Is a hot economy good for housing?

HousingWire

On today’s episode, RealTrending host and Senior Managing Editor of Real Estate Tracey Velt talks with Lead Analyst Logan Mohtashami about why a red-hot economy is keeping mortgage rates elevated and capping housing demand, even as the market finally looks more balanced.   Related to this episode:   Hot economic data sends mortgage rates to yearly highs  https://www.housingwire.com/articles/mortgage-spreads-yield-spike/   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   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

00:10hello out there in hwd land i am tracy velt i'm filling in for sarah wheeler i'm the host of

00:18the

00:18real trending podcast and also the senior managing editor of real estate for housing wire so welcome

00:25to the podcast uh here we go with logan how's it going logan it's going well so i just want

00:31to

00:31answer one question to everybody i put a rap video of sarah and i on social media and she hasn't

00:38been

00:38on the podcast for the last two times no her daughter's getting married she's she's she is

00:43still talking to me so this has nothing to do with that video which sarah did not enjoy of course

00:50as

00:50you can imagine but you know it is what it is yes definitely well i i want to talk to

00:56you a little

00:56bit about um you know it's basically a hot economy which is causing you know rates to rise in that

01:03but

01:04is that good for housing so let's talk a little bit about that so this is very interesting because i

01:10think the first article i ever wrote for housing wire uh in 2020 was is a hot economy good for

01:18housing if the economic data is recovering uh uh will it benefit and back then oddly enough it was

01:252018 to 2019 we had a trade war uh it was a much smaller version but a lot of people

01:32were very bearish

01:33on the economy because the the they thought the trade war would escalate into a recession and you

01:40know the stock market was down 20 i remember on christmas eve in 2018 and then the second year of

01:46a trade

01:47war things get better um so to me it was back then well if the 10-year yield starts to

01:54go up higher

01:55mortgage rates go higher it's not generally a positive uh but back then we're talking about rates

02:04maybe just getting back to four and a half percent but today as we speak on wednesday the 10-year

02:12yield

02:13is at 5 10 uh which is the last time that happened was in 2006 uh and this isn't because

02:21oil prices are

02:22up uh eight to ten dollars or anything like that oil prices are up a smidge we're we're still in

02:28the

02:28middle of trying to you know uh handle this iradian conflict before the midterms is over with

02:34but the economic data was uh a really good today the manufacturing pmi data was at a multi-year high

02:43and usually you know in the past when you when you see growth like that the 10-year yield does

02:49go with

02:50it that's one variable and of course like what we've always talked about here in housing wire for

02:56the last few years whenever mortgage rates get above 6.64 percent and head above seven it's not a

03:03positive because demand doesn't grow but on top of that uh uh fed governor uh bar not only said uh

03:12we need more rate hikes we might need multiple rate hikes because the federal reserve is is off sides

03:19on on the the rate story that we need we need to get more aggressive to try to you know

03:26tap down this

03:28type of inflation now if it's energy inflation or diesel inflation that's something you can you can

03:34handle with the conflict ending but the labor data got better the unemployment rates at four percent

03:41jobless claims are near historic lows wage growth is still above three percent and now manufacturing and

03:48all this money ai capex deficit spending where the deficit spending we're doing now are typically what

03:54we do during a recession so all these things make it a hot economy but unlike the late 70s

04:02this doesn't help housing because affordability is stretched uh we can grow sales and rates get near

04:07six percent but above seven it just doesn't work we haven't seen that yet maybe at some time in the

04:12future when affordability gets better that might be the case but in this type of marketplace what we've

04:17seen this year is a really good test case study for something like that and you know i know that

04:24um

04:24trump is blaming the oil prices on the chevron shell for gouging um so you never know where they're going

04:33to go from there um but how you know i read your last article and um what you spoke on

04:40yesterday i believe

04:41it was and you talked about how it doesn't matter whether this iranian conflict gets settled or with

04:49oil prices and that we still are moving in the same direction with inflation and all of that so talk

04:56to

04:56me about that yes so the growth rate of headline inflation gets really hit with uh oil prices and diesel

05:03prices however with rates with rates here let's kind of think about this in the last few years

05:10um when the 10-year yield gets to a level to where we're near six percent the bond market thinks

05:17we're going into recession and that's actually never been the case in 2023 it wasn't the case in

05:232024 it wasn't the case wasn't the case in 2025 and even early this year you know people thought

05:31private credit was breaking silicon the ai is going to create disinflation that that we don't stay

05:39very long because the economic data just gets ferber and it warrants higher yields so even if let's say

05:48the conflict ended i don't see us really moving too much between 6.50 and 6.75 uh percent because

05:58the fed has now raised the bar uh they want rate hikes into this equation the last few years we're

06:05talking about cutting rates uh and this has to do with the economic data staying firm and i and i

06:11just

06:11generally what i see out there is people put so much weight on the jobs reports without context to

06:20break evens uh ignoring the other things retail sales has still held up well now the manufacturing data

06:27that was you know very chaotic last year because of the trade war and everything is now rebounded uh so

06:35ai spending is here deficit these things are in place regardless of where oil is going now i believe if

06:43you get a official deal and oils flowing and everything's yeah you can get the 10-year yield a

06:48little bit lower the federal reserve might be able to feel a little bit more dovish than what they are

06:53but this is multiple things working at once and where the late 1970s was different you know again

07:00not so many people forget about this but the late 70s we had major inflation but we had major economic

07:06growth we had labor force growth was booming back then home sales were booming in the mid to late 1970s

07:13uh we went from 2 million to 4 million home prices grew faster from 1974 to 1975 than versus the

07:21covid period with sub 4 percent rates but mortgage rates went from 8 all the way to 18 percent

07:28uh uh before home sales started to uh uh crash lower so that marketplace is a little bit different

07:36because you had major labor force growth economic growth they had an oil shock to go on top of that

07:41here we have an oil shock it's really impacted the 10-year yield lately but the the foundation of what

07:48the federal reserve looks at hotter manufacturing data hotter uh uh ai spending uh an unemployment rate

07:56at 4.1 percent remember our labor force growth instead of growing back then is dwindling down

08:03right i think that's one of the big variable difference that the unemployment rate is lower

08:08because we have less people looking for work where in the 70s you had major labor force growth

08:13uh uh coming in uh coming in and we had economic growth to go with it now you put all

08:18those together

08:19you look at where the 10-year yield is it's not shocking but unlike the 70s this is not a

08:25place where

08:26you could see home sales boom or take off in that manner so these are two very different cycles so

08:32a hot

08:32economy here does not help housing a hot economy in the 70s did so with um you also had mentioned

08:43that you know i don't think a lot of realtors would agree with you but um that that it's actually

08:49a

08:49pretty healthy housing market so what what would that look like with with another rate hike so for me

08:57it's a little bit different than other people i didn't think the covid market was healthy now why

09:03wasn't it healthy back then home sales were booming rates were the way that it was uh going was nothing

09:10good we we broke to all-time lows in inventory in years 2020 to 2024 so if people don't know

09:18my work

09:19work in the last decade in the last decade my original premise is that we were going to have

09:24the weakest housing market ever recorded in history 2010 to 2019 even though mortgage rates were the lowest

09:30ever uh uh our prime age population growth peaked in 2007 we had a ton of underwater homes the credit

09:38markets were breaking uh even though housing was affordable and there was a lot more inventory it

09:43was going to be the weakest recovery ever which means it's going to be the weakest new home sales

09:47recovery ever it's going to be the weakest housing construction cycle ever recorded history that all

09:52made sense to me but during covid years 2020 to 2024 is completely different so what happened is

10:01prices escalated out of control so i always like i i told this to a realtor group one time i

10:08said

10:08so all of you are complaining about housing but when inventory levels were at all-time lows and you

10:15had 50 people bid for your house and you're all high-fiving each other even though you got 27 uh

10:22bids

10:23well over asking price you guys were okay with that because you were making money this is a capital

10:29society home sellers are not angels man they want to make as much money as possible so when prices were

10:35escalating out of control and everybody was happy with it i was team higher rates and boy let me tell

10:42you something if you ever wanted to have tomatoes thrown at you you know online is it's talking about

10:49we need higher rates in february of 2021 when people didn't believe the recovery was here and

10:56you know people are talking about forbearance i was like no no no we don't have we have to worry

10:59about

10:59prices escalating but now now what happened is inventory got to a level that i've been looking

11:05for for many many years 1.52 to 1.93 million nr data four months so this is a much

11:11healthier environment

11:12this is a supply and demand equilibrium that can work right buyers are now part of the game

11:18back then home sellers had way too much uh um power and i go back to my 2022 quote when

11:27mortgage rates

11:28were going up higher four to five percent i wasn't seeing the damage that i needed to see

11:33that three different times i was quoted by three different media sources that we need higher rates

11:40to put home builders home investors and home sellers on their belief why because that marketplace was way

11:48there was sellers had way too much power and everybody was going to multiple bid higher and it was not

11:53good for housing demand long term but now price growth not not escalating inventories up it the

12:02buyers and sellers are now back this is a much healthier housing market than what we had back then now

12:07of course you need mortgage rates to get near six percent to grow but it's a much different marketplace

12:13than what we saw and this is part of the reason why you know even as rates had been going

12:18up higher

12:19and higher throughout the year uh we didn't see home sales really start to uh uh uh get hit harder

12:25until rates really got above 6.64 now another year of wage growth kicking in and uh another year of

12:32weight uh wage growth outpacing home price growth it just makes housing affordable a little bit better

12:37and that's the housing economic cycles for decades and decades so i understand what realtors think

12:43back then it was great i put a house on the market i really have to do much i got

12:4850 buyers in

12:48because the inventory levels were so low and that seller becomes a buyer and home sales are elevated

12:54but now it's a little bit different i feel much safer with this housing market than i did in 20

13:00late

13:002020 all of 2021 and then deeming the housing market savagely unhealthy in february of 2022 when

13:08active inventory our data got to 240 000 so i understand what realtors think but back then very unhealthy now

13:15it's a buyer's and seller miss y'all gotta earn it now y'all gotta go back and find the

13:20difference

13:20between it and it's difficult i get it uh but over time this type of marketplace works out itself better

13:28that marketplace doesn't and we saw the aftermath of what could happen with when prices escalate out

13:33of control especially when inventory is at all-time lows and mortgage rates are at all-time lows

13:38and we have over 160 million people working so what would another rate hike mean i know it's not

13:45directly tied to mortgage rates but what do you think that would mean i mean to me the market's

13:51already priced in a couple of rate hikes but uh you know when the the last podcast when i talked

13:57about

13:57what's the what's the base case for eight percent mortgage rates well uh first of all number one the

14:02the economic data has to stay firm right if if the manufacturing data was not rising like it did

14:08if the unemployment rate was not at a 4.1 but the key and the key has always been jobless

14:14claims this

14:15is why even though i was never a fan of kevin warsh when he went on tv and said we

14:20track the four week

14:21moving jobless claims i was like homie that's exactly he sounded just like logan uh all these things are

14:28actually positive um so if this keeps on going up with the conflict still going and the potential

14:35to get worse rates are going to go higher in that environment that's your best case for an eight

14:40percent mortgage rates the 10-year yield getting to 540 and the federal reserve has to be okay with it

14:46you know you can't have fed members coming out and saying okay the long end of the market is getting

14:51out of hand and we want to you know that gives you that uh a guideline that's your case for

14:57eight

14:57percent rates fed rate hikes are already priced in but where you have to worry about is this isn't

15:04just getting those uh insurance cuts off from last year the economy is booming to the point where the

15:12fed needs to get the fed funds rate much higher than what everyone thinks and they don't mind the

15:1810-year yield going up now i do think eventually the iranian conflict and diesel takes care of itself

15:23uh uh there's things that the government can do to kind of you know make make the long end of

15:30the

15:30bond market less volatile but we have to get that conflict done we have to get diesel prices done we

15:36have to make trade war 2.0 especially with canada and some are not worse then you could start maybe

15:42talking about getting back to that six and a half six point seven five percent but in this environment

15:48way too many variables and we're all we're focusing on some some of the questions about rate hikes but

15:55man economy is running hot deficit spending is a lot you know unemployment rates are low these things

16:02are not areas where the fed goes let's cut rates you know into this and i think that's that's been

16:08the

16:08confusion part because so many people look at the labor data and they see well job growth was low and

16:14negative revisions man there's more to the economy than that especially when the labor force growth

16:19is so little now these days great um any last thoughts as we wrap up um just uh today we

16:26had

16:26purchase application data a slight week-to-week decline uh the year-over-year decline became a lot

16:32less this week than last week last week was down 19 we're down 11 just remember the comp story that

16:38we

16:38talked about many many weeks ago we're going to work off of year-over-year comps when mortgage rates

16:43were one percent lower so you're not going to see any growth but the year-over-year declines are

16:48going to be uh noticeable so you want to keep an eye on the week-to-week data to see

16:52if there's any

16:53more deterioration and we've been here right we've been here so many times the last three years and

16:58nine months rates get above seven percent housing demand slows down rates get near six percent it

17:03grows you kind of want to work off the weekly data this is why the tracker was uh uh really

17:08important

17:09for us to get out there so we could keep an eye on the weekly pending sales total pending sales

17:13purchase apps and everything so what happened with purchase apps today looks pretty normal with

17:16what we what we think about the year-over-year data from last year great well thanks logan i appreciate

17:23you and um we'll be back again i believe uh yes hopefully sarah will get back and talk to me

17:29again

17:29you know maybe after the wedding yeah thanks

17:43you

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