On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the existing home sales report, tariffs and the ongoing battle between The White House and the Federal Reserve over mortgage rates.
Related to this episode:
Logan Mohtashami: The cure for tariffs is lower mortgage rates |
HousingWire
https://www.housingwire.com/articles/logan-mohtashami-the-cure-for-tariffs-is-lower-mortgage-rates/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
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:
Logan Mohtashami: The cure for tariffs is lower mortgage rates |
HousingWire
https://www.housingwire.com/articles/logan-mohtashami-the-cure-for-tariffs-is-lower-mortgage-rates/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
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 Modushami to talk about the
00:11existing home sales report and the ongoing battle between the White House and the Federal
00:15Reserve over mortgage rates. As always, I want to thank our sponsor Optimal Blue for
00:20making this episode possible. Logan, welcome back to the podcast. And it's already been
00:26a pretty early start for you since you were on CNBC at like, what, 4 o'clock your time
00:32or something?
00:334 o'clock my time. I had a social summit event yesterday in Beverly Hills where we're raising
00:39money for the L.A. fires and went on CNBC today to talk about the Fed, tariffs, mortgage
00:45rates, housing. And then, wow, the existing home sales report. Hello. That was a mother
00:51of beat. And I think everyone was shocked. If Zero Hedge, which is basically the biggest
00:57do porn site in the history of mankind, was giving a, I can't believe what just happened.
01:04You know something was wrong. And to be honest, the pending home sales report in the previous
01:08month hit like an all time low. So the estimates were low. So it came in as beat. We'll explain
01:13later. I actually do have an explanation for that report. But yeah, it's been a pretty
01:16busy day so far.
01:17It has. Yeah, you were on Squawk Box. That's really fun. And they were specifically asking
01:22you to talk about what happened yesterday in the, you know, what Powell did, the Fed
01:27presser and how you made sense of that. So I know we talked about this on our podcast
01:33right after the event. What do you think, you know, what's the gist of what you said
01:36to CNBC?
01:37I think what CNBC wanted to kind of understand is, you know, what's going on in the
01:47housing sector regarding kind of tariffs and the builders? And, you know, what's the
01:53antidote for that? And we always say the best antidote, you know, against fear is data.
02:01But in this case, I actually said, hey, the cure for tariffs is lower mortgage rates.
02:07Now, of course, they ran with that headline. People thought I was talking about the general
02:11economy. But no, the conversation was, if the builder survey is falling because they're
02:19worried about tariffs and what we've talked about, always the price, the margins of the
02:24business, higher rates, you know, can they sell and make money?
02:29Lower rates fix that.
02:31Right. And, you know, we had God was, I think, 16, 17, eighteen hundred dollar lumber
02:39prices during covid. But we had three percent mortgage rates.
02:41Now, of course, it's not realistic to get three, four, even five percent mortgage rates
02:46anytime soon. But mortgage rates going lower.
02:49And this is one of the things I highlighted.
02:51Every time rates go lower towards six percent, the builders confidence picks up.
02:55And then they talked about, well, what about construction labor?
02:57And I said, listen, there's been deportations every year for decades and miraculously
03:02somehow mortgage rates go lower.
03:05New home sales grow. The builders build homes.
03:08It's unbelievable how consistent these things are and it really revolves around rates.
03:15So that was a discussion.
03:16Also, you know, I mean, in regards to the Fed, you could see what's going on here.
03:21This is starting to become a war between the White House and the Federal Reserve.
03:27And it's starting to pick up on the I believe President Trump came out this morning and
03:33said, you know, in essence, he really just wants lower mortgage rates to fight tariffs,
03:39which oddly enough, the CNBC headline, oddly enough, the CNBC headline came out like 45
03:47minutes before Trump tweeted that out.
03:49So people like what is going on?
03:51So just remember, I'm talking about lower more.
03:55I understand why President Trump and the White House wants lower mortgage rates, because
03:58the economy can perform a little bit better with lower mortgages.
04:01I believe internally the game plan is if mortgage rates go lower, people buy homes.
04:08They can push that as a win.
04:10If oil prices go down, gasoline prices go, they can push that as a win.
04:14And with all the tariff headlines and everything, they can manage that.
04:18So in this case, the cure for tariffs, lower rates, the builders can grow permits again.
04:26And that actually will make sense because we have recent history.
04:31I think I believe I believe like 10 to 11 percent of what goes into new homes gets imported
04:40from overseas or out of the US.
04:44So so this is why when rates go lower, the builder survey goes up.
04:49And even with tariffs and inflation running crazy, the demand was what I've always said
04:56about the builders and new home sales for the last 14, 50 years.
05:01They are not the March of Dimes.
05:02They're here to make money.
05:04If rates go low and they could sell, they'll do it.
05:06Right.
05:07You know, an interesting topic discussion.
05:09I think some of the oil executives told Trump, hey, listen, if you want us to drill, we need
05:15oil at 80 dollars.
05:17You want us to drill in these new areas?
05:18We need 80 dollar oils to make us up.
05:20Why?
05:20They are not the March of Dimes either.
05:23Right.
05:23This is this is people who are here to make money.
05:25And there's a lot of people who have never ran a business who don't understand.
05:28Why don't they just build?
05:29Why don't they know?
05:31It doesn't work that way.
05:32Right.
05:33So today's discussion rates, tariffs, everything.
05:38You know, I encourage everyone to go watch the interview.
05:41Oddly enough, the last two to three minutes of the conversation was about this gentleman
05:45right behind me, Jack Nicholson.
05:48Joe was really fast.
05:50Joe was somewhat fascinated with the Jack Nicholson.
05:53Then he started naming movies, which I don't think I was born yet when they came out.
05:58But we had a Jack Nicholson conversation.
06:02That was really funny.
06:03Actually, I was watching it live and I was like, why are we talking about this picture?
06:06It was hilarious.
06:07But to your point on the on Trump's statement about mortgage rates would help or, you know,
06:14lower interest rates.
06:15It's funny because on the builder side, it would definitely help them, right?
06:19Be able to sell more homes.
06:20Obviously, everybody in our industry, every consumer would benefit with lower mortgage
06:25rates.
06:25Like it's such a win if you if you could somehow do that.
06:28But what's standing in his way in many ways is the Federal Reserve, right?
06:32Like they're an independent agency.
06:33He can't order them to do it.
06:35He can't.
06:36And but there are levers to pull.
06:39So during that conversation, I said the president of the FHFA, if he wanted to this afternoon,
06:48he could say, hey, listen, we're going to lower some of the GSC fees.
06:53Pricing gets better.
06:55They're still in conservatorship.
06:57They can do this if they want to.
06:58That was one idea that I threw out in the CNBC interview.
07:02The Federal Reserve, you know, if they totally shut off QT, quantitative tightening, especially
07:10the MBS roll off, another thing that could be beneficial out there.
07:15So it's there's things that you can do.
07:19I mean, we're so close to the, you know, we could just grow sales.
07:22You know, I know the existing home sales report caught a lot of people off guard.
07:26But what we've always said in the same thing I talked to Melissa Lee, the other anchor
07:31who interviewed me on CNBC, that she said, well, if rates fall down for the bad reason,
07:38you know, who's who's kind of implying, like, you know, are people going to buy homes?
07:42And I said, listen, I went through this during COVID.
07:45COVID was the most chaotic time in history.
07:48You had a global pandemic.
07:49People didn't know if they were going to be alive and what was going on.
07:53There could be a depression.
07:54Guess what happened when people thought, hey, we're living mortgage rates were low.
08:00We had 25, 30 million people unemployed.
08:02We had 5 million in forbearance.
08:04But even in the most craziest, unsure time in history, my God, 3% mortgage rates, I'm
08:10buying a house, you know, because all you have to do is basically outlive the pandemic.
08:15And here we are, you're living in your house.
08:16So we've had many recessions post World War Two.
08:21We only had one foreclosure crisis.
08:23That was a credit boom, credit bust.
08:24We don't have that anymore.
08:26But what you do have is very similar, like I talked about on CMC, the 1980s, the early
08:311980s, affordability was worse.
08:34We had more inventory.
08:36People weren't sure if they wanted to buy a home.
08:39The consumer sentiment was bad.
08:40Every mortgage rates fell 2.5%.
08:43Home sales went vertical.
08:45So this is why I always say that, you know, fortuitous in timing, the existing home sales
08:50report came out a few hours later.
08:52It was this big beat.
08:53It doesn't take much to move the needle because look at this.
08:57We have over 162 million people working.
08:59We have the best housing demographic patch we have ever had with the millennials here,
09:02especially Gen Z right behind him.
09:04Then you have Gen X, baby boomers, silent generation, cash buyers, investors, you got
09:08everything here.
09:08But in this existing home sales report, first time home buyers picked up on a year over
09:13year basis.
09:15Sales to investors were lower.
09:17People buy homes every single year, millions and millions of people.
09:20Home sales have been depressed for so long that it's just like giving a vampire just
09:25a little taste of blood after centuries of sleeping.
09:29Like, oh my, you know, 6% mortgage rates.
09:32What?
09:33You know, so and that's what it is.
09:37You can grow sales.
09:39I've been pounding this.
09:40You get mortgage rates down towards 6%.
09:42Everybody's sales estimate will be wrong.
09:45It's the duration of lower rates that matter for housing market.
09:50OK, so I can only imagine the merch that's going to come out of that one thing you just
09:55said about vampires getting a taste of blood.
09:58I mean, the same as consumers seeing something close to 6% mortgage rates.
10:03That makes me laugh.
10:04Yeah, you know, I got to tell you, I brought the flash game in Beverly Hills, you know,
10:09Saban Theater.
10:10It was a it was a very festive crowd.
10:14I brought the flash game in terms of what I wore.
10:17I walked on stage with sunglasses on.
10:20Yeah, people are like, who is this guy?
10:22You know, so I said, the chart daddy's here.
10:24Did a little dance, you know, gave a little presentation.
10:27So we try to make nerds look sexy and fun, but, you know, economics done right should
10:32be terribly boring.
10:33It's not designed to be a fun thing, but it was good to see a lot of people who've never
10:39seen me and like, oh, my God, I didn't know this data existed.
10:43And I go, this is why we believe reading is a good thing.
10:46Rating is a good thing.
10:48OK, so the the other point I wanted to make about the existing home sales is we have had,
10:54you know, lower rates, but they're not at 6%.
10:57They're still what?
10:58Six point four.
10:59I mean, when when it would have affected this existing home sales.
11:03So let's let's let's talk about this report, because it shocked a lot of people.
11:08What I believed happened is that remember in 2023, the first month we had 12 weeks of
11:15positive purchase application data.
11:16It all went into one sales report.
11:18It's crazy.
11:18It's like five million, half a half a million home sales, like one report.
11:22I'm like, oh, my God, what?
11:24That's not normal.
11:25So and I said back then, that's that's going to be the peak.
11:29You know, we just we can't really grow off top of that.
11:33At the end of 2023, going into 2024, mortgage rates went from eight point zero three percent
11:38down to six point six three percent.
11:40The seasonal demand curve came.
11:43Application data was positive and we had a couple hundred thousand home sales, almost
11:49five hundred thousand.
11:50And back then in March, because there's a February report, I said, that's it.
11:53That's the peak for home sales.
11:54So back to back years calling the peak of home sales early.
11:59Here, purchase application data, if I string it out, is actually nobody's talking about
12:07this because what do we always say, Sarah, for years?
12:10I don't think people are trained to read the purchase application data with the sales data.
12:14I just think if you've got to be very versed in it, you have to track it in a unique way.
12:19Purchase application data is positive on the weeklies and majority positive on the year
12:25over year.
12:26There's the seasonal demand curve that happens toward the end of the year goes in.
12:30We don't have any real negative curve in the data right now.
12:35And what happens is I think the weather slowed some sales down in January.
12:40It fell into the February month.
12:42So it boosts it up.
12:45You're probably going to get a little bit of a pullback on that.
12:49But unlike the last two years, I can't write.
12:53It's the peak of sales.
12:54I mean, I've done that for March the last two times or the last two times we had that
12:59big pop.
13:00I can't say that because the forward looking data is still positive.
13:04And if rates keep on going lower, 4.26 million on a monthly print isn't going to be the
13:11peak.
13:12But it does require going out through the rest of the year after the seasonal push that
13:17we get, mortgage rates head down towards 6% and stay there.
13:22And that's what we saw toward the middle part of 2024 in the summer when rates fell.
13:28All of a sudden, demand started.
13:29The forward looking demand picks up, takes 30 to 90 days for purchase application the
13:33last few weeks.
13:34That this report that we had this morning has nothing to do with purchase applications
13:38being positive the last few weeks.
13:39That's going to be down the line.
13:41Then you could grow sales a little bit and that's it.
13:43And again, I'm only saying this because we're working from the lowest levels ever.
13:47If we're at 5 million existing home sales, we're having a totally different conversation.
13:50But the bar is so low we can all trip over it.
13:54But I think so many people were shocked and everything.
13:58And this is why we create the tracker so we could teach people how to read purchase application
14:04data.
14:04Because I have not seen anyone else talk about this.
14:08I tell people it's positive for the year.
14:11They're like, what are you talking about?
14:11I show the data.
14:12They're like, oh, yeah.
14:15You don't see that.
14:16Why?
14:16Doom sells.
14:19What the rookie ball people do, it's always been the same thing.
14:22They take the very low levels of the volumes, which is right.
14:25We always say it's a gangster paradise.
14:28Number one song when this data line was here.
14:30But when you see forward looking data growth, they tend to never really talk about it because
14:35do porn can't talk about real economics.
14:38You can't get people to click.
14:39So here is just, you know, I mean, I was doing the squabble up gift, you know, on Twitter
14:45right now.
14:46You know, people said, oh, home sales are going to go straight to, you know, three, three
14:49and a half million.
14:50And and you just get lower rates with duration.
14:53And then everybody starts to think, oh, if we could just stay here, I can do this.
14:58And that's what the data show.
15:00The data has always shown this for the last few years, but we just don't stay at that
15:04level low long enough to get any kind of traction.
15:07So be a little bit mindful of this report.
15:11I know a lot of people were shocked by it, but I've seen this happen before, that if
15:15you really have a bad weather month, things just take a little bit longer to close.
15:19And if you just get a, you know, a little bit closing into the other month, you could
15:23boost the sales more than normal.
15:25And we just go from there.
15:26But I can't, I can't write.
15:29This is it.
15:30Because unlike the last few years, when rates have gone up and purchase application data
15:34is negative, it's still positive on the weeklies and the year over year.
15:40I was like, I, it was a long time ago since I've ever been able to say that.
15:45And it's March, it's spring.
15:47No, it's, I'm so glad that's good news, right?
15:50That's good news that we're not like, oh, well, that's all we saw.
15:52I mean, you made a point in the tracker last Saturday when we last week's tracker, this
15:58week's tracker, however you want to say it, what we published last week.
16:00And you, you made a point that there's a silver lining here.
16:03If we're seeing this kind of purchase application data pickup, when things are not close to
16:096%, they're, they're below 7%, but they weren't close to 6%, then there's still room to grow.
16:16And that's what you're talking about, that like, if we can just get down to 6%, there
16:20really is enough demand there to really, to at least, you know, give us a good season.
16:25It's not going to be set anything on fire, but it's going to be better.
16:28The reason I bring up the 1980s, like I did on CNBC, back in the 1980s, affordability
16:35was worse.
16:36We had a recession.
16:37People were feeling bad, but mortgage rates went two and a half percent lower.
16:41They actually fell 5% from the peak of 18% and home sales, even with affordability, worse
16:48went vertical.
16:50Okay.
16:516% is not the 2%, two and a half percent curve that you would see to, to really boost sales.
16:56But you know, I mean, I can easily say, God, if we had 4% mortgage rates, we're growing.
17:00So the builders have shown, builders are at 2019 sale levels, right?
17:03This is one of their issues is that their sales levels are so elevated versus the, but
17:07when you're down here, it doesn't take much, right?
17:11But if you get 6% with duration, every data line that we have seen since the, toward the
17:16end of 2022 says growth, growth, growth.
17:20It's just, we can't stick it.
17:21We can't stick long enough out there.
17:23That's the frustrating part is like, I see it, right?
17:26I can't forecast.
17:28Once again, today, the 10-year yield has bounced off.
17:31I got to create a new character, you know, for this one level, this, for those who don't
17:35know what we're talking about, a few weeks ago on the tracker, I said, this, this level
17:38around here on the 10-year yield might be tough to crack, right?
17:41So we're really going to need economic data to be bad and stocks to be worse.
17:46And we've had a lot of bad data and stocks have been worse.
17:49We can't crack this.
17:50Today, we just bounced off of it again.
17:52But if we just get down towards six, and I understand the White House's game plan.
17:59Imagine 6% mortgage rates and existing home sales growing.
18:03Oh, they're going to highlight this out there.
18:06They're going to promote it and go, listen, look what we did.
18:09Because they're getting verbally ahead of this story.
18:13If it does happen, that's why they want to market it out there.
18:16Because when you're running at the fourth calendar year of the lowest home sales ever,
18:21right?
18:24The honest truth is the housing market is the bastard orphan child of the U.S. economy.
18:29The Federal Reserve just basically abandoned it in Arkham Asylum and it's went away to their
18:35vacation in Cancun.
18:37And they don't really talk about it much.
18:39They kind of, you know, haphazardly make some really weird statements at times.
18:43But they don't say, we would like the existing home sales market to grow.
18:47Never.
18:49They've said, we're going to account for 6% mortgage rates and how are we supposed to
18:53balance an economy?
18:55They've said that.
18:56They do that stuff.
18:58But they're not saying, we would like mortgage rates to go to 6% to grow sales.
19:02No.
19:03So the White House has picked up on this and I'm just speculating.
19:07Their internal surveys are saying housing, housing, housing.
19:10So this is the battle now.
19:12And every day we're just doing this back and forth between the White House and the Fed
19:15and rates or whatever you think that is or wherever that legally is going to down the
19:21line.
19:22This is the world we're living with.
19:24And we just have to take it.
19:26What can happen with rates or what can't happen with rates, right?
19:30And we talked about that on November 7th, 2024.
19:34Mortgage rates elevating above seven and a quarter.
19:38That was my peak forecast.
19:39But even getting to 80%, that's a detriment to the economy.
19:42That's not what anybody wants.
19:44But here, you could just see just a little bit of life, right?
19:50But if you get down towards six, again, if you needed 3%, 4%, 5% mortgage rates to grow
19:57sales from these levels, that's a whole different story.
20:00That's going to need a recession or something.
20:02You need a lot more rate cuts to get that in there.
20:04But here, when we say the worst is housing is over, the Fed is no longer hiking rates.
20:10They're cutting rates.
20:11The spreads are no longer terrible.
20:13They're getting somewhat better.
20:14Inventory is up, right?
20:16Price growth is slowing down, right?
20:17There's no housing crash or foreclosure.
20:20None of that stuff.
20:21You have a better backdrop to move forward.
20:23You just get that last little move lower and you could grow sales.
20:29And we'll take it from there.
20:30There's going to be a whole new discussion down the line with a little bit more elevated
20:34sales.
20:35Can sales grow?
20:36We'll cross that bridge when we get there.
20:38But for now, you could see that tunnel.
20:41You could see that light.
20:42It's right there.
20:44Just get a little bit lower rates, longer duration.
20:46Everything's good.
20:47Take it from there.
20:49I love it.
20:50Well, it's encouraging to see the White House be so strong on something that's so important
20:55to our industry.
20:57Hopefully, that's what happens.
21:00Love that you're laying out a path for them, Logan.
21:02You're like, listen, you don't have to have the Fed do something.
21:05Here's what you can do even without the Fed.
21:08Bill Pulte, what I said on CNBC was an idea.
21:13You can do it, Bill.
21:15You can do it.
21:16And just think of all those voters, Bill.
21:19Oh, all those homeowners that are voters or potential homebuyers that are going to be
21:23voters.
21:23Oh, Bill, you can be the hero like Lenny was in Ghostbusters.
21:30I love it.
21:31Okay, Logan, thank you so much for being on, explaining what's happening with existing
21:35home sales and other.
21:37We will see you soon.