On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the latest tariff news, jobs data and how both of those things are affecting mortgage 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.
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. My guest today is lead analyst, Logan Motoshami, to talk about tariffs,
00:11mortgage rates, jobs data, and more. First, I want to thank our sponsor, Optimal Blue,
00:16for making this episode possible. Logan, welcome back to the podcast.
00:20Sarah, it has just been a crazy, fun-filled, nerdy week with tons of things happening.
00:29I'm very excited because it's been a while since we've had a week like this, and a lot has gone
00:34on. This is Thursday morning. We just got the jobless claims number, the challenger jobs cut
00:41data. Jobs Friday, by the time this podcast comes out, will be out. Of course, labor over inflation,
00:48that's going to be the big thing, but a lot happened this week. We had a very, very sharp
00:56reversal in bond yields. We had stocks sell off. I tell people, if you think about tariffs,
01:03think about Karate Kid. Tariffs on, tariffs off. Tariffs on, tariffs off. Then it starts to make
01:12sense. At some point, something has to happen, but a lot went on this week.
01:19Okay. I think that is the very best analogy for what's going on with the tariffs that I've ever
01:25seen. Hopefully, at the end, someone's stronger, right? This makes it stronger, all this on and
01:30off? One of the things about going early aggressively and you keep on delaying stuff
01:38over and over, you have to pull the trigger. Either you pull the trigger on tariffs or you
01:44make a deal, but you can't just keep on delaying stuff. Obviously, we're going to have reciprocal
01:52tariffs come in April 2nd. People ask about that. It's basically telling everybody, hey, listen,
01:57the tariffs you have on us, we're going to have back on you. There's a lot going on,
02:02but at some point, in a serious way, you have to either put the tariffs on and leave them there
02:09forever because you need to change behavior or you make some kind of deal. This back and forth
02:15stuff is starting. Even some of my conservative friends are like, okay, listen, you're going to
02:20have to do something, make a deal or something like this, but I think it's getting slightly
02:28annoying by pulling stuff back off. Hopefully, you get some clarity on this by mid-April of this year.
02:37Okay. Before we jump into jobs, let's talk just a little bit more about tariffs and specifically
02:42homebuilders. President Trump carved out something for the auto industry, at least
02:51temporarily, if nothing else. We have not seen that with homebuilders.
02:58It'll eventually happen, I believe. It's funny. Yahoo Finance asked me to speak on their show
03:04yesterday specifically on this. Their kind of discussion was, is this going to boost home
03:11prices? And of course, the new home sale market is different than the existing home sales. We
03:15always separate those two. Why, Sarah? Because it's the Fight Club rules. We legitimately have
03:22functioning men in America, Russia, China, and Iran, who literally go around and told people
03:28that national home prices were down 15%, 20% because they can't read that the median sales
03:34index has the census. It's the new home sales. That's why we created the Fight Club rules.
03:40You would think somebody in their 20s, 30s, 40s, and 50s could read, but no.
03:44So the discussion is that lumber prices escalate and it'll boost inflation and
03:54home prices will go. The new home sales market is in a different stage right now. And he said
03:59lumber prices were $1,000 higher during COVID, but mortgage rates were at 3%.
04:04Now, completed units of sale are up. Total inventory is up. The South is a problem for
04:11the builders. Mortgage rates are elevated. I know they've come down a little bit, but
04:15this is not the environment where they can just freely push on costs. And it's more of a production
04:22issue. And this is why permits have been in recession lows for some time now.
04:26So you could see why the builder's confidence index just tanked in the last report. Because
04:32it's one thing to have elevated rates, but then there's another thing to have tariffs.
04:37And we just don't have the setup yet right now to the sawmills and the productions to get that kind
04:44of cost in. So I'm pretty sure something will happen, but again, a little bit chaotic early
04:53in the year. I just don't think the builders start issuing permits or anything more.
05:04Also the remodeling sector, costs of everything going up. If that does happen,
05:12it makes that sector. And we have to remember that the residential construction workers
05:16aren't all apartment and residential single family builders. These are remodeling work as well.
05:22So there's a lot of toss-ups. And this is why we said the wildcard for 2025 before any of this
05:27drama happened was the builders. There was a lot of variables that were in place for this year that
05:33were different than the previous few years. And we show them in the charts and we try to explain
05:38them and they're really critical to the economic cycle. So one of the reasons that I feel like
05:44indirectly home prices could go up is that right now you've had builders able to buy down rates
05:50and sort of like section off some of the demand. So if that's less, if you have less homes to
05:57choose from on the builder's side, if they stop issuing permits, so that makes every
06:02standing house more valuable in some ways. Well, majority of all inventory in America
06:09really comes from the existing home sales market, just because we have to think of this in this,
06:14the builders build a home, unless it's a spec home, they have a buyer in there. It's a contractor.
06:19It's just getting from that stage and they don't really have a lot of completed units available
06:24for sale. Even right now, I think it's like 120,000. The existing home sales market is this
06:30massive, just massive marketplace that any kind of shift can, within two weeks, you can have,
06:39in a sense, our new listings data can be more homes available than all the completed units
06:45of the builders going back 14 years. If you get 60, 70,000 new listings coming on per week,
06:52just two weeks actually overrides that. So the existing home sales market is more critical for
06:58the active inventory, but if the builders stop building, then if rates do fall down and demand
07:07picks up, mortgage buyers pick up, inventory slows down, there's not a lot of new supply in certain
07:13areas that matter. Of course, the South has been such a big growth spot for the builders for many,
07:21many years, and that's now their problem area. So a lot of people said, hey, that's great for home
07:26buyers. Do you really think home buyers are running around thinking life's great? I always think it's
07:32funny. People go, it's a buyer's market. Do you really think buyers are telling you, hey, I feel
07:37wonderful right now? So it's this supply and demand equilibrium, and you always have to separate
07:44the new home sales sector from the existing, because this is just massive, and this is a
07:50sector that sells house as a commodity. If you think of it as a commodity, then a lot of the
07:57things that builders are doing make sense. And this is why we wrote that article in 2021 that,
08:02you know, hey, I know everyone thinks you're going to get a construction boom. You guys are all so
08:05cute, adorable, adorable kids. I love you all. But once rates rise, it's all going to come down,
08:12right? You know? They learned their lesson. The builders learned their lesson. They're never going
08:16to build again. This is not so much of 2008. This is what the builders have been doing since the
08:221960s. This is why I like to show these charts going back decades and decades. There's a reason.
08:29Rates go up. Builders' construction goes down. Rates go up. Builders' construction goes down.
08:35The 1974 recession, you look at multifamily construction, collapsed, right? It doesn't go
08:41down to zero, but the growth rate slows down. And the one thing about 2008, there was demand there.
08:50Like new home sales were booming back then. So the builders build off of their demand curve.
08:55But the previous cycle had the weakest new home sales cycle ever recorded history. This is where
08:59I'm like 100% different than everyone else. The builders did not under build in the last decade.
09:07There's missed new home sales in 2013, 14, 15, and 2018. It was the weakest new home sales cycle.
09:13There was too much supply, too much existing homes that were cheaper. Mortgage rates were low.
09:17Active inventory was higher. They were at a disadvantage because the products that were
09:21available out there was cheaper than what they were doing. And mortgage demand was very, very
09:26slow. So advantage, disadvantage. Now, inventory was at all-time lows. Mortgage rates shot up,
09:33but the builders were like, oh, hey, we have sub 6% mortgage rates, right? So in an odd way,
09:41for the first time in a while, they had the advantage over the existing home sales market.
09:45But that's slowly going away. Margins compress. It's harder to pay down rates. In that environment,
09:53you just go, oh, we slow things down. Wow. I mean, so much to talk about. Okay. Let's get
09:59to jobs because this is jobs week and what a crazy volatile week it has been. So what have
10:04we seen so far? Okay. So we're going to explain this from last Saturday's tracker to it's Thursday
10:10right now. Okay. Jobs Friday, we'll see what it is. So we wrote in the tracker that the 10-year
10:15yield has already made a big move. You're really going to need much weaker economic data or stock
10:20sell-off to drive yields lower. You guys look at the 10-year yield, look at closing yields. You
10:25could see why I talked about that. It's almost going to be a testing a double bottom. Stocks
10:31sold off, tariffs, GDP, negative 2.8%. Bond yields went all the way down to 411 on the 10-year yield.
10:38We are literally 31 basis points away from my low end. I was like, man, when we start getting
10:45into that area, you really fed policies up here to get down there. You really need the economic
10:51data to get weaker. Then Germany announced, oh God, we're suspending. We're going to build up
10:57our military to fight Russia at some point. So global bond market synchronization, the 10-year
11:02yield went up in France, the 10-year yield went up in Germany. Our bond yields had a reverse stock
11:07stopped going down. Some of the economic data was not as bad going out. So ISM, some of the
11:16manufacturing data, the jobless claims data came today, the headline number came down.
11:21So bond yields had a very sharp reversal. But if you look at it on a closing basis,
11:28we just basically tested a key level and we bounced off of that. But the drama was really,
11:33really big this week. We always say that when you see crazy intraday action, short term,
11:39that's either a top or a bottom just because bond traders are still confused.
11:45The labor data is key. The Challenger job cut index had a vertical spike. A lot of that is
11:51federal. You had some retail bankruptcies that were laid off. So we're a little bit more mindful
11:57now of labor data. But it was chaos this week. It was like Anchorman. Boy, that escalated really
12:06fast. Okay. Well, let's talk about the federal data. So tomorrow's jobs report is not going to
12:16reflect most of those layouts, correct? I don't believe it should. But again,
12:22bigger picture, there's over 162 million people working. 1.5 to 2 million people lose their jobs
12:30every month, right? It's the job hires and fires a disproportional gap. If you're a growing economy,
12:35you still hire more people. Job growth has been slowing down. So we're going to have a couple
12:40hundred thousand federal workers lose their jobs. In the big picture, that's not big. However,
12:46how I try to explain this is that last year, job growth was boosted by government workers. A lot of
12:52that is state and federal. If you're withdrawing money out of the system, and the labor force
12:57stays constant or rises, that total payroll is coming down. Because of that, the unemployment
13:05rate can go up. If the labor force contracted, right? And the unemployment rate can stay lower.
13:12But if the labor force is on par growing and your job growth, total growth is slowing down,
13:17then the unemployment rate could go up. And then we talk about that 4.3% number for the fed starts
13:22to become more important. But yeah, I mean, every day I'm just looking at, oh, we're firing 80,000
13:30here. We're firing 50,000 here. So eventually it comes, but that eventually ends, right?
13:37And after that, if the labor market could absorb those workers into that,
13:43then it's not that big of an issue. But the private sector is really the big drive. I mean,
13:50federal workers, it's not that big in the total picture. So we're keeping an eye still on the
13:54housing sector because the residential construction workers, manufacturing jobs were already lost
14:00last year. So we want to put all the focus on the key sectors out here. But clearly,
14:05if you're firing people and you're withdrawing money, the growth in one of your sectors that
14:11you relied on the previous year is obviously not going to be the same. So we see it in the data,
14:18we're going to see it in the jobs reports. But then again, it's a one-off, right? You just,
14:23you can't fire everyone and then fire fake people. So it's really the absorption rate of how fast
14:30can these people get work. So that's interesting if you think
14:35they're mostly concentrated in one area, because if you have 80,000 people flooding the market in
14:41one area, it's hard to see. I mean, the DC market is very federal jobs concentrated, right? So if
14:48the more people you fire in that area, they're either going to have to move or they're going to
14:52get jobs, or maybe there's some remote jobs, but it's like, some of those things are pretty
14:56specific too. We have to remember one thing. I don't know how the severance or the payout
15:03packages go with government, but we have kind of like a white collar, some people will say
15:11tech recession. I know in California, there's been a lot of tech jobs loss. A lot of these people
15:16have like good severance package. So they have time to find work and not get hit on the household
15:22side yet. So there's obviously government buyouts. I think some of the government workers are going
15:28to get paid like eight months if they took that. And I think those are older workers anyway. So
15:36we'll be able to catch this in the jobless claims data or the jobs reports, the job openings will
15:45be key. That'll come out next week, actually. So it gets intriguing because for me, I'm more
15:52focused on if the total growth of jobs slow down and the labor force stays constant or grows,
15:57your unemployment rate's going to get hit faster, that target. And what does the Fed do? And we're
16:03going to have a Fed meeting up soon. So how is that handling itself? That's my next question,
16:09is at what point does the pressure build on their own levels they've said for the unemployment rate
16:16or whatever? What happens? At what point do they feel pressure? You know what? I could tell you
16:21this. What if I told you the Fed doesn't really care about all this? You have told me this before.
16:27What if the Fed goes, fine, if you want to withdraw money, that's fine. That's fights
16:31inflation, right? So again, labor over inflation always, but the Fed made that target 4.3%.
16:41I believe that was purposely done to keep that low, that if something changes, they might change
16:47with it. I don't, until jobless claims and job openings data gets weaker, I think they're more
16:53focused on that. The withdrawing of money, I secretly think the Fed's like, okay, that'll
17:03make our jobs easier. Of course, another big piece of news, OPEC is now producing more oil
17:10and that brought oil prices have not been able to really break under 66, 65 or something. We've
17:16been kind of in a downtrend, but we don't, we haven't broken underneath that. That can be a
17:21big deal, right? Headline inflation is CPI is really energy and food prices. They're probably
17:28happy about that, but the tariff discussion is getting a little bit more complicated because
17:36Democrats feel like inflation is about to, oh my God, the trade deficit data, Sarah, I know this
17:42is really exciting for you, but the trade deficit data just blew up. I'm on pins and needles right
17:49now. Oh my God. I was just, I sat there and I looked at it. I was like, holy, that was, that's,
17:54that's historic. Okay. Wait, wait. So explain, explain why this is a big deal. So the trade,
17:58Trump hates the trade deficit because he thinks companies are like countries are ripping us off.
18:02But when the trade deficit grows, the U S economy does better because people are consuming or
18:06consumption based economy. We're not a manufacturing company, so we don't export. We're not like a
18:10third world country that exports cheap stuff to, to other countries that consume. So the trade
18:16deficit, which it's probably driving him crazy today, um, just got super wide because a lot of
18:24people bought stuff thinking I got to get my stuff now before the tariffs, which the funny part is
18:29that the auto, the auto companies call the white house and say, listen, we're going to have to
18:32raise costs if you do this on us. So tariff on tariff off, right. They have a one month delay.
18:40So in that, in that light, we're like, wow, a lot, a lot of people really did buy stuff before
18:46the tariffs, but that messed up the export or import. And then, and then that hit the GDP
18:53negative, but it really was a historic, historic push. Um, I, I don't know how that continues
18:59anymore because, uh, you could only buy so much stuff, but that, that was really interesting to
19:04see how many people bought stuff ahead of the tariff. So the, the, the, some of the federal
19:11reserve people are now talking openly about tariffs that some of their surveys are showing
19:16that costs are going to go up. Some of them say it's not going to really be inflationary in the
19:20big scale center, one-time price adjustments. Uh, but you could clearly see behavior changed
19:27in terms of consumption, uh, by us consumers trying to get ahead of the tariff. So it's,
19:34it's, it's different. This is just, this is just a whole brand new. So we're, we're trying to
19:39incorporate, but Oh my God, whenever I could explain the trade deficit data, I am so happy
19:43because nobody in America cares about that. Well, maybe I, I bet some of our listeners care.
19:50You've found your audience here. Um, it's not high on my radar, but that's okay. Um, really
19:56appreciate that. Okay. Anything else this week that you wanted to delve into? So, uh, purchase
20:01application data. Okay. Quietly, quietly, very, very, very quiet voice. Purchase application
20:10data has had five straight weeks of positive year over year growth data. Nobody knew this,
20:15you know, how we track purchase application data is a little bit different. We try to find rate
20:20ranges and where the data is going. So last year mortgage rates went to seven and a half percent
20:27purchase application data on the weekly data had 14 negative prints, two positive, two flats,
20:32very negative curve. The volume wasn't crashing lower at all, but, um, the weekly data was highly
20:39negative because that was such a negative data line this year, three positive three negative on
20:47the weeklies two flats. So in theory, we've already outperformed last year by just having,
20:52uh, three positive weeks, but because last year was, uh, uh, such a hit when rates went to seven
20:58and a half percent, it really created a low bar. So we've had five straight weeks of year over
21:03year growth. Sarah, it has been a long time since I could say that. Um, but looking at it
21:11in a little bit more sophisticated way, it's basically kind of flat. So there's not much
21:16really going on, but it is not as bad as last year. So very interesting. The purchase application
21:22data. And, you know, so we've seen rates come down last couple of weeks, right? Uh, yes. The,
21:28the mortgage rates have gone really from like seven and a quarter down to like 6.64%. And I,
21:34I just thought about Neil young, if you go away, you know, and then I don't know.
21:41What song are you referencing here? Oh, no, no. We're, we're just, uh, we, we brought Neil,
21:47Neil, uh, uh, Neil song out because the mortgage rates got down to like 6.64%. And what happened
21:53was like, I was thinking like, Oh, if this just goes away, everyone's going to be sad,
21:57you know? So it was a really big move down in rates from the recent high. And, and of course,
22:02in that day, the 10 year yield had that sharp reversal and we had the second repricing, um,
22:08and, and the spreads get better when yields go up. So mortgage rates are half a percent better
22:14than where they were at the highs. But, uh, again, the, the key thing for me to teach people is that
22:20we only, if I take this, the data, the seasonal demand curve out of the data lines, which is just
22:26the natural curve higher because more people get ready to buy in spring, the housing data only
22:32really improves when mortgage rates go from 6.64% down towards 6%. It doesn't really get good,
22:41you know, 6.75 and above. So we're kind of right in that entry level point. You just got to get
22:47that next leg lower. And that's the frustrating. It's so frustrating. You're like thinking all you
22:52need is to get from here to there. And then you can get a little bit of growth and say, and I'm
22:56not talking about like booming sales or anything like that, but the last few years has shown us
23:00when you're working from the lowest levels ever in history, it doesn't take much to move the needle.
23:05Um, but we kind of got right to that point and then bond yields were reversed. So, uh, we are
23:11focusing on that, uh, going out for the rest of the year, but we are slightly better because last
23:16year was worse. So let's talk about, you know, last question tomorrow, Friday, when, what are
23:22the chances that when those job numbers come out, that the 10 year yield gets ahead of the fed and
23:28we have much better rates tomorrow. Okay. So what you want to see for jobs Friday is number one,
23:35wage growth, not pick up. Fed does not like wage growth picking up. Uh, so if wage growth stays
23:41flat or goes lower positive for rates, if job growth is slowing down, right. And noticeably
23:49if you're sub 100,000, the ADP report came in a negative by half. So that's not the most
23:57reliable data line. You keep an eye on that. Uh, those two things, hours worked stuff like that,
24:05uh, that could be beneficial for the 10 year yield, uh, going lower because the one thing with
24:11the labor data this year is again, the, the fed left a very low bar to change. So, um,
24:20the next, this report of the next two or two or three reports will have all the doge cuts
24:26in terms of firings, but I'm, I'm more interested on the money being withdrawn and how that affects
24:33uh, other states and any, any, any state that has federal funding, uh, out there is,
24:40is at risk of slowing down. So I think that that's why 2025 labor data will be interesting to see
24:47is it enough decrease in the spending to, to matter? Uh, so job growth, slowing down,
24:53wage growth, slowing down, that's all beneficial for rates. Um, but the key is if the labor force
24:59stays constant arises that can allow the unemployment rate to go up. And then the
25:04fed has to make a comment on this if that keeps on ticking up higher. So we'll see it's, it's,
25:09this has really been a fascinating week. Uh, there's a lot going on trade deficit,
25:14Germany spending, uh, uh, the negative GDP data, uh, all these things are happening.
25:20And then it's jobs week as well. We didn't have the job openings data that'll come up next week,
25:25but we're getting to the point to where it's, this is purposely done and we see the aftermaths
25:31of it. And it's going to happen this year because it's been such a sharp, uh, withdrawal of money
25:37and people leaving. Uh, is it enough to really tilt the private sector, which is that that's
25:43what really matters. The private sector is what matters more. So, uh, I'm, I'm sure the white
25:48house is very happy that mortgage rates are heading lower. If mortgage rates kept on going
25:54higher and higher, the builders are just, you know, um, so that I think for now, I think they're
26:02happy with that. Uh, but to get that, you gotta get that next stage, right? You can get that 6.64
26:08down towards six and you just stay there for a year. Right. Um, uh, you can get something going,
26:15but, uh, be careful of like overreading too much on the purchase application data.
26:20Like if you read the headlines or thinking, wow, what's going on here. But internally,
26:23it's just basically flat and last year was bad in that. So that's why we have that kind of the
26:29positive year over year data. So, oh, it's just March, it's March and we are, I'm, I'm leaving
26:37the Boise again today. So, uh, we just, we're getting the nerd tour going on. We've got, I think,
26:44I think like 20, 24 cities left to hit, but, um, you really need like somebody, some, I would say
26:52everyone needs one good nerdy friend. Uh, listen to the podcast. We will try to explain all, uh,
26:58if any of you have an Instagram account, I, I have no life whatsoever. I literally sit there
27:03and just make videos about all that. You really do. You really are on the trade deficit. Holy
27:09Toledo. And I was like, what's wrong with this guy? You know, but, uh, uh, we'll see again to,
27:15well, we'll find out where the 10 year old is going with more, with the labor data. And then,
27:20uh, next week we'll, the job openings data is really critical because the Fed really likes
27:24that. The Fed's a huge fan of the job openings data. All right. Well, Logan, thank you so much.
27:30And listeners, we will be covering this. We have lots of coverage as far as articles in addition
27:35to this podcast on these topics. So check us out and Logan, thank you so much. Talk to you soon.
27:40See you soon, Sarah.