How much higher can rates go?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage rates hitting 7% and whether they can go even higher.  Related to this episode:  How long can mortgage rates stay below 7%? https://www.housingwire.com/articles/how-long-can-mortgage-rates-stay-below-7/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  Buy one, get one FREE tickets to the Mortgage Banking Summit on October 1st https://events.housingwire.com/mortgage-banking-summit-2026  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  How long can mortgage rates stay below 7%? https://www.housingwire.com/articles/how-long-can-mortgage-rates-stay-below-7/  Rocket raises conforming loan limit to $845,000 https://www.housingwire.com/articles/rocket-conforming-loan-limit/  GSEs open VantageScore 4.0 to all single-family lenders https://www.housingwire.com/articles/gses-broaden-vantagescore-4-0-access-rocket-uwm-dominate-volume/  Housing Market Spotlight: When housing market signals don’t agree https://www.housingwire.com/articles/housing-market-signals-local-supply-demand/  What D.R. Horton’s 2027 budget tells rivals about pricing pressure https://www.housingwire.com/articles/dr-horton-2027-plan-closings/  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

00:10Welcome, everyone. Today, I'm joined by lead analyst Logan Motoshami to talk about mortgage

00:15rates and whether they can go even higher. Before we dive in, here are the top five trending stories

00:20on HousingWire.com. First is Logan's story that we're going to be talking about today,

00:25of course, which is mortgage rates top 7% as oil hits $100 and yields climb. Followed by

00:33Rocket raises conforming loan limit to $845,000. Then we have GSE's open vantage score 4.0 to all

00:41single family lenders and the housing market spotlight when housing market signals don't

00:45agree. Finally, we have what D.R. Horton's 2027 budget tells rivals about pricing pressures.

00:53Okay, we're ready to dive in. Logan, welcome back to the podcast, even though I'm sad we're having to

00:58discuss over 7% rates. Hey, listen, as I explained to people on X early, man, it could be a

01:07lot worse.

01:08I mean, I highlighted that. If this was 2023, worse spreads, mortgage rates are above 8.10.

01:13If this was 2024, mortgage rates are near 8%. If this was last year in 2025, mortgage rates are above

01:217.5%. So mortgage spreads did as good as it possibly could. But as always, what drives the

01:2910-year yield and 30-year mortgage rate is that slow dance relationship. And the conflict is getting

01:35to a stage that I don't... I understand that Scott Bessent knows what's going on in the market.

01:43Because last year when Godzilla tariffs happened and the 10-year yield got to 460,

01:48they went into the White House and they told Trump after locking Peter Navarro out that

01:55you need to tweet this because this isn't working. But, you know, for those that listen to us on

02:02YouTube, please comment on what kind of drink do you think Kevin Warsh and Scott Bessent are having

02:07right now? You know, because Bessent basically came out and said, I'm the house. The thing is just

02:12backfired back-to-back days on him. And Kevin Warsh, poor Kevin. I don't really feel bad for

02:18Kevin, by the way, because I'm hashtag anyone for Warsh. But, you know, he's got to go into this

02:23next Fed meeting and have a little bit more open communicative stance because this is such a chaotic

02:32period. And I don't know if... I'm starting to get in a sense that Trump just doesn't care.

02:37Because with the market where it's at and the correlation between the 10-year yield and oil

02:43prices and that oil chart, there has to be a trader somewhere in the White House to say,

02:48homie, this thing is reversing and the downtrend's broken. This thing is looking like it's going to

02:53go to yearly highs. For him to come out and say, well, the conflict won't end until after the

02:59midterms. There is some time between now and the midterms. So we'll see. But not a shock.

03:07This morning, oil prices got above 100, both crude and WTI. PPI inflation wasn't like too bad,

03:13but it was slightly above estimates. Stuff coming out of Europe, you know, about how their Federal

03:20Reserve is going to work. All this together. But the oil to 10-year yield relationship is working

03:28this. So mortgage rates are above 7%. Now, if this is the last few years, it's not a big deal.

03:34This is

03:34what we deal with. But this year, we thought, you know, unless something crazy happens,

03:41y'all could blame me because I cursed everything.

03:44You did.

03:45Then we should be. But to think about it in this light, and this is how I had this conversation

03:51with someone today. It took the 10-year yield to get to 4.92%, Brent crude above 103 times,

03:59and the conflict escalating out of control with crazy headlines that it's not going to end soon

04:05to get mortgage rates above 7%. So we go back to that July article. Like, how much higher can I

04:11even

04:11go if the 10-year yield breaks above 4.60? We had 0.375 to 0.43. So you're looking

04:18at

04:19kind of 7.13% to 7.18%. We're at 7.7% today. So this drama, man, is this

04:26drama week. And we haven't,

04:28this morning, when this podcast comes out, CPI inflation is going to come out.

04:32Yeah. So I do think you noted in the article, like you just said, the bond market did not like

04:38it when

04:38Trump was like, oh, yeah, you know, this might now happen. You know, the conflict might continue

04:43through midterms. And then you had other, he didn't comment on this, but other major news outlets

04:49like the New York Times were saying that his advisors had told him it could actually last

04:54the whole rest of his term, like till 2029, which is crazy. Here's the thing. Iran's economy couldn't

05:02handle that, especially if Trump is going to start blowing up all the tankers. So there is an end to

05:09this. I just think like we talked about three months ago. I don't know if he knows how to get

05:16out of it if it escalates because he's so used to bully ball. But this is a conflict. This is,

05:21you know, we killed their leaders. This is a country that's in their minds, they're fighting

05:26for their existence. This isn't like bullying, you know, somebody in New York or doing a tariff on

05:34Canada. And my concern is always is that somebody makes a mistake that it could get worse, a lot

05:42worse. Iran's economy is going to get really hit with inflation. Their currency is being hit. Their

05:49banking system can be stressed. So I'm not worried about that lasting in terms of it getting bad. I

05:56mean, at that point, other countries would have to come in because, you know, it's going to impact

06:01the world. But for this year, boy, we really took it to the next stage. Just in the last 15

06:08days,

06:08we took it to the next stage. And we remember that deal that we had when the 10-year deal

06:15was

06:15before July 4th. It was right there and oil was flowing. And we talked about the base,

06:22the base being 650 to 675 now with where Fed policy is. But man, boy, we're really pushing the

06:30lever. And homie doesn't care that it's midterms coming up. So we just got to take it day by day.

06:37But again, I stress that oil chart looks terrible. And if oil traders and bond traders are working

06:44together on this, man, because they're hand in hand until something kind of breaks the curve.

06:50Poor Besson tried to do this whole house thing right in front of a week where it escalated. So

06:57here we are. I mean, if you didn't know about mortgage spreads or anything, you're thinking,

07:02well, the last few years, mortgage rates are usually, you know, above 7%. So what's the deal?

07:07But this was the one year that, you know, if everything stayed constant, you know, the 10-year

07:12yield really shouldn't have gone above 460. And that's the high end of the forecast that mortgage

07:17rates shouldn't have gone above 6.75. But you put in variables and you don't run away from them.

07:22You got to focus on them and highlight this. And this is why we did that podcast a few weeks

07:27ago.

07:28Like, hey, guys, things can get worse from here if this thing keeps on moving to this negative side.

07:34Okay. So when you set that parameters, like you're like, here's what you think the upside

07:39could be, which gets us, I think you said to 7.18?

07:437.13 to 7.18. I mean, I'm highlighting that the 10-year yield doesn't go above 5%, really.

07:50And we're at 4.92, 4.93. So we're at 7.7. So it looks about right, you know. Of

07:57course,

07:57you always have to, you know, add the spread variable, but we're here. And I'm just like,

08:03the midterms is still a little bit away. So I don't know. This is like tinderbox stuff now you're

08:13dealing in the Middle East. So, and you got the Houthis and the pirates involved in everything.

08:18This is way too many variables.

08:21So from your perspective, when you wrote that about the high end there being like 7.18,

08:27do you think it could go higher than that? Are those things are still there?

08:30If the conflict keeps on pushing the 10-year yield, especially above 5%, it should break,

08:37right? It would be very, very shocking to me if mortgage rates stay below 7.18,

08:44if the 10-year yield breaks above 5. Because we have leeway. Like I can make a case that

08:49in 2023, where inflation and everything was, the 10-year yield never got properly priced.

08:56It never really wanted to break up higher. But the Federal Reserve back then,

09:00was like the growth rate of inflation was falling faster than they wanted. But the labor data was

09:05beating their estimates. So they stayed hawkish. And that time, I remember, I remember that day,

09:10because I remember going on CNBC that morning and said, Powell will be hawkish because the labor

09:15market is not breaking to them. They need more labor pain. And the 10-year yield went from like 4

09:20.37

09:20all the way to 5%. And Austin Goolsbee, the smirk of Austin Goolsbee, was like, what's the 10-year

09:26yield doing? In 2024, Lori Logan was like, oh my God, the 10-year is at 4.60. We don't

09:31have to be

09:31that restrictive anymore because of the long end. Nobody's saying this anymore, right? And this is

09:40where the bond market feels like it could push things higher as long as the conflict keeps on

09:46moving. And that's why that 5% 10-year yield would be a good test. But if it breaks above

09:51that and goes

09:51higher, I would be shocked if mortgage rates stay below 7, 18%. But we're here. And who knows how

10:01these headlines go? I mean, they've tried every single gambit out there to try to suppress oil

10:06prices. But I think Trump might have been told that, hey, listen, there's more oil flowing, but we

10:12should be fine. But man, no, no, it doesn't work that way. So we're here.

10:21Do you want to go, when you think about how high could they go, would you say like 7.5,

10:268? Or do you see-

10:28No, because to me, to take it to that next level, to take it to 7, you need the 10

10:34-year yield above

10:35550. You need the Federal Reserve to okay that. Okay. So right now, the Federal Reserve has still,

10:42and this is, I stress this to people, people like to blame the Federal Reserve on this. Homies,

10:46we went into a trade war and a conflict in the same year. Okay? You cannot do that when inflation

10:53is above target. All right? Stop focusing on Kevin Walsh and Bessett and everything. This is us.

10:59This was our thing. But to get to that next level, the Federal Reserve has only talked about

11:06taking back the insurance rate cuts from last year. I mean, the Fed funds rate was much higher

11:10when the 10-year yield was at 5%. They need to kind of okay the long end moving higher. Like,

11:16remember in 2023, when mortgage rates got to 6%, Neil Kashkari came on TV and said, oh my God,

11:226% mortgage rates, housing is so in life. We can't rebalance the economy that way. But when the 10

11:28-year

11:28yield got all the way down to 362 in 2024, 362, you know how far that was? Just because the

11:35job

11:36numbers were running at 160,000 per month, we would kill for 160,000 per month. But the 10-year

11:42yield

11:42was running off of the growth rate of inflation falling and the Fed being behind the curve.

11:47The Fed is not saying anything. They're letting this go. So you need them to okay these moves

11:56by saying we need to be more restrictive, more restrictive. We don't mind. Like if Lori Logan

12:00and Beth Hammock and Neil Kashkari come out, we don't mind the long end going higher. Like

12:05they kind of said before that we still see it as orderly. When Neil Kashkari talked about orderly

12:12move in the 10-year yield higher, we don't see any difference. Those are the things that could try to

12:17take you to that next level. But you got to break above 5% out there and they got to

12:22be okay with that.

12:23And the conflict has to get worse, right? Because that's a whole new ballgame if that happens.

12:30Okay. So now next week is really in play. What are the odds now for the...

12:36Oh, I think the last time I checked was over 68%. I'm pretty sure Besant is probably trying to think,

12:44okay, we're going to have to do to plan B. This is why I kind of say the Treasury can

12:50do...

12:50They can do things if they really, really wanted to. I don't know how much they want to push that

12:55lever now with the conflict. Because now you get to see, man, with the conflict, it's harder to bring

13:01these things. If there is no conflict and you're doing that, you've got a little potential to get

13:06yields lower. But very, very exciting week. I know it's terrible for people in the mortgage or real

13:12estate industry because this is the first time you've seen seven. But as an economics nerd and

13:17a market person, boy, you really get to see this battle between the 10-year yield and oil prices

13:22versus a Treasury that's trying to suppress it. And a president who's just, you know, $5,000 checks

13:29to everyone if we win the House and the Senate, which will amount to $1.35 trillion of new spending.

13:39This is why I don't like politics. I'll talk about political economic theory when I thought

13:46it needs to happen. But if I took some of this stuff, Sari, between the $5,000 checks to $2

13:53,000

13:53checks and everything, and how much Treasury supply would have to happen to fund something

13:58like that? And just like, no. And that would be inflationary, right?

14:02Well, I mean, not only is it inflationary, checks are direct deposit monies that things

14:08get spent or debt gets paid off. Whatever that is, that keeps spending going. The Federal Reserve

14:15does not want more spending in this. They're worried about that. You know, when you look at food

14:20inflation, the food inflation charts aren't looking great. They're starting to perk up. They're not as

14:26high as they were in 2022 because the Russian-Ukraine war actually took wheat prices, escalated them

14:34because of how wheat is farmed over there. But here, that's even perking up. And that's the thing

14:40about diesel. When the Fed members start talking about, we're starting to see the conflict embed

14:46itself. They're really talking about food prices and diesel. So there's way too many things, man,

14:52way too many things happening at once, and they're not getting better. They're getting worse. That's

14:57the problem. That is the problem. Okay. So you said that the Fed would have to basically sign off

15:05because what we've said before is like so much of a Fed funds rate increase has already been baked

15:10into mortgage rates, but you're saying that's different now. Look at this entire rate move from

15:165.99% to 707. There's no rate hikes, right? When mortgage rates went from 8% all the way

15:25down to

15:256.63% in 2023 to 2024 or the end of December of 2023, there was no rate cuts. You

15:35know, when the 10-year

15:36yield went from around 471 down to 362, there was no rate movement. The bond market does not need to

15:46wait for the Federal Reserve. It'll just move off of the data and the data they're moving off of

15:50for months now, months. Like people are telling me the Fed won't raise rates. I'm like, oh, homie,

15:56it does not matter. They are pricing it on the long end. That's not how it works. That's like all

16:02of a

16:02sudden, hey, they didn't raise rates. Who cares? The 10-year yields at 492. The bond market does not

16:08wait. It's between six weeks before a meeting. So kind of focus on that. Know that the White House

16:17is trying to suppress it, but it's very, very difficult when the conflict gets worse, right?

16:23So you need this conflict to get worse and worse, and you need the Fed to okay the long end,

16:28getting above 5% without them worrying about that. So this is the things that we have to move forward

16:33with. And that's why we did that podcast like two weeks ago about, hey, listen, the outlook for 2026,

16:39it can get worse if this one variable keeps on going up on the escalation clause. And that was

16:48this week. I think this was a really, really good week to show that. And mortgage spreads,

16:52they tried their best this year, man. They tried their best with trade wars and trade war 2.0 and

16:58the

16:58conflict and Brent crude being up over 100 three times within a calendar year. That's pretty nuts.

17:06It just couldn't do it, right? The slow dance eventually wins at the end because that's really

17:10how the 10-year yield and 30-year mortgage rates move and yields matter. And there's been no rate

17:15hikes at all this year. They've already priced in a lot. No. And as you said at the top of

17:21this

17:22podcast, you talked about how we'd be over eight if we had some mortgage spreads. Yeah, we'd be over

17:28eight, over eight, 10% today if it was the worst levels of the spreads in 2023. But the geeky

17:34side of

17:34me is like a lot of people don't understand why spreads have gotten better, etc., but that's the

17:39history of mortgage spreads. We talked about that. You can see charts on that going back. It's like an

17:43EKG meter sometimes out there, but it's very interesting. And of course, today we got existing home

17:50sales. Yeah, okay. So what did existing home sales show us? So as we talked about in the podcast two

17:56podcasts ago, is that kind of expect for existing home sales to break under 4 million. It got to 3

18:02.98

18:04million on the seasonal adjusted. When mortgage rates got above 6.64, we've highlighted it in the

18:10last tracker. Our forward-looking data starts to get weaker. That's not a shock. The flow of data for

18:16the last, this is the fourth year. It's actually very, very consistent where mortgage rates get

18:22towards 6, growth, mortgage rates above 6.65, slows down, especially when it gets above 7. We're at

18:27that 7. So just kind of thinking and you're not going to get much traction. But the velocity of

18:32the moves in sales is just very small on the upside and downside. Because even though rates were rising,

18:39it held up a little bit better. Prices were up 1.6% year over year. My forecast clearly would

18:46have

18:46been wrong if rates stayed lower for longer for that negative 0.62%. But one, on another topic,

18:54which I love to talk about, monthly supply got to 4.9 months. Of course, monthly supply and

19:00during the housing bubble crash year, it was like over 10 months and we had distressed sales. But

19:04Joe Wieselstein from Bloomberg retweeted that and said, hey, the housing crisis is over,

19:10right? There's no shortage. Yeah. So the shortage argument that, you know, you and I said that we

19:18did that. Oh, you weren't there in the podcast. I did that solo. I listened to it. Yeah. I have

19:24a

19:24whole different take on this thing. As long as total active inventory is 1.52 to 1.93 in over

19:31four

19:31months of supply, that's plenty of inventory to have a functioning marketplace. So you don't have to talk

19:36about shortages. That's kind of already happened last year and this year. And you can see the

19:40marketplace is much different. What is crazy is that people said, well, look, there's more supply

19:46of homes, but demand didn't pick up. That's the exact opposite way of how you should look at it.

19:52And how I explain that is in 2022, inventory was at all time lows, but we had 2 million more

19:58home sales

19:59back then with inventory at all times. Don't look at supply as being that, you know, if monthly supply

20:05grows or inventory grows, well, homes that used to be the case in the previous decades, the 80s and

20:1190s and 2000s, where you'd have rising inventory, rising sales, but we closed transactions much

20:18faster. 70, 80% of home sellers or buyers, when they buy, when they get their household, they buy

20:24another one. We closed things so faster. It doesn't really capture itself in the inventory data. So

20:29you could have much lower, uh, active inventory and have much higher home sales. And that's kind

20:36of been the case. This is a really good example of that. Uh, total active inventory, I think is a

20:411.64

20:41million. Normal historically is between two to two and a half million, but we're kind of in that level

20:47to where I don't, my housing shortage discussion goes all out the door. And then you can look at the

20:53builders out there. And traditionally when they get above 120,000 completed units for sale,

20:57their construction housing permits and starts at multi-year lows, and it doesn't look good for

21:03the rest of the year or for 2027. So for the housing shortage, we're going to build millions

21:09of millions of more homes. And we go back to June of 2021 and say, when rates rise, this is

21:15over.

21:15Don't put all your eggs in that shortage basket. This is not how we operate in America for six decades.

21:20These are economic and business cycles. Why Sarah Ghostbusters 1984 Dan Aykroyd. This is a private

21:29sector, homie. They expect results. This is not the public sector, public sector. You all can just

21:34lose money and do crazy things. And private sectors is different out there and builders are not the

21:40march of times. They're not. I always appreciate when you bring up that inventory point, because it

21:46can be confounding if you're like, I don't understand how we sold more homes than we had

21:50in inventory. How does that work? And it really is. It's just lacking. And it's not anybody's.

21:56Yeah. When I show that chart on the Nerd Tour and I go, homies, y'all remember this? We had

22:012

22:01million more home sales. So don't tell me is, we have no homes to buy. How are we supposed to

22:06grow?

22:08Any economist who says that, you take a ruler, slap their hand with a ruler. No, homie.

22:13Logan said, we had 2 million more home sales with inventory at all-time lows because the

22:18transaction models are different. And you go back to like two decades ago, fax machines,

22:24trans boxes, paper. I can't just have to make a whole lot. Now you can do things much faster

22:30these days and you get to see it in the data lines. Really, the qualified mortgage and Dodd-Frank

22:36and everything and the productivity of how to close things is really prevalent in the data.

22:42It never gets talked about in this way. Nobody says, I saw it again. Inventory's up,

22:48a wired home. That's not how it works. Every time we talk, I'm like, I'm so excited that you're going

22:53to be the headliner for our mortgage banking summit on October 1st here in Dallas. If you're on the

22:58mortgage side, you should be there. Logan has some different things planned for this one. It's going

23:02to be different than he's done before. And I mean, the timing could not be more perfect.

23:06You know, it's late in the year when that event happens in October. We're not only talking about

23:13what's going on now, but we have to start talking about 2027. And I think, again, too many people

23:19are putting too much weight on Kevin Warsh or Scott Bessett and not what really drives yields and rates.

23:27And hopefully this year, like, you know, loan officers were like laughing with me today. They're

23:33saying, oh, for all those people that didn't refinance because they heard Kevin Warsh was going to cut

23:39rates and rates are going to go much lower. Now look at, you know, and again, we do channels and

23:45we've

23:45always said this. It's we have no history in the United States of America for mortgage rates to get below

23:515.75% with any kind of duration is the Fed funds rate is just getting to 3%. We're no

23:56longer going

23:57to neutral policy. We are hiking rates. So this presentation will actually talk about not only

24:012026, but also getting the front end of what we should think about in 2027.

24:07Ooh, looking forward to that. And we will talk again soon. Logan, thank you so much for guiding

24:11us on this momentous day, sad day being over 7%, but also happy it's not worse.

24:17Pleasure, sir.

24:28You

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