2027 inflation and mortgage rate outlook

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the inflation and mortgage rate outlook for 2027.  Related to this episode:  Mortgage rates top 7% as oil hits $100 and yields climb https://www.housingwire.com/articles/mortgage-rates-top-7-as-oil-hits-100-and-yields-climb/  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:  New credit score pricing grids point to higher borrower costs, report shows https://www.housingwire.com/articles/vantagescore-llpa-grids/  Mortgage rates top 7% as oil hits $100 and yields climb https://www.housingwire.com/articles/mortgage-rates-top-7-as-oil-hits-100-and-yields-climb/  Homeowners insurance costs hit another record high of $209 per month in Q2 2026 https://www.housingwire.com/articles/ice-property-insurance-record-high/  MLS of 2030 will be defined by who controls housing data https://www.housingwire.com/articles/mls-of-2030-will-be-defined-by-who-controls-housing-data/  Putting the ROAD Act into action faces a funding and HUD gauntlet https://www.housingwire.com/articles/road-act-implementation-timeline/  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. I'm joined today by my podcast partner in crime, lead analyst Logan

00:15Motoshami, to talk about the inflation and mortgage rate outlook for 2027. Before we

00:21dive in, here are the top five trending articles on HousingWire.com. First, we have new credit

00:27score pricing grids point to higher borrower costs, report shows, followed by mortgage rates top 7%

00:33as oil hits $100 and yields climb. Then we have homeowners insurance costs hit another record

00:40high in the second quarter. And the MLS of 2030 will be defined by who controls housing data.

00:47Finally, we have putting the Road Act into action faces a funding and HUD gauntlet.

00:52Okay, we're ready to dive in. Logan, welcome back to the podcast.

00:57Why do you always laugh at me when I put throat spray on?

01:00If people could only see what happens before we start recording is hilarious.

01:05I talk a lot throughout the day. I always think about this because I used to be a high school

01:09basketball coach in the last century. And I don't think I could yell like I did back in

01:13because, you know, after like two podcasts or interview or one presentation, my voice hears it.

01:19So I use it.

01:22There goes the throat spray. That's what happened. And there's usually a lot of hair adjusting,

01:26although really, I mean, it always looks great. So, all right. Well, we have a lot to talk about.

01:32I mean, wow. I love that you're doing, you know, a preview of what to expect in 2027.

01:40You know, I only do my forecasts always at the end of the year to take all the variables and

01:44put them

01:45in there. And but today the CPI inflation report came out and very, very interesting day on the

01:53market side of things. The CPI inflation report came in a smidge hotter than what was anticipated.

02:00But the month to month data that the Federal Reserve said we're hanging our hats on

02:05was a little bit hotter than estimates. So in that mindset, the market fully priced in a rate hike

02:12next week. But the 10 year yield went noticeably lower right away. So I saw an economist do this,

02:23which I, you know, shame. They said, oh, we're going to be serious about fighting inflation.

02:29So the 10 year yield went lower. I was like, oh, oh, we know, no, no, no, no, no, no,

02:35no, no.

02:36Let's go back to over tonight. You know, there were some headlines that the Gulf countries are

02:42all going to talk and maybe get whatever. In any case, oil prices went lower. The 10 year yield

02:48went lower throughout the early morning. And then after the report, it went even more lower.

02:53It didn't even care about the inflation report like you and I have been talking about

02:57because so much is already priced in on the market side. And then all of a sudden, you know,

03:05oil prices started to tick up again and the 10 year yield ticked up again. So if you made your

03:11premise

03:11in the early morning that the bond market was going lower because the Fed is going to get serious about

03:19inflation and start raising rates, that's not it. That's not the last, you know, you know,

03:26since the 10 year yield got above 460, man, a lot of the movements is really conflict related. Now,

03:31this doesn't mean that the 10 year real all the whole thing is is because of oil prices. We had

03:37I even brought this up on on on on on X today. We had elevated oil prices from 2011 to

03:442014,

03:45similar to what we have now. But the growth rate of inflation was very tame. The labor market was

03:52weaker back then. Wage growth was weaker back then. The economy's nominal growth was weaker back then.

03:57So there are there are stages of this inflation story that first started with the labor market

04:03stabilizing. The labor market stabilizing gave the Fed leeway to start to do hawkish statements.

04:10And then they try to get the markets to go along with it, which I thought they were successful of

04:14explaining the break events, which I still don't think people understand. And then the economy's

04:19nominal growth was good. And even with wage growth slowing down, the conflict on top of where inflation

04:26was just, you know, made this situation worse. So you can you can make a case that a lot of

04:33the

04:33movement after four 60 is conflict related. But there's a lot going on here that's just more

04:40than oil prices. So and of course, we have to we have to give the caveat that we are recording

04:45this

04:46on Friday morning. There is no telling what will happen conflict wise that could affect things over

04:52the weekends, Friday night, Saturday, Sunday. It's all you know, there's nothing we can predict about

04:57that. But we got pirates. The Houthis are like taking over islands with sandals on and they look

05:05like they have machine guns from like, you know, the 1980s, you know, so things are it's pretty wild

05:11over there. But to think about it in this light, let's say we just had no conflict. There was energy

05:21prices were still under $60. Right. And the growth rate of rent inflation is is is is lower than what

05:28it was. It would be hard press for the Federal Reserve, even with the labor market to improve,

05:36that they would be actively trying to produce a new rate height cycle, which they're doing right now.

05:43This is why I thought the timing of the conflict was was was literally the worst,

05:47the worst timing you could think of. But in this light, the growth rate of inflation was always

05:53above target. But the labor market was getting softer and people thought the labor market was

05:58breaking. People thought the labor market was breaking in twenty twenty three, four, five and

06:02six. And none of that was ever happening. So the labor market stabilizing is always primary number

06:08one. But some of this inflation things like you're not going to do anything about AI spending. I mean,

06:13you could raise rates two percent the money that they're throwing out here. We're we're building

06:18for Skynet, but we're not building for people. Right. So Skynet's laughing because we're basically

06:24giving them the energy grid to take us out later on. But now going out for twenty twenty seven, like

06:30what what what do we think about now that the Federal Reserve is trying to get another rate hike

06:35cycle going for next year? Yeah. So, I mean, do you feel like there's to me there's so many things

06:43in

06:44play right now? How do we even have a forecast for twenty twenty seven when we don't know what's

06:49happening? You don't you don't have a forecast, but you can talk about things that in the last few

06:55months of the year can make us think how twenty twenty seven might go. And, you know, front and center,

07:04if you took if you could somehow get the conflict over with and get energy prices to go lower.

07:12Right. And then headline inflation won't be able to break away. Right. It's just literally

07:18impossible for that to happen unless you have core inflation and wage growth and everything.

07:23We did that podcast a few I think a few years ago where we talked about how do we get

07:27you know,

07:29how do we how do we get current inflation to look like the late 1970s to be very difficult.

07:33And even with all with tariffs and the oil Middle East and all that stuff, I mean,

07:38core inflation is not even over four percent. So there's limits to how much inflation could take

07:43off unless you really have a booming economy or you have supply shortages. But if you can take the

07:48conflict out of the equation before twenty twenty seven happens, then whatever happens over the next

07:55few months, because right now it looks like two rate hikes are going to happen and they're

08:00contemplating for rate hikes at this point. The contemplation of rate hikes or rate cuts go up

08:07and down like crazy. Right. I mean, we we went into this year thinking two to three rate cuts.

08:12Now we're talking about two to four rate hikes. You know, that that kind of switch usually means

08:18something Titanic happened. But if you could just get the conflict over with and you don't make trade war

08:252.0 worse and then you talk about other kind of supply shocks on top of that, then you just

08:33kind

08:33of deal with the A.I. inflation, which I don't I don't even know if you could get moratoriums or

08:39anything like that meaningful out there. But what you want to see is at least two variables retrace itself.

08:47And if you can get to those two variables retrace itself before twenty twenty seven comes, you and I are

08:56going to do our forecast preview. We can have a much different conversation than what we're having

09:01here today because the market pretty much priced in like 70, 80 percent that the Fed's going to hike

09:07rates. Forget that story. That story is almost old where the 10 year yield is. All we care about is

09:12where

09:12the 10 year yields and spreads are. So in this context, you know, hopefully there's some kind of

09:20progression moving forward in terms of this getting a little bit better than the midterms, because I

09:26think if you go past the midterms and nothing happens and let's say the Democrats get enough seats,

09:33things will start to change. There will be more of a balanced approach to get this conflict because

09:39the confidence data came out today and the internal confidence data with Republicans are starting to

09:47fall. Which confidence data about the Michigan consumer confidence? These things that have

09:54internals, you start to see it coming lower on both sides of the political spectrum. Right. That's not

10:01what you kind of want to see going into a midterms. Right. And you can see this by the Republicans

10:06getting

10:06ready to pour a lot of money in Texas. I mean, this is where we're at, where Texas is in

10:12play.

10:13After that, after the midterms, you want to you want to recalculate where everything is.

10:18Is the conflict getting worse? Is oil at one hundred twenty and one hundred fifty? Right. Is the tariff

10:24two point no trade with Canada getting worse? So we will see. So what's going to really impact

10:31twenty twenty seven will really happen over the next three and a half months?

10:37Because if there's no kind of closure or no kind of deal or anything, then twenty twenty seven is

10:43going to be pretty much the same story as of right now. So there has to be some progress being

10:49made going

10:50into the future, whether President Trump and the Republicans could do it, whether the Democrats come

10:55in, take over the House or Senate, it's still up in the air with something has to move this needle

11:02because the pace or where we are right now, we're going to have this discussion in twenty twenty seven

11:08if these current variables are still here. Let's talk about the correlation that you've now seen.

11:14I think. Tell me how many weeks it's been. But between oil prices and the 10 year yield. Right.

11:20Because for a while, I mean, you were tracking that very early on in the conflict, trying to see like

11:24how that chart was going to affect yields and then it's changed. Can you can you walk us through that?

11:30It's become the highest correlation I've seen in many, many years. And this is really just kind of

11:37like the last six or seven weeks. So I would I would look at it at this point when we

11:42had that MOU deal

11:43or whatever that was and the 10 year yield went lower. And when we said the base, the base for

11:50the 10 year

11:50yield right now is four forty six to four fifty. So think of mortgage rates. The base level is six

11:56fifty to six seventy five. Don't think anything lower or higher than that, because something worse

12:01has to happen or something better has to happen for rates to go lower before. But that's the base.

12:07But when that deal broke off and the U.S. started shooting missiles during the week,

12:12like it was supposed to be only weekends. We didn't care. We were shooting missiles during the week.

12:17That's when the oil 10 year yield correlation started to become more prolific. And Friday is

12:23such a great day. I encourage everyone. If you really want to nerd out, just kind of overlay the

12:28chart of the 10 year yield and oil prices on inflation day. That was supposed to be the main

12:34inflation report for the for the Fed to hike rates. The 10 year old didn't care. They're just moving off

12:39of market things. So, again, I you can alleviate some of that concern when you get the conflict

12:48over, because I think what the Fed is really looking at is they're looking at food inflation

12:52picking up because of diesel prices. So finally, this morning, Kevin Hassett,

12:59who was rumored to be almost punched by Scott Bessett. Bessett's like a boxer, man.

13:05He took on Elon Musk. He was going after Pulte. And now he went after Kevin Hassett, you know.

13:12But can you say, OK, wait, we have to just pause there. Can you imagine any other Treasury

13:16secretary punching people in the White House? Oh, I back in the old days, man, I'm sure back in

13:22the old days, it was pretty wild. But, you know, he came out and finally said, hey, listen,

13:29diesel diesel diesel is a problem here in the U.S., you know, and I was like, bring out the

13:34John

13:35McClain gift. Welcome to the party, pal, you know, because it's a refined product. And it's that,

13:41you know, you know, when we wrote that article about commodity inflation, we took diesel, we took

13:47oil, we took heating oil and we took copper. And none of this stuff looks good right now. So

13:57all we could really do is, if we're prepping for 2027, by the time we do that podcast for 2027,

14:04the whole world might be different. But for now, hopefully we've lost this, oh, Kevin Walsh is

14:11going to cut rates. They won't ever raise rates. It's like the 10-year yields up here, guys. Does

14:17really, really matter what you're talking about? But there are things that could start the process

14:22to get this better because you are really going to have some easier comps to work with

14:27in 2027 on the year-over-year growth. So just imagine for next year, let's say there's no

14:34conflict, oil's flowing, oil's going lower. Scott Bessett is doing all these programs to get the long

14:42end of the yield lower. Kevin Walsh is going to find a way to, you know, not let our mortgage

14:49rates

14:49go up higher. If you can get the conflict over and you don't make the trade war worse,

14:54and then you're going to have easier comps, hopefully over the next three and a half months,

15:00something more positive gets us into that area because it's pretty late in the year.

15:05Usually at this time, the 10-year yield goes lower, except being, you know, in 2023,

15:11it was October that we got to that period in time. So there's still some time left in this year,

15:17but there are things that can work that can actually make this happen. This isn't like

15:23COVID where we have a global supply shock and all global pandemics are very inflationary and

15:29the disinflation. These are supply shocks that are somewhat in our controls or can be controlled by

15:36humans. If Skynet goes crazy on us and all that stuff, that's a different story for another day.

15:42But for now, I think we could start to think about next year, but how the next three and a

15:47half months

15:48can work and just kind of don't think that the Fed's never going to raise rates because Kevin Walsh was

15:53that. It's a committee and the committee is, you know, supposedly if Christopher Waller is on his

16:01word, he's going to be voting for a rate hike. But for right now, all it looks like to me

16:08is two to three rate hikes, all the insurance rate cuts, and then they're just going to kind

16:14of let it go. And if the growth rate of inflation starts to fall down, you know, and the economy

16:19slows, then they can be a little bit more aggressive. That's not normally how they would

16:24like to operate going back and forth like that. But I think the they wanted to really put the fear

16:30in the markets of getting the easing bias off and the two year yield up and now the three month

16:36year and then the 10 year yield to try to get policy as restrictive as you possibly can without

16:43having, you know, eight to 10 rate hikes, getting the Fed funds rate above 5% again, and trying to

16:51keep that 2% Fed funds rate over the growth rate of inflation to try to cool down the economy

16:57in that

16:57matter.

16:58Okay, so I have some follow up questions on what you just said. So when you talk about four or

17:03five

17:03or three or four rate hikes, is that in this rate height cycle? Or is that before the end of

17:08the

17:08year? That's that's that's that's over the next year. The market is now pricing it Yeah, and the

17:15market prices rate hikes and rate cuts, you know, like crazy. That's that that's just basically what's

17:20happening on this day. So because we have a single variable, that's, you know, the conflict related,

17:26that can change quickly. The second is the tariffs are our choice, right? So if we extend the war into

17:36something bigger, you know, not just Canada, but see, Trump has to deal with the Iranian conflict

17:43that he's not really pushing the issue on tariffs on everyone else. And because of what the Supreme

17:49Court did, they have to do all these other gimmicks to kind of get it. He could have just let

17:54the Supreme

17:55Court say, okay, that's it. But you know, in any case, I feel like once if once the conflict is

18:02over,

18:02we'll probably go back to trade war 2.0 to see what they can come up with. But you know,

18:08a lot can

18:09happen over the next three and a half months that could be positive for rates, because the brunt of the

18:1410 year yield move has been very, very aggressive, getting to as high as 4.98%. This is my question.

18:22So

18:22with those rate hikes that people expect, but if, if they're already priced in, what is the effect on

18:29mortgage rates? So let's just start with next week. Next week, we expect a rate hike, that's, you know,

18:34but is it going to move mortgage rates? Wherever the conflict goes, that's where the 10 year yield goes

18:41right now. So it's the 10, it's the oil prices, not the... Yes. I, I, I, this is why I

18:46encourage everyone

18:47to look at the 10 year yield and oil prices today on a day where the CPI, the 10 year

18:52yield just fell

18:53even more after the report, because it doesn't care. It literally doesn't care at this point,

18:59because there's a correlation. Now, at some point that's going to dissipate. You're not going to get

19:04this high correlation, but you know, people were shocked that the inflation number were stronger and

19:09the 10 year yield. Why? Because it's right now, it's just very conflict related. And you have to remember

19:13the federal reserve made this their hawkish present, a pretense to even be more hawkish. They

19:20said, we don't like the conflict. The conflict could have embedded inflation. It's not just energy

19:26prices, but it hits the food. We see the food inflation start to take off. So right now it's

19:31moving off more conflict stuff. So we're very elevated on the 10 year yield. I mean, the fed funds

19:37rate was so much higher when we got the 10 year yield up to 5% in 2023. We've done

19:43no rate hikes

19:45whatsoever. We took the 10 year yield all the way back to pretty much almost cycle highs with no rate

19:51hikes because the market tends to get ahead of it. It never tends to work off of it. It gets

19:56ahead of

19:57the marketplace, unless there's some kind of surprise out there. Like a surprise would be like a 50

20:03basis point rate hike, you know, something like that, that would surprise the market. But for now,

20:09the bond market is always kind of moving ahead of the federal reserve.

20:13So if we see oil prices, like you said, 125, that would be very, very bad for the 10 year

20:17yield.

20:18That would be bad for the 10 year yield. That would be bad for Kevin Warsh trying to, I don't

20:22know what

20:23he's, what task force he's coming up with. But again, a lot has been priced in already,

20:30but the conflict until this oil 10 year yield relationship cools down, boy, it is hand in hand

20:36moving with itself. And this is the problem with Scott Besson's plan. He tried to do this right in

20:45middle with the escalation. I mean, this is a major escalation. We're talking about no, we're talking

20:51about waiting till after the midterms and tanker for tanker. I mean, this is, this is next level stuff

20:56compared to what we were three, four months ago, which people are trying to get a deal. We're like,

21:00oh, hell, we're just going to, you know, blow. And then you got the Houthis now involved. Saudi

21:05Arabia wanted us to blow them up. We said no. So too many negative variables right now. Right. But

21:13again, the conflict to me is oil prices are really pushing the show that will end at some point,

21:21but until it, until that ends, you keep an eye on oil prices and headlines on rate pricing at this

21:28point. And it's just a toss up, right? You just don't know. You don't know, like, like overnight.

21:32Oh, listen, the Gulf countries are meeting each other. Oh my God. The oil prices fell. 10 year

21:36yield fell. Oh, it fell after the inflation report was hotter. Why? Well, then oil prices are back up

21:41again. Oh, 10 year yields up. So this is just, it's very, very hectic, right? We like boring. Boring is

21:48a

21:48good thing. Boring is a good thing. Earlier in the year, remember how boring it was? There was not

21:54much moving. Mortgage rates were just stuck between six and six and a quarter. There wasn't any drama.

21:59It was like, good, calm, you know, and then March, you know, the end of February came and

22:06everything changed after that. Remember, we even had that one day, one part of one day where we saw

22:12rates 5.99. Oh, that was a glorious day. It is. It is. It's just that, you know,

22:19every time it would be easier for mortgage rates to get to near 6%. If you, if the Fed funds

22:25rate was

22:26down to 3%, you don't need the labor market to break in a sense for that. But I always try

22:33to

22:33stress people. I don't, I don't have any like data in history really for mortgage rates to get below

22:395.75 where the Fed funds rate was going. Like we, like you would need spreads to get better and

22:44you

22:45would need the bond market to think that the labor market is getting softer because that's it. So

22:49whenever we get down to 6% and when I always try to hold the line here and go, guys,

22:53to go much

22:55lower, you need, you need, you need worse data. But now we're at the point to where if the conflict

23:01just, the conflict just ends, then at least you could work with other, other variables that are a

23:07little bit more calming and either the volatility is just getting people frustrated. I think that's

23:14part of the, what we're seeing in some of these competence datas and we're heading into midterms too.

23:21So. Well, fingers crossed that nothing gets worse over the weekend before we talk again,

23:27but Logan, thank you so much for walking us through. Really appreciate you. Pleasure.

23:41You

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