On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about what the Treasury department could do to help lower mortgage rates. The two also discuss the homeownership rate.
Related to this episode:
The state of US homeownership: Younger buyers hold the key | HousingWire
https://www.housingwire.com/articles/the-state-of-us-homeownership-younger-buyers-hold-the-key/
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:
The state of US homeownership: Younger buyers hold the key | HousingWire
https://www.housingwire.com/articles/the-state-of-us-homeownership-younger-buyers-hold-the-key/
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.
00:07My guest today is lead analyst, Logan Motoshami, to talk about mortgage rates, jobs, and the
00:12home ownership rate.
00:13Logan, welcome back to the podcast.
00:15It is wonderful to be here, Sarah, and my, my, my, look who came to the party as we wrote
00:23on January 23rd.
00:27If the administration really wants to, you know, talk about getting mortgage rates lower,
00:33they're going to need Treasury, Besent, to come out and talk about, we want the 10-year
00:37yield lower, not focus too much on the Fed funds rate, even though I, I believe that,
00:42that does need to happen.
00:43And that's what occurred yesterday.
00:45That was the big talk.
00:47Okay, so let's talk about what they can do.
00:51So you know, Fed funds rate, if he's, if he's not focused on that, he's focused on the 10-year
00:56yield.
00:57What can Scott Besent do about that?
00:58So this is, this is my understanding, just from, from, from what I know, obviously nobody
01:06wants the 10-year yield and mortgage rates to go up higher, right?
01:09We wrote that case in December, right?
01:11The wild card for 2025 is the housing market, residential construction workers.
01:15The last thing you want to deal with is an early recession or unemployment rates going.
01:22Manufacturing jobs were lost last year.
01:23So, so what happened?
01:25The 10-year yield, of course, went up and, you know, when Mnuchin, the former treasury
01:30secretary said four and a half percent is a cap.
01:33That's kind of where we want it for the 10-year yield to get above that.
01:37It's probably within the administration, not something they want to see.
01:43We got up to 481, I think this year, I think the, the peak forecast for me is at 470.
01:48So to get the 10-year yield up higher than that, you need economic growth to be booming,
01:53inflation, things like that.
01:55And if that's not occurring, then what it is is financial conditions are tighter than
01:59what they should be.
02:01The bond market was heavily shorted, which means people are betting money on it rising.
02:08I believe part of this is to kind of spook bond shorts, just like how a CEO doesn't like
02:18shorting their company and calls for a stock buyback or something like that.
02:25I don't know if this, this is going to happen or not, but I believe Jamie Dimon from J.P.
02:30Morgan and Musk are going to be presenting something to bond traders, just speculating
02:36here if that's, if that's going to occur or not.
02:39I don't think they, I don't believe they feel comfortable with yields accelerating.
02:45And again, we go back to the November 7th podcast, you know, trade war tap dance.
02:52We saw what happened with the tariffs.
02:54Now they're coming in with the big guns and saying, we would like the 10-year yield, which
02:58means you want mortgage rates to go lower.
03:01If the 10-year yield just ranges between 380 and a four and a quarter with normal spreads,
03:07I think everyone would be fine.
03:09You'd have 6% mortgage rates if the spreads improve, even from where they are right now,
03:14you have mortgage rates with a five handle.
03:17Then you can get the builder, start issuing permits and home buying will grow again.
03:22It's not the five, sub 5% market of the last decade, but it's good enough to alleviate
03:27some of the recession scares.
03:30So as of right now, you know, it's trying to talk a market down.
03:36They can issue the supply of bonds or what they're going to borrow, kind of like what
03:42happened before with the Biden administration.
03:45But really, you know, I calculated this with one of the Wall Street economists on Twitter
03:51today.
03:53They really need the Fed funds rate 1% lower.
03:55And if you get 1% lower, the Fed funds rate and a dovish Fed, I think they'll be okay.
04:00If the spreads improve a little bit more, they'll be okay.
04:04That's kind of it, right?
04:06There is no pushing mortgage rates back down to what we saw in the last decade or anything
04:11like that.
04:12But that is workable.
04:14And that's more of a plausible case that could be made.
04:17But again, there's so much talk about trade wars, tariff, inflation, all this stuff at
04:21bond yields are, you know, not productive for anybody.
04:25So I thought that was just, again, what we wrote about in January 23rd.
04:28He needs to come out, not Trump.
04:31And he specifically said, we'd like the 10-year yield low.
04:34Trump doesn't want rate cuts.
04:37He wants the 10-year yield.
04:38But you do need like 65 to 75% of the move, really, with the 10-year Fed policy.
04:44This is why the two-year yield and 10-year yield tend to move together.
04:48And it's the start of the year.
04:51And this is going to be much more interesting the next four years.
04:56So yeah, you could call it interesting for sure.
04:59So there's nothing, you know, overt that they're going to do, in your opinion, or what they're
05:04really going to do is they're trying to influence the bond traders by what they're talking about
05:09and what they...
05:10No.
05:11They could do some issuance of, you know, shorter-term debt versus longer-term debt,
05:18you know, just to bring in less supply.
05:21That gets into a little bit more complicated discussion.
05:23I don't want to get too involved in those weeds.
05:26But generally what I'm seeing is that they're trying to convince bond traders not to short
05:32the 10-year yield.
05:33And then if they could get the Fed on board, and then, you know, Waller talked about, you
05:39know, maybe we need, you know, we can get four rate cuts.
05:43Now that four rate cuts is meaningful.
05:48Because to me, what they really need is 1% lower in the Fed funds rate, short-term rates,
05:54everything kind of smooth, and you're working with a lower base that the 10-year yield can
05:58work off of.
06:00The Fed is still restrictive in that sense, but the 10-year yield is pretty much priced
06:04where it should be, considering all the variables.
06:08So it happened a little bit sooner than I thought.
06:15But when we wrote that piece about, you know, he needs to come out of the heat within, what,
06:20like less than two weeks that happened.
06:23And now the 10-year yield as of this morning is 4.44 last time I checked.
06:28Mortgage rates are sub 7%, you know, barely.
06:33But I think there was a concern on everyone that if mortgage rates kept on going higher
06:39and higher, and the Fed does what it usually does, ignores the housing market, residential
06:44construction, lose their jobs, unemployment rate goes up because private unemployment
06:49jobs will be lost.
06:51That doesn't do the administration any good.
06:53And the Fed is typically behind the curve on this.
06:55So just it just makes everything interesting going out now, because we have now full set,
07:02you know, hey, listen, this is what we want.
07:04We're going to do what we can to get it there.
07:07And it makes the Fed meetings a little bit more interesting on the Q&As.
07:13And because now Scott Bassett is the head of Treasury.
07:18And we'll take it one day at a time, Sarah.
07:20I know we're doing this three times a week.
07:22We should be doing this five, five days a week, because every day something comes up
07:26and we got to talk about it.
07:28Every day something does come up.
07:30OK, so before we go on to jobs, which is our next topic, let's talk a little bit about
07:35tariffs and where that shook out and how that is affecting mortgage rates or if any of that
07:41talk or any of those things are affecting mortgage rates right now.
07:45So bond traders can overbuy the bond market and make it oversell the bond market.
07:52So considering where economic growth is at 3 percent GDP, again, there's nothing abnormal
07:59about where the 10 year yield is going.
08:02But I think everyone was there.
08:03I think the bigger concern to me from I think from the administration is that the bond market
08:10was heavily short and things could get wild short term in that they wanted to just kind
08:15of squash that.
08:17And the 10 year yield is almost down 40 basis points.
08:21I think at one point it was down 40 basis points from the recent highs.
08:27Scott Bassett isn't a trade war person.
08:30And just like myself talked about it being a loaded gun that you're never going to shoot.
08:36It's really designed to try to get manufactured.
08:38This is the whole premise of a trade war tap dance, not a trade.
08:42If you really believe in the concept of tariffs, you just put them in and you leave them there.
08:46And then you try to find ways to go around other countries' tariffs.
08:52And it's a whole process.
08:54Scott doesn't really believe in that.
08:56It's more about trying to get manufacturing jobs back.
08:58Again, the dollar gets strong again and it all falls back to the dollar, really.
09:04And I'm encouraged because I see more and more people asking about the dollar, which
09:08is just like, ah, makes me smile.
09:10But the tariff headlines and bond yields going up higher, of course, there's a lot of Wall
09:15Street firms talking their books.
09:17They were short the 10 year yield.
09:19They highlighted the tariffs and inflation as their reason.
09:24So it's just a lot of, to me, a gainsmanship between the White House and bond traders.
09:28And it'll be more interesting to see if that occurs with Musk and Jamie Dimon talking to
09:34bond traders about their plans, about reducing the deficit and getting less supply out there
09:39and trying to drive down, because Scott Bissett's plan is really 3% GDP, 3 million more barrels
09:48produced a month.
09:50I don't see how that's going to happen.
09:52But a lot of this is bringing oil prices down and energy prices down, not just for here
09:57in the U.S., but globally as well, which a lot of countries need elevated oil prices
10:02to keep their budgets going.
10:04I just always like to remind people that we had lower mortgage rates with higher oil prices
10:12and gas prices the previous decade.
10:14Go look at oil prices from 2010 to 2015 before the shale boom started.
10:20We also had higher mortgage rates with a lot lower oil prices in the 1990s.
10:27Go back and take a look at oil prices and look at where mortgage rates were.
10:30So it isn't like 100% this is the thing.
10:33But I could see if the disinflation from lower oil prices happen, they feel like the Fed
10:39can be more dovish.
10:40And we don't need a 1% cut in rates and a dovish Fed gets you into a workable.
10:47We're just talking about a workable premise.
10:49For me, it's like I can't forecast below 5.75% unless the Fed starts to get a little bit
10:53more dovish.
10:54But you can get something working if mortgage rates get towards 6%.
10:59It's the 6.75% to 8% mortgage market that isn't doing anyone any good.
11:05So we'll see.
11:07Like I said, this is why every single day you have to track this stuff because something
11:12comes out of the blue and it's a variable that needs to be discussed.
11:17Love that.
11:18Okay.
11:19We are recording this on Thursday.
11:20Tomorrow is the big day.
11:22Jobs report.
11:23What do you think is going to happen?
11:25Oh, my.
11:26I think the podcast comes out right when jobs report is going to come out.
11:30Okay.
11:31So a few things.
11:32Number one, so far this week, I would say that the labor data has been softer.
11:37I know the ADP beat.
11:39Nobody really cares about the ADP.
11:40I'm sorry, but that's just the truth.
11:43We have to say it's part of the jobs week because sometimes it does move the bond market
11:47on the day.
11:50Job openings, of course, job openings were lower.
11:53The quits and the hires are low.
11:56So it's the same market.
11:57We're going to get the revisions tomorrow.
12:00So just one thing about revisions, you know, I know a lot of people are saying there's
12:04800,000 less jobs.
12:06The job market still, even if that occurred, roughly is kind of where I thought it would
12:11be in 2024.
12:12I was always wrong.
12:13I was always lower than everyone else's forecast.
12:16But now with the revisions, the revision itself, the six month is basically at the peak of
12:20my 2024 forecast for job creation per month.
12:24So we'll see what happens with the revisions in general.
12:28But again, the Fed is, what is it, labor market breaking, right?
12:32Jobless claims.
12:34You've had a softening of the labor market for now 14, 15 months now.
12:39Manufacturing jobs were lost in 2024.
12:42Residential construction workers, if they lose their job, that ties with every single
12:45recession we've seen in recent modern day history.
12:48These things should be very evident and apparent.
12:51But I've always said the Fed doesn't care.
12:53They keep on saying, oh, the labor market is strong.
12:56It's softening economies.
12:57So they kind of consumption GDP is running.
12:59So they're just going to be as financially tight as possible until the labor market breaks.
13:06So tomorrow will be a good day in seeing how the bond market reacts to where we are now.
13:11We're obviously off of the 480 level where we've come down enough.
13:16But look at wage growth.
13:18Look at the revisions.
13:19Look to see if any any Fed president says anything.
13:23But jobless claims, again, is the key to everything.
13:26Jobless claims picked up just a little bit out there.
13:28But the continuing claims just shows it's a soft.
13:31If you have a job, you're OK.
13:32But if you're looking for a job, not the best.
13:36And it's a little bit more difficult now with elevated rates and moving.
13:39So there's things that can alleviate this.
13:43But as we talked about in 2022, they're going to wait until the very last, you know, them
13:50cutting rates.
13:51One percent is a big deal because, you know, the market has already lowered the rate bound.
13:55It's just not enough to where people thought if the growth rate of inflation falls, that
13:59we'd have sub six percent mortgage rates not in that camp.
14:02But that's what so many people were waiting for.
14:05And I tell you, the White House, the Treasury, everyone would be happy if that was the case.
14:11We're just not quite there yet.
14:13Well, and, you know, earlier, you're like you could see it, you know, for under seven
14:17now. Great. If we could get under six, if we got to six, like just at six or a little
14:21bit under, I mean, huge spring home buying season.
14:25Again, every year that goes by when you're working from the lowest levels of home sales
14:29ever recorded in history, that intangible household formation, wages, people, you're
14:34missing millions of home buyers that would have been here in a normal thing.
14:39So it just builds up.
14:41And early 1980s, that's what a lot of a lot of people said.
14:44We're a renter a nation. Nobody was going to buy homes.
14:47Mortgage rates fell. Now, of course, there was a recession back then that pushed rates
14:51lower. When that occurred, you know, we had a vertical shot up in demand and
14:56affordability was worse back then.
14:58And we had more inventory and a recession.
15:00So everybody, everybody would be happy if mortgage rates were at five point seven five
15:07to six and a quarter rather than six point seven five to seven.
15:11That's just kind of it. So when when Fred President Waller says we might have four rate
15:16cuts, I'm wondering in the background if there's quietly some kind of discussion going
15:22on about, listen, if you can do this, these few things and we could get more because the
15:27Fed cuts one percent and they sound dovish, makes everyone's life easier out there.
15:33And of course, the spreads have gotten better this year.
15:35That's that's saved it.
15:36But imagine imagine if the spreads were as bad as they were in twenty, twenty three.
15:40We're talking eight percent mortgage rates.
15:42No, that's the market's not functionally working.
15:45And that's more strain to the to the builders as well.
15:51Let's talk about homeownership rates.
15:52So you wrote a you wrote an article this week, and I thought it was really interesting
15:59because we were looking at, like, what does the Census Bureau say the homeownership rate
16:03is? It was pretty high.
16:05Can considering.
16:07So one, I would like you to talk about how high we reached, why it's not higher and
16:12what's the highest that we've ever reached.
16:14So one of the things one of the craziest calls that I made in the last decade is that
16:19I how I've formatted the previous decade was that we're going to have the weakest
16:25housing recovery ever.
16:26And because homes were so affordable back then and mortgage rates were so much lower,
16:31a lot of people didn't agree with that assessment.
16:33Millions of people buy homes.
16:34But what you're looking for is you're looking for the mortgage purchase application
16:38data to get to three hundred.
16:39That's not going to happen until years twenty, twenty to twenty twenty.
16:41You're not going to get housing starts to get to one point five million to a year.
16:44All that occurred.
16:45But one of the more controversial causes during that period of time, I said the homeownership
16:49rate is going to get down to sixty two point two to sixty two point seven.
16:53You know, household demographics.
16:54We have a lot of people in the renting age.
16:57You need massive deleveraging happening.
16:59People when they short sale and foreclose their house.
17:03They are no longer homeowners.
17:04So we're going to get there now.
17:05That was a very, very aggressive call.
17:08We got to sixty two point nine in Q2 of twenty sixteen.
17:14So missed it by this much.
17:16Then all of a sudden, household formation grows.
17:19Millions of people buy homes.
17:20Here comes the millennials.
17:22Credit markets are much better now.
17:23You're not seeing more foreclosures.
17:26We should get to sixty six point two one homeownership rates.
17:30Near 70 was the high in during the housing bubble years, which I say is artificial.
17:34That was not real.
17:36By years twenty twenty two to twenty twenty six, we got to sixty six percent so far, three
17:42quarters in the last few years.
17:43So we're almost there.
17:44And if home prices didn't escalate out of control and mortgage rates didn't escalate
17:49out of control, we probably would have already reached that.
17:51I do not count the sharp spike that we saw during covid.
17:55That was an accounting error.
17:57So considering all the variables we have to deal with, prices and rates, it looks at sixty
18:02five point seven percent looks looks fine to me out there.
18:07Again, one third of all society are lifelong renters unless they get married to a dual
18:11household income.
18:13So the percentage looks looks looks normal.
18:16Again, when you have a big group of younger Americans coming in, they go from renter to
18:21ownership.
18:23And then if you don't have foreclosures and short sales and very big forms, you're not
18:27losing that side against 70 to 80 percent of all homeowners who sell their homes or
18:32homebuyers.
18:33So everything looks looks about right.
18:35If anything, it's probably stayed a little bit higher considering how much home prices
18:42have gone up or rates have gone up.
18:43So the homeownership, the state of homeownership looks looks normal.
18:46I know first time homebuyers, that's a percentage survey that the NAR does.
18:50It's at twenty four percent.
18:51Just remember, millennials are still the biggest homebuyers in the world.
18:54Now Gen Z is coming in.
18:56And a lot of this has to do with the credit data.
18:59And that's what we highlighted in the article as well.
19:02Right.
19:02If you don't have people foreclosing on their homes or losing their houses, they will be
19:07technical homeowners on the census until they do.
19:11And delinquency ratios or everything is still as a percentage very low.
19:16I think that that's I think you're right where that's kind of the sweet spot for our
19:20nation.
19:21In fact, if we didn't have that demographic push that you talked about so much when you
19:25were when we first started doing our podcast, so when you first started writing for Housing
19:29Wire, almost all of your work was about the demographics of twenty twenty to twenty twenty
19:34four because you had all these millennials reaching peak homebuying age.
19:38And so I feel like with that push has gotten us where we are because it's not like there's
19:44some exotic loan debt structures out there as you talk about.
19:47It's not like, oh, we're just giving houses to everybody.
19:50What do we always say?
19:51The skit, we're not complicated people.
19:54We rent, we date, we mate, we get married three and a half years after marriage.
19:58We have kids, dual household incomes, highest percentage homeowners are married couples.
20:03There you go.
20:04And if people ask me, how are people buying homes with home prices where they are and
20:10and where rates are, if you if you need one hundred and three to one hundred ten thousand
20:14dollars to buy a house in America today, dual household income solves that.
20:19That's why dual household incomes was a big part of our work in the last decade.
20:22And we're highlighting that now because if rates go lower, the pool gets bigger.
20:28Right.
20:28Every one percent rates go down, the pool naturally gets bigger and it goes down again.
20:33Pool gets bigger.
20:33Now, if rates go up one, two percent, the pool becomes less and less.
20:37And that's what we've seen here with existing home sales basically hovering right at that
20:41four million back to back did not break.
20:43Right.
20:44We we stuck just a tad above four million.
20:46Isn't that crazy how that all worked?
20:47That was like one of our things early in 2020 to talk about.
20:50It's really rare for existing home sales to even trend below four million, but to close
20:54a year under four million after 1996 just hasn't occurred.
20:58And even with everything we've dealt with recently, that's that's been the case.
21:02So it's just a testament to having a massive young demographic patch.
21:09Right.
21:09If we didn't have millennials and Gen Z, we're looking like Japan.
21:12I mean, both those two generations together are bigger than the total population of Japan
21:17and 40 percent of Japan's population will be dead by the end of the century.
21:20That's not good for economics.
21:22And they sell more adult diapers than baby diapers.
21:25So not another good thing for for economics as well.
21:28You and I were at an event and you said that on stage and everybody that the reaction of
21:34the crowd when you said they sell more adult diapers than baby diapers was just people
21:40were just like, did he just say they were just laughing?
21:43But it's true.
21:43It's true.
21:44It's like, I know, I mean, sex, death, everything, all these things are really important things
21:50for economics.
21:51And when you're an aging society and you don't have a younger workforce replacing that group
21:58and you don't have immigration, I mean, I mean, for Japan to basically accept immigration
22:03tells you how bad it is over there.
22:05OK, so that is a society that has not enjoyed immigration for for a very long time.
22:10But, you know, robots can't do all the jobs there.
22:13They can't do everything.
22:15So that's that's why they're finally opening up to to immigration.
22:20And that's really I mean, there's there's a lot of countries that are very young and
22:26the Middle East, Africa, India.
22:27And then there's a lot of older countries that, you know, Europe, Japan, China, you
22:36know, nobody has a Dorian grade labor market.
22:38I use that always because we all age.
22:41Nature wins and then we die.
22:44And when we leave the workforce, we need to be replaced.
22:47And if it's a growing economy, you need labor out there.
22:51Speaking of which, because of the set, we got to do the slow dance song again.
22:56So I got to sing shy the very first time that I saw your brown eyes.
23:03But I was thinking, you know, I got to start bringing, you know, other songs.
23:07I was like, do I bring, you know, I can't bring Color Me Bad.
23:12I don't think Clayton would like that.
23:14Richard Marks, you know, right.
23:17You know, you're going to be an economist.
23:19You keep singing.
23:20I'm telling you, it's it's the slow dance is working.
23:23People starting to get it right.
23:25The 10 year old 30 year mortgage bond, you know.
23:28And then I always say that, you know, we want an intimate slow dance.
23:33You know, we want them close together.
23:35And when the spreads are bad, that means the guy probably did something wrong.
23:39And the slow dance is wide.
23:40And that doesn't do any good.
23:41And that's what we're dealing with.
23:43Still, I know the spreads are getting better.
23:45Mortgage rates would be near 8% today.
23:47The spreads didn't get better.
23:48So I thought if I explained it that way, that might be like interesting.
23:53And then people would get it.
23:54And now whenever somebody sees the 10 year yield, 30 year mortgage, I was like, oh my
23:58God, wait a second.
23:59Yeah.
23:59And then the spread.
24:00So we have to say things for people to relate to and then have some fun with it.
24:05That one has been super popular.
24:07We are out of time.
24:08Thank you so much for being on and listeners.
24:11If you listen to this and then, you know, you look at the jobs report, Logan always
24:15writes up an analysis of the job report on that day too.
24:18So you can check that out.
24:19Logan, thanks again for being on.
24:21Pleasure to be here, Sarah.