there's no conflict. Imagine if there was no conflict and no tariffs,

05:06right? I always say that even if you didn't have the tariffs or the conflict and the growth rate of

05:11inflation is near 2%, it's really hard for mortgage rates to get below 5.75% with neutral policy being

05:183% target. But, you know, it would have been a much different backdrop for housing. This is where

05:26housing is really related to the long end of the bottom market. But it's such a, I love the tracker

05:31in these kind of thing, in these kind of years, because when rates are low and demand's picking up,

05:36it's fairly easy to kind of read housing data, but this is like the nitty gritty stuff. So I encourage

05:42everyone, those who have not read the tracker, you get to really see, because our stuff looks out,

05:47you know, 30 to 60 days. So we tend to be two, three months ahead of everyone else. So we

05:52get an idea,

05:53but you can see the growth rates slowing down. Look what it usually has. We just haven't had any

05:58total negative prints yet. So when you saw oil prices jump up this morning because of this talk,

06:05how much did the bond market really believe that? Because at this point, it's like, you know,

06:11with Iran saying, oh, we're not going to do anything until Trump's out. I mean, that's a long

06:15time. That's a couple of years. I could see midterms, but like no way can, I mean, it doesn't

06:20seem reasonable that they could hold out for a couple of years. You know, every morning I do like

06:25an Instagram reel about what's the 10-year yield in oil prices doing, because I am such a winner.

06:30This is what I do on my Instagram page. Everyone has fun. I'm like, let's go look at oil charts.

06:37And for the first time, I had to update that because then the Iranian negotiation stuff came

06:43out and you could see a one-to-one where oil prices shoot up a little bit higher and the

06:4710-year

06:48yield shoots up a little bit higher. And just remember, this is not Kevin Warsh's Federal

06:53Reserve. This is Beth Hammocks. This is Lori Logan. And what we talked about in the last podcast about the

06:59jobs report, Beth Hammock probably loves this jobs report. Lori Logan probably loves this jobs

07:04report. If wage growth goes lower and lower, they can get their, you know, 2% inflation. That will

07:11help them bring inflation down, even though it might slow the economy down, which is the irony is Neil

07:16Kashkari is like, oh, well, I don't want to slow the economy. This economy is already, the labor data

07:21is already slowing, the housing data is already slowing. So regardless of what you believe, one man is

07:26not an omnipotent, all-powerful economic person. It's the market data that basically runs everything.

07:31So yeah, it's the conflict. If you check it out for the last three months, you run the 10-year

07:37yield and oil prices off of conflict headlines. The velocity of the moves are really around this now.

07:43But also, this is a more hawkish Federal Reserve than it was at the start of the year. At the

07:48start

07:48of the year, people still had two to three rate cuts. Kevin Hassett actually came on TV this morning

07:53and said, we should have no hikes and probably a rate cut going down in the future. So it's an

08:01interesting tactic back and forth right now, but this is how it's going to go. I'm pretty sure the

08:07Iranians probably want to make this as painful as possible for as long. I mean, we're going into

08:11six months now. But oil prices right now are not at 100, 120, 150. They're at 81. We've traded between

08:1967 and 82 in previous years and not think anything of this. But we're just at that stage.

08:27But yeah, conflict headlines, both positive and negative. You get to see yield movements one-to-one.

08:34So one more thing on the mortgage rates. I love every week when in the tracker and everybody loves

08:39this. They screenshot it, they put it up. And it's like, listen, with the 10-year yield,

08:43where it is today. If we had spreads like in 2023, 24, 25, what would mortgage rates be?

08:50And it's always much higher. So give us that list for this last week.

08:55I think if we go back to 2023, and just remember, 2023, it's really rare for the spreads to be

09:01above

09:013%, how we track the spreads. The last time it happened was 1986. So 2023, I actually, I love

09:09teaching this now, you know, how spreads operate. So 2023, mortgage spreads were getting a lot better.

09:14And then the Silicon Valley banking crisis happened. And then the Fed kept on high key rates. So we had

09:183.11% spreads. Normal, 160, 180 in the last few decades. The high was 5.93%, I believe, in

09:25May of

09:261984. Also, that year was negative 0.24%. Oh, that was a wild year. Sarah, could you imagine us doing

09:32a

09:32podcast with the spreads being near 6% and then having a negative number? Oh, Lord, we'd be doing

09:39three podcasts today then. But mortgage rates would be 7.84%. So when we say that housing data does not

09:48look good when rates are above 7%, there's your thing. Home sales weren't necessarily crashing

09:53in 2023, 2024, and 2025, but they weren't growing, right? So you go from that growth phase to

10:01slowdown phase fairly quickly. 2024, even though the 10-year yield got to 3.62%, right? That would

10:11get you sub 5.75% rates today. But the mortgage rates were, I think the low point of that

10:16year was

10:166.12%. Mortgage spreads were still elevated. So rates would be 7.47%. Again, not a positive thing for

10:25the housing market. But even last year, right? Last year, mortgage rates would be 7.27%. Now,

10:33you're talking about a half a percent movement. But what I always say that when we get above 6.64

10:38%

10:38and then head above 7%, we have zero positive data lines in the last three, four years. So now we're

10:44saying we're just holding up growth barely right now. We're going to get the existing home sales report

10:51when this podcast comes out. I don't expect much to happen there. But if you really wanted to have

10:57growth where you know you can get this in, six and a quarter and under low volatility is a sweet

11:02spot,

11:03right? I can't forecast below 5.7%, but I can get closer to 6%. The conflict really changed the whole

11:11apparatus of 2026 because it was the unknown variable, but it's also still going on.

11:18And the Fed doesn't like it. The Fed hawks don't like this conflict. So the bond traders are properly

11:24accordingly to what the Federal Reserve is telling them. Because remember, it's not Kevin Walsh.

11:29Kevin Walsh doesn't want to lead this. It's Beth Hammock and it's Lori Logan. Those two people,

11:34including Neil Kashkari and the smirk of Austin Goolsbee, those people are running the charge. The rest of

11:40the Federal Reserve hawks nobody knows about or nobody cares. So nobody really talks about them.

11:45So I don't mention them as much, but they run the show. So the bond traders are doing exactly what

11:51they should do when the negotiations don't appear to be going well. Okay. Well, of course, we always

11:59have to pay attention to inflation and it is inflation week. So how is that going to play into this?

12:04You know, now we have CPI and PPI. So it is strange how the Federal Reserve got very, very hawkish

12:13and then the CPI data came in and whiffed. The PPI data came in and whiffed. We've had back-to

12:18-back

12:18jobs reports that came in lower. We had negative revisions. Wage growth is going lower. The PC

12:25inflation data wasn't hot like they were thinking it might. And we're still near yearly highs with

12:35the 10-year yield. Now, in the past, all of that would have meant something, but the Fed went

12:43very hawkish for hikes where two to three rate cuts were priced in. So I always say that like the

12:50Beth Hammocks and the Lori Logans got what they wanted. They wanted to be a tighter policy.

12:552024, Lori Logan would say, you know, we don't like the 10-year yield being here because the term

13:00premium is too high. And that's in a sense, we don't need rate hikes anymore because that's

13:06restrictive policy. She's not saying that anymore. So this inflation report will be interesting.

13:13We're going to get another jobs report and say that jobs report rebounds to a degree and wage growth

13:17goes up and you have positive jobs. This inflation report will be key for them to kind of gauge where

13:23they can go with this. But I don't know if it comes a little bit softer, you know, the case

13:31for

13:32September becomes harder and harder because they the hawks to raise raise rates. They need four more

13:38people to join them. And, you know, Christopher Waller said hot inflation will be in play. But now they

13:45say, listen, this is five years. Inflation is above trend. You know, you know, supply shocks. We're not

13:51supposed to go with them. But, you know, we can't keep on ignoring this. So big, big week on that

13:57front.

13:58Middle of September will be the next Fed meeting. But, you know, the whole the White House's whole

14:04theory going into this year was when energy prices fall, everything will fall with it.

14:10I don't necessarily agree with that premise, but that their whole game plan just blew up because

14:16now that that isn't the case. However, they also said that we are going to deport a lot of people.

14:23We're going to let less people in. And because there's less immigration and people are leaving

14:28the country, we don't need shelter as much, which is the irony. Think about think about the rationality is

14:34we need to build more homes because the White House says there's 10 million homes short. Yet

14:39we're going to have the growth rate of inflation fall because there's going to be less people that

14:43need shelter. In a functioning world, the supply and demand equilibrium, the builder is going, well,

14:50I'm not going to be really building homes like crazy if that's the case. So keep an eye on that

14:55shelter disinflation, right? We had this conversation with someone in Florida where they go, well,

15:01there's a problem, you know, rents are declining, but people aren't really fill it in. Now, this isn't

15:06the case for the entire country, but there are parts out there. Well, I said, let's think about

15:10it. What is economics? Economics is to be demographics and productivity. The rest is stamp collecting.

15:17Yes. The rest is just stamp collecting. Well, if you have less migration to Florida,

15:23less immigration to Florida, and you have more people leaving in Florida, right? I think the Venezuelan

15:32law that came in impacted that state disproportionately, well, you need less

15:37housing. So it doesn't matter how much rents go down. If you don't, if there's not more people

15:42coming in there, you don't do that. So I think some people were just, are still on the premise. Well,

15:47home sales are low. So why aren't more people renting? We should not have rental vacancies

15:54this high. Well, think about it. If demographics is economics, less migration, less immigration,

16:00kicking people out. You are taking away demand for that. And that was the White House's game plan.

16:06Y'all could go back and listen. They said, we are, our immigration policies will bring disinflation for

16:12housing. It also makes the case for building more, a little bit, not valid. So the CPI can have the

16:20rent factor into it. It doesn't have the rent factor so much in the PCE, personal consumption

16:27expenditures that will come out later in the month. 42, 43% of CPI inflation is shelter, rent.

16:35It's like 16 to 17% for the PCE. So if it does come as a little bit of a

16:40smidge lower and it's rents,

16:42I don't know how much the bond market will really put a weight into that, but still,

16:47you know, it's, it's going to be harder for a September rate hike. And I, we talked about this

16:53with Wars. I think Wars is just stalling for time and wanting this conflict to end because everybody

16:57sees what's going on. And on top of everything, Godzilla, not Godzilla tariffs. I got into the

17:04ring with Godzilla last night, you know, and I gave one good right hook and he, homie went straight down.

17:11Right. And, uh, uh, the reason we brought Godzilla out is the yen, the Japanese yen. And, you know,

17:17whenever the 10 year yield gets above four 60, the white house gets a little bit nervous and they just

17:21want to make sure that, you know, for right now, Japan doesn't add on to all the other stuff that's

17:26happening. So I was like, it's a party now we got, we got a lot going on. We've got to

17:30put the

17:30Japanese yen into this, uh, equation. And half of that big move to, to, to, to, uh, rally on the

17:38end has already been given up. So we got a lot coming up this week.

17:42We really do. So let me just clarify this because, um, I was there when that person asked the

17:47question in Florida, I thought it was interesting. Um, even though maybe, uh, the question he was

17:52asking wasn't, wasn't, uh, relevant to what you had just said, but one of the things that the

17:57white house has said and, um, different people in the administration was that by limiting immigration,

18:02they are going to bring down housing costs. So it sounds like what you're saying is if we have

18:07more rental vacancy, maybe that, maybe that, uh, you know, does that. What do you think

18:12having less immigration does to housing in general? Well, just remember we have over 162

18:18million people working and we we've always highlighted this, the notion that the Guatemalans

18:24come through Mexico and outbid BlackRock in these 10 to 15 to $20 million homes in Los Angeles

18:32by the hills. It's probably not a valid thesis for home buying. That is not a big, like the,

18:40that's not a big variable out there. Cause we just have so many people still here working.

18:44We have five generation of home buyers still. Uh, and then you add investors, all that,

18:48all you, you still have it here, but for rents though. Oh yeah. For, for rental stuff that,

18:55that, that, that you, you've got me believing you 100% if somebody wants to make that. And that

19:00was, that was a framework. That was a framework. And by the way, you know, when people, people

19:04always tell me, but Austin homies, everyone, Austin is one city. You cannot live the entire

19:11U S housing economics off the city of Austin. There are 108,000 cities in America. Okay.

19:17You can't say what's happening in Austin is everywhere around the country. Cause if it was

19:21home prices nationally would have gone up 76 and a half percent in two years,

19:25and they would have fallen 30% from that peak, that's not the case here. So please do not

19:30use Austin or those few cities in Florida. And then like, Oh my God, I'm just going to forget

19:36about 108,000 cities out there and make this narrative. So, so a less immigration, less migration,

19:43Texas and Florida, and then kicking people out. When you kick somebody out, wherever they were living,

19:49they're not living anymore. Right now you can make a counter argument that, you know, a lot of,

19:54a lot of families were, or you have multiple family members in one house. So the, the vacancy

20:00is not, but still when you kick people out, let less people in the need for shelter is less. It's

20:05just that we have 340 million plus people in America. We have over 162 million people working

20:10in the buying and selling thing. It's not going to be a big, big proportion. You have all these people

20:15say, Oh my God, there's 20, 20 million illegal immigrants. Home prices only rose because of that.

20:20I'm like, no, no, that's not, that's not how it works. It's never worked that way since the

20:26Peloponnesian war. And we always refer back to other times in history, like 1943 to 1947,

20:32that five-year period averaged 18% home price growth. We had a couple of years over 20%. That

20:37wasn't BlackRock or the Fed buying mortgage-backed securities. You know, inflation took off right then.

20:42Late seventies, late seventies, mortgage rates went from eight to 13%, right? Home prices grew faster

20:49back then, right? That wasn't BlackRock or the Fed buying mortgage-backed securities. That was

20:53inflation, right? COVID inflation, right? COVID inflation wasn't because 20 million illegal

20:58immigrants came in and started buying homes out there. So the disinflation that we see in housing,

21:05very positive. I'm a big fan of it. I might not get my price decline forecast at negative 0.62,

21:10but I'm loving this year. But for rents, it is a big deal. And it's something that operators are

21:17going to have to learn how to track that a little bit better. Because if you're not getting the

21:21migration there and you're not getting the immigration and then picking people out, your area

21:27might have more vacancies for reasons that are not so economically related to mortgage rates or wages

21:34or anything in that matter. Well, thank you for explaining that. It does get confusing,

21:38especially when you throw in all these variables. Good luck at the California NBA. I know you're

21:43speaking there. We're hosting our AI Summit at the same time here in Dallas. So we've got

21:48a full house. We actually sold out. People can still get tickets for the virtual event, but

21:53both great things happening. Yes, yes. And if you want to see, go check out Twitter or Instagram,

21:58see me at a boxing match, which is Godzilla. So we had Godzilla tariffs and now we have Godzilla

22:03yen this week. So we've got a lot going on. Your AI game is so strong. In fact, I think

22:09sometimes now when you put AI, people are like, is that AI or is that Logan? We can't tell.

22:14First world problem, if that's the case. I love it. Okay. Thanks, Logan. Talk soon.

22:22First world problem, if you want to see, we'll see you in the next video.

22:25Bye.

22:26Bye.

22:27Bye.

22:27You

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