On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Trump’s call for lower interest rates and where that puts the Fed, plus a big deflationary move on the rental index.
Related to this episode:
What’s behind Trump’s ‘demand’ for lower interest rates | HousingWire
https://www.housingwire.com/articles/whats-behind-trumps-demand-for-lower-interest-rates/
Enjoy the episode!
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 stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
What’s behind Trump’s ‘demand’ for lower interest rates | HousingWire
https://www.housingwire.com/articles/whats-behind-trumps-demand-for-lower-interest-rates/
Enjoy the episode!
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 stories. Hosted and produced by the HousingWire Content Studio.
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NewsTranscript
00:00Welcome, everyone.
00:06My guest today is Lead Analyst Logan Bodushami to talk about Trump's call for lower interest
00:11rates and where that puts the Fed, plus a big deflationary move on the rental index.
00:17Logan, welcome back to the podcast.
00:19We have so much to talk about.
00:21Sarah Wheeler, I demand you to lower mortgage rates and get the global bond market or get
00:28global Fed policymakers to do it as well.
00:32Yeah, right. So we are going to be talking about Trump was at the World Economic Forum
00:36this morning or he had his remarks there and he called for lower interest rates.
00:43It actually demand demanded lower interest rates.
00:45So talk to us about why he's doing that.
00:47Why does that play into what he wants?
00:51So let's go back to November 7th, twenty twenty four.
00:55We did this big, long podcast about what is economic policy going to be like under the
01:01Trump administration, like what does he need?
01:04And number one, it's lower rates and lower dollar.
01:09So the lower dollar thing, not a lot of people in real estate is going to be tracking the
01:16U.S. dollar like I do.
01:17But when the economy gets stronger, bond yields go up and the U.S.
01:21dollar goes up.
01:23Look at China right now.
01:25China's economy is collapsing.
01:27Their 10 year yield is at all time lows.
01:29You know, they have to do whatever they can to stimulate.
01:31But here in the U.S., growth is beating expectations.
01:35Retail sales were beating expectations.
01:37So bond yields and economic growth goes up.
01:40The world economies are not performing well.
01:43So the dollar gets stronger.
01:45These are two things that President Trump probably does not want to start off his
01:51presidency for two reasons.
01:53Number one, like we've highlighted for for some time now, the wild card for twenty twenty
01:57five is because manufacturing jobs were lost in twenty twenty four.
02:01Residential construction workers are kind of next in line if rates stay elevated.
02:06We saw the recent builder survey in terms of forward looking demand that had a fall
02:13noticeable one, and that tends to lead the builders behavior.
02:18However, we're already working through the backlog.
02:21Right. You know, it's it's we no longer have this big apartment backlog out there.
02:27So probably doesn't want to deal with that.
02:30Right. You know, because then all of a sudden, you know, rates go down for the wrong
02:35reasons. Unemployment rates picking up.
02:38And I don't want to start start off the presidency with that.
02:43So mortgage rates just getting to six percent.
02:47This is the frustrating part that just we're not talking about three or four or five.
02:53But as a policy, our monetary policy is very restrictive for housing.
03:00And it's not the Fed doesn't care about the existing home sales market.
03:03It's been fourth year of the lowest home sales ever.
03:07But the dual mandate falls a little bit more into the new home sales market.
03:11So it's an easy layup, but it's also something that I just, you know, our stance has
03:18always been since twenty twenty to labor over inflation.
03:21The Fed's not going to pivot, you know, until the labor market breaks or what people
03:25want to see a sub six percent mortgage market.
03:29Then, you know, the dollar is getting too strong.
03:32And like I've said, I'm going to be the dollar for Halloween in 20.
03:35If the dollar goes up to 115 trading wise, I'm going to it's just going to it is going
03:39to absolutely cause chaos around the world.
03:42President Trump wants a lower dollar because if you want to export stuff, you know, having
03:47a lower dollar is to your advantage.
03:49And just getting the dollar just back to its old trading ranges, it would be beneficial
03:53for everyone. But the dollar, the 10 year old, we're rising up together really since
03:58October and probably not what the president wants to see at this point.
04:04OK, so he doesn't want to see it.
04:06But, you know, we talked about this in the summer when he was calling for, like, the
04:10Fed to be less independent and for the presidency to have more control over the Fed.
04:16What can he actually do to lower interest rates, even just even just the United States?
04:21Let's not say the world, because, of course, we would love it if he if he lowered
04:25interest rates. But does he have that lever to pull?
04:30When I see Trump do this, I think of a high school basketball coach.
04:36Working like yourself.
04:38I see. Yes.
04:39Working a referee, right.
04:41Telling the referee, hey, how I used to do it.
04:43Advantage, disadvantage.
04:45That defender is holding my guy.
04:48His, you know, my guy's at a disadvantage because the rules are being broken to me.
04:54If you work the Fed constantly and then all of a sudden you see residential workers lose
05:01their job as human beings, they will feel more and more pressure that they were behind
05:08the curve. So there's nothing really he can do.
05:10The Treasury can get involved and try to, you know, you know, cap the 10 year, you do
05:16some stuff. But but it's just working, working a referee.
05:20And if things do get bad, you know, make them sweat a little bit.
05:25Remember, everyone's human.
05:27Right. All of a sudden, if you got a whole country looking at you and everyone's saying
05:31you're behind and home sales are low and everybody's kind of piling in, you know, and
05:37it's not like it's not asking for three, four or 5 percent, but just getting mortgage rates
05:42down 1 percent.
05:43Neil Kashkari will panic.
05:45He just he wouldn't be able to survive.
05:47But in this case, working a referee, that's the best he can do in this situation.
05:52Now, when he talks about global bond yields, he's telling everyone, everyone, lower your
05:57rates. Trump has this belief that if he just lowers oil prices, that the whole inflationary
06:06story will go away.
06:07Now, what lowering oil prices will do is actually make real wages look better because the
06:14core inflation doesn't get impacted by the oil prices, but the headline does.
06:21And the headline wages actually look better in that context.
06:24The funny part is your your wages, your real wages tend to look great during a recession
06:29because oil prices are falling because demand is small.
06:31You know, getting getting global bond yields to come together or lower together.
06:36Just remember the after the great financial recession, everyone's rates were really low.
06:41We had zero interest rate policy and rates stayed between three and a quarter and 5
06:47percent for a decade.
06:49Right. And there wasn't any breakaway inflation, but a lot of that energy prices were
06:55tame. Now, the thing about us in America is that we're already producing so much oil.
07:01We're already that's that's that's not a thing.
07:04And if you thought the builders weren't the March of Dimes, the oil companies, you're
07:10like, I have a group for you that is not a charitable group.
07:14No. And the best is they like they like don't hide behind it.
07:18You know, they'll say, hey, listen, our shareholders won't like this if we lower the
07:21price, you know. And oddly enough, when when oil prices were getting lower, actually,
07:27one of my friends advised the White House that, you know, you really should be buying
07:30oil around sixty seven to seventy two dollars a share to try to refill the tank.
07:36But also, if oil companies feel like prices are going to be at a certain level,
07:40production will keep going.
07:42Right. So it's kind of like the builders that the builders thought mortgage rates were
07:46at four and a half to five and a half for the next three years.
07:50Oh, yeah, I can sell the product, you know.
07:53So the demand is there and, you know, two different industries, but same kind of
07:57concept. So I don't I don't know how you're going to get more oil production out
08:03there. I think the bill I mean, I think that the oil companies also rejected one of the
08:09federal contracts in terms of drilling just because they're producing a lot of oil.
08:12I mean, if you want to see like a glorious chart, look at the oil production chart in
08:16the US going back 67 years where we're killing Russia and Saudi Arabia now.
08:22We are drill baby drill.
08:24But yeah, that's that's his belief.
08:28We just lower energy prices.
08:29Inflation will kind of tame itself and everyone can lower rates.
08:33And then, you know, everyone's in a better spot.
08:35You don't have to worry about the builders laying off people.
08:39The dollar gets softer, then you can export more stuff.
08:42So that's why he's kind of pushing into this area.
08:46The difficulty, of course, is what you said at the top, which was like our economy is
08:50doing really well. Like it's hard to cut rates when it's outperforming.
08:54Right. Well, this is this is this is the dilemma.
08:59You know, we have such an unfair advantage over other countries, over China, over
09:03Japan, over Europe.
09:05I mean, look at Europe. Nothing gets created over there.
09:07They're old. They're cranky.
09:09They have so many regulations.
09:11What do they ever build over there?
09:13Like what's their tech?
09:14They don't see here in America.
09:16One thing that we have that other countries, we have like a capital surplus.
09:20Like we we we we'll get people funded and get dreams out there and try to and we have
09:27tons of failures. But we just create more stuff in industries and stuff that other
09:32countries can't do.
09:33China, of course, steals our stuff.
09:36Europe can't create it.
09:38Japan's literally simply too old.
09:41And India is still not the powerhouse, even though they're massive, massive country
09:45with a lot of young people.
09:47So being king, it could be a problem with the dollar, you know, and we did this in
09:55twenty twenty two.
09:56For those that don't remember, the dollar was getting toward one twelve.
10:00Oh, my global panic.
10:03London was going to lose its pension funds.
10:05They couldn't even open the markets there.
10:07The Bank of Japan needed to do intervention.
10:09The IMF was screaming at the Fed to stop hiking rates.
10:13They were going to get Ethan Hutton and the whole team ready to go after Jerome Powell
10:17because, you know, and, you know, it's just the dollar getting too strong is it's not
10:21not beneficial for everyone.
10:22So we were getting there.
10:24The dollar was broken over one ten.
10:26Oh, here we go again.
10:27And the 10 year yield follows it.
10:28So. I get it.
10:32I get it. I mean, I understand why that's the case.
10:35You don't want to play with fire, but if you really want to be, you know, kind of
10:39exporting a lot of stuff, the dollar being out here is is not very useful.
10:45So, again, let's talk about tariffs for just a minute.
10:48He did mention tariffs in his speech this morning.
10:51What's your take? We'll wait and see what happens.
10:57I just I don't fundamentally let me let me put it to you this way.
11:01We have 100 percent population of human beings in America, 50 percent of them are
11:08workers, 100 percent of them are net consumers, even a baby baby can't buy yet on
11:16Instagram, but the parents need to buy.
11:19So one of the reasons why you don't see general trade wars is because it's it's it's
11:27in a sense a tax and someone's got to pay it.
11:32And isn't the other country right?
11:34You know, you're trying to prevent, you know, you know, like China has a capacity
11:39surplus. If China wanted to, they could just flood.
11:43I mean, absolutely flood the U.S.
11:45car market. And if you want to see a deflationary collapse, they can't.
11:51They have a capital or a capacity surplus.
11:54Here we have a capital surplus in a sense.
11:56We're we're we have a lot of money out there.
12:00But the tactical trade wars, you know, trying to get deals, you know, maybe he just
12:05goes, OK, listen, Canada, I'm going to give you twenty five.
12:07You got it. I'm going to squeeze you for a deal.
12:10This is just how he operates.
12:11And we we know this because he did this before.
12:15He did a tactical trade war in twenty eighteen, nineteen, after getting the corporate
12:20tax cuts, when inflation was low, when mortgage rates and all those things were lower.
12:26And it still created business investment to go to zero and stocks are down 20 percent.
12:31And that was a better backdrop to do something like that.
12:33And that was just a tactical fight.
12:35So it's a little bit more complicated than people think.
12:40So that's why we try to get people in line to like don't think of a major trade war in
12:45that sense. Just think of back and forth, tactical, trying to get deals done.
12:51And we'll we'll take it from there.
12:54So as you said, the Fed, our people, they are looking at this, what level of unemployment
13:01job loss gives them cover?
13:02Is it still your three hundred twenty three thousand that you've been saying or do now
13:07with Trump in, does that change a little bit?
13:11So if jobless claims were heading up toward three hundred twenty, it doesn't matter what
13:15the Fed does. A 10 year old is going well ahead of them.
13:18Right. Claims or jobless claims is like the ring from Lord of the Rings.
13:23It rules them all. One ring, one data line.
13:26If that thing is heading north, doesn't matter what the Fed is.
13:29The Fed wants to sit there and be tight.
13:30They're behind. Oh, they've done this before many times.
13:34This is not right. We put those charts in there to show you the historical behavior of
13:39institution that always does this.
13:41So now do we expect them to change?
13:45I don't know. I just know that data is a little bit more prevalent out there.
13:49And then everybody's looking at you and goes, guys, you are the ones who are supposed to
13:53track this stuff. And this thing is, is this going to be another time?
13:56So I think I think the first wave is if you now that they know manufacturing jobs were
14:02lost in 20, if you lose the residential bond yields to go down, the pressure would be so
14:07enormous. That even Neil Kashkari, who is scared to death of Americans buying homes
14:13and having sex at six percent mortgage rates, because how do you balance an economy with
14:18six percent mortgage rates?
14:19It's just can't happen.
14:20Right. Things would be too good.
14:24So I think that's that's the key data line.
14:26That's at least what we've traditionally seen in cycles is that residential losers are
14:30jobs and the Fed goes, it's not a big deal.
14:32And all of a sudden, oh, God, it's a recession.
14:33We didn't see it. So I think that you do the triggers, but you see the residential
14:37construction workers lose first because that filters itself to the jobless claims data.
14:42Manufacturing and residential, they're impacted by higher rates, capital costs.
14:48So that's the thing that we're keeping an eye on.
14:50And I mean, that's one of the reasons why the Fed cut a one percent.
14:54You got to everyone. I got to remember the Fed funds rate, the growth rate of inflation.
14:57They're restrictive, they believe, because this is here before somebody spiked the eggnog.
15:02And I want names of whoever spiked the Fed's eggnog in December of twenty twenty two.
15:08The Fed, before the spiking of the eggnog, said this would be fine.
15:12This is kind of what we want.
15:14Fed funds rate, growth rate of inflation, six, three, six, 12 month PCE, two handles.
15:19We bring that thing down to mirror that.
15:22But the egg spiking.
15:24Right. And I wish I was wrong.
15:26I wish I was not.
15:27You know, the Fed isn't going to pivot into the labor market, but they kind of gave they
15:32like change the change the game back then.
15:34And they've held to that belief.
15:36They really have. So bond market could get ahead of you and I talked earlier this morning
15:41because I saw some numbers on some of the actions that that the Trump administration
15:48is taking are reducing jobs in one area.
15:52Right. Maybe they're going to grow in another.
15:54But like, for instance, the NIH, 300000 jobs may be at risk because they're not, you
16:00know, renewing like studies or, you know, scientific studies.
16:05I'm not that up on it.
16:06But also then we know that he wants to reduce the federal workforce.
16:10So at what point do all of those little things, you know, in the in the larger economy,
16:14little things, not little to the people losing their jobs.
16:16But at what point does that does that make a difference?
16:21You know what? If you see the unemployment rate breaks above four point three percent,
16:25that's the Fed's trigger.
16:26Right. They kind of left that down in there.
16:29The the Machiavelli in me would think, what if Trump just says, listen, let's just fire
16:35all the federal workers. Nobody's going to care.
16:37And the unemployment rate will go up, will force the Fed to cut rates.
16:39The majority of the people are still working.
16:42Oh, my gosh. So I mean, logistically, you couldn't say that.
16:48But technically, right, if most of the private sector is still employed and you get your
16:54rates lower that way, I better not say that because Elon Musk might think I was going
16:58to say, don't give him any idea.
17:00Yeah, he might go, wait a second.
17:02You know, always remember, there's over one hundred sixty two million people working.
17:06So three hundred thousand percentage wise isn't much.
17:10But in terms of private payroll, private payroll growth is slowing down.
17:16It can't really afford another sector to be lost.
17:19I think that's that's the bigger, bigger story there.
17:22And also, when when housing permits are this low, again, you're the future supply of
17:29production of a supply to fight inflation goes down.
17:33So the capacity that you're trying to create, you know, to to to fight inflation starts
17:38to go negative. I don't think they really care about government workers in that sense.
17:44So they can be.
17:45No, I agree with you. I don't think they do.
17:47I think that's. Yeah, they can be the chopping blocks for that.
17:50Yeah, they can be the chopping blocks for that.
17:52But the private sector, right, that's that's a whole different thing.
17:56And that that is slow down.
17:57I mean, to be honest with you, the twenty twenty four, if you look at it, the health
18:01care sector and government jobs, that was, you know, the big big drivers of growth health
18:05care. You could see it were elderly demographic population growing.
18:09So there's going to be a need for health care, though.
18:13You wonder what you wonder what's going to look like 10 years from now with Ozembek and
18:17everything. You know, it's true how things are going to change in that front.
18:24Different conversation that not useful for twenty twenty five.
18:27But yeah, I still believe the Fed purposely kept their unemployment rate target at four
18:34point three percent because if something happens, they're going to go, hey, you know,
18:39we had this target. It didn't hold.
18:41So so there are levers to pull.
18:44It isn't like what we saw in twenty twenty three.
18:47Remember, everyone in twenty twenty three, the growth rate of inflation fell faster than
18:51anybody's models, including the Fed's and got that 10 year yield shot up and we had
18:56eight percent mortgage rates and a five percent 10 year.
18:58How did that happen?
18:59Right. Because the Fed stayed hawkish, spoke hawkishly at that Fed meeting.
19:04The economy was outperforming in terms of jobs and GDP and a 10 year yield.
19:08And that would be perfectly normal.
19:10But again, we're we're in the housing industry.
19:13So the housing market revolves around the 10 year yield.
19:16So it's it's it's important in that discussion.
19:19So we will keep an eye on that.
19:20Unemployment rate will keep an eye on jobless claims.
19:23I think that's your new catchphrase is that jobless claims is is the one ring, the ring
19:28that rules them all. I think that I've said that the one the one the one labor data line
19:32that rules them all. And, you know, it's interesting this last week, this week, the
19:37BLS created a new rent index, right, for tracking rents real time.
19:44That literally had the biggest collapse I've seen since I've tracked data.
19:50Now, it's a fairly new index.
19:52It was only it's only a year old.
19:54But if you look at it, it it looks deflationary, not disinflationary.
19:59It looks deflationary.
20:01So a lot of people came to me like, hey, why are why aren't people like making a big
20:05deal about this? I was like, guys.
20:07Labor overinflation.
20:10But realistically, I'm wondering if President Fed Waller knew this data line was
20:16coming out and he came out to the people and said, hey, listen, we might get four rate
20:21cuts this year because even though they don't, CPI is not their measure that they go
20:26off of. Forty five percent of the index is shelter.
20:30Let me tell you something. You cannot have core inflation take off if half your indexes
20:35is going noticeably lower.
20:39What that index does do is got a very short lead time ahead of the CPI shelter.
20:45It's been very effective on that.
20:47So a lot of people saw that as, OK, you know, a core CPI is not going to really take off
20:53if this keeps on going.
20:54But again, the Fed tracks PC inflation.
20:57That's kind of their ticket.
20:59And even though three, six, 12 month PC has got a two handle, they still got the Fed
21:04funds right up there. So labor overinflation.
21:08But that did catch your eye.
21:10I mean, that's caught everyone's eye.
21:12I mean, it is it's very, very rare to see deflationary rent data.
21:18It's just it's just extremely rare.
21:21If you look at the history of U.S.
21:22economics, where wages grow, we're an inflationary.
21:26But that index, I'm assuming it has to get revised higher.
21:30That is a utter collapse.
21:32And I mean, it is it is I am dead serious when I see this.
21:36It is one of the most glaring, obvious, like beyond trend from every other data line that
21:43I've seen. All the other rent inflation datas are steadily rising like rents do.
21:50This one just had a like a waterfall dive.
21:54And it has that short lead time with the CPI shelter index.
21:59So I think that's where some people thought it was encouraging.
22:02But everyone saw the big dive and say, oh, my God, what's going on here?
22:04That's that's in a sense, deflationary stuff is very negative.
22:08It's a negative economic thing, because that means demand's not keeping up.
22:13Something's going wrong to have deflation, disinflation.
22:16Inflation goes up and down or the growth rate.
22:18But deflation, that's a whole different ballgame.
22:21So I'm assuming that gets revised a little bit higher because that was a very, very
22:26aggressive move lower.
22:28So we wrote a story yesterday about Zillow finding that single family homes for rent
22:34were 20 percent higher, priced 20 percent higher on average than like multifamily
22:39apartments because of just the amazing number of multifamily units that have come on
22:44board in the last couple of years.
22:46I think they said it's the highest now in 50 years, the highest number of single of
22:52multifamily apartments available.
22:55And so do you think that that is part of it is just like it just the supply is so much
22:59that that's why we see that disinflation.
23:02So we we've talked about this for some times.
23:05The apartments are coming on and the units completed are already falling because
23:10they're coming and hitting the marketplace.
23:12We also have to remember that single family rental households make a lot more money
23:17than apartment rent households.
23:19So you're you're dealing with a lot of times a dual household income.
23:23So they're they're they're a little bit more firmer on the inflation side because
23:28they have better household incomes.
23:30Apartments, on the other hand, you've got a lot of single people.
23:33And what we've seen stress in the credit data is a lot of young single people.
23:37So you get more supply, you know, like there's parts of the country where rents are
23:42still going down, because if you have a lack of migration, I had this discussion with
23:47Adam, you know, you interviewed him.
23:50He used to be the former economist for Moody's.
23:52But, you know, he's talking about how our Austin rents still low.
23:56Well, if you look at Texas, Texas still has migration, but, whoa, it's slowed down.
24:01Right. So if you're building all these apartments and all of a sudden you don't get
24:05that migration, so that's a supply is picking up because you're building.
24:10But the migration is less.
24:11You get that supply and demand equilibrium being more negative.
24:15So there's a lot going on in the apartment sector because there's a lot more
24:18production. But those things are being finished.
24:20Apartment permits are at recessionary level.
24:23So you finish the backlog and that's why the units completed is really starting to
24:27fall down now. You really need permits to keep on growing and growing to keep that
24:33data line more progressively heading higher.
24:37We have so much going on.
24:38It's a good thing you and I are talking three times a week now.
24:41And of course, you know what's going to happen, Sarah.
24:45The chart daddy is going to be five days a week eventually.
24:49You're only slowing this train down.
24:51You're only slowing this.
24:53By the way, I had a lot of fun in Orange County yesterday.
24:56Yes. You had an event.
24:58Yeah, it was good.
24:59And I will tell you this.
25:01Half the questions there were about the Palisades fire, as you can imagine.
25:05Pacific Palisades, for those who don't know, is a very, very wealthy area.
25:09So you got agents, Newport Beach, Corona Del Mar, Laguna Beach, Irvine, San Juan.
25:16So people are asking about that.
25:18And from what I heard, you know, talking to agents, they're just working nonstop just to get people into shelter.
25:27Right. For right now, they're not, you know, oh, I got to go buy a house.
25:31They're just trying to get their lives together and fix it up.
25:33But there are some wealthy people who already I'm buying in Newport Beach, because if you think of Orange County, if you didn't want to stay, I still think a lot of people would probably want to stay around L.A.
25:43But if you're going to think about Orange County, Newport Beach, Irvine, Laguna Beach, parts of San Juan, those areas are as close to you what you're going to get to Pacific Palisades, which I grew up in Santa Monica, spent a lot of time in Pacific Palisades.
25:59And I live in Irvine.
26:00So trying to figure out like what what areas somewhat and that those are the only cities I can think of.
26:06And they're just getting people in rentals left and right.
26:09They're just there's just so much, you know, chaos going in a lot of these people's lives.
26:14And not a lot of them are just I got to go buy a house right now.
26:16But some of them are just are really well off.
26:19They have the luxury to to be able to purchase something in a good area.
26:23It is reshaping the California market, especially the Southern California market.
26:27We unfortunately there's another fire this morning, but it's it's in an area where there's not many homes, which is which is more what you see with wildfires.
26:35You know, this was one of the reasons and it does look like rain is coming on the way.
26:39So. Oh, good.
26:41Good news there. All right, Logan.
26:42Well, we will have you on again soon.
26:44Thank you so much and have a great weekend.