On today’s episode, Senior Director of Data and Content Tracey Velt talks with lead analyst Logan Mohtashami about chaos in the market, jobless claims, and purchase applications.
Related to this episode:
The Fed needs labor to break to cut rates more aggressively | HousingWire
https://www.housingwire.com/articles/the-fed-needs-labor-to-break-to-cut-rates-more-aggressively/
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:
The Fed needs labor to break to cut rates more aggressively | HousingWire
https://www.housingwire.com/articles/the-fed-needs-labor-to-break-to-cut-rates-more-aggressively/
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. This is Tracy Velt. I am the Senior Director of Data and Content for
00:10HousingWire, filling in for Sarah Wheeler this week. Today, my guest is Logan Moreshami,
00:17and we are talking all things chaos in the market, jobless claims, and also purchase apps.
00:25So enjoy the podcast. Hey, Logan, how are you? I am wonderful, and the hair is crazy because this
00:33week is crazy again. Last time you and I talked, we discussed, you know, during the trading hour
00:42a few days ago, there was a rumor and a wire went out that the Trump administration was going to do
00:49a 90-day pause, and the stock market went up vertically. And then they came back and said
00:56it was fake. And you and I talked about, I don't think it was fake. I think it's just a test run,
01:00a trial run to see what would happen so they could have cards. And of course, the next day,
01:05I got off of another event. The first thing that I see, two seconds after the event, oh,
01:1190-day delay. And stock market had a huge rally. They raised the tariffs now to China to 145%. Stock
01:20market is down big again today. So the hair is just, you know, we're going to keep the hair wild
01:26until we get some clarity here. Yeah. I mean, what does that mean? I mean, obviously,
01:34the administration is looking at the yields and bond market and everything and maybe making some
01:42choices based on that, but how does it, tell me that and what's the impact?
01:49Yeah, this is my take. We had a near bear market in 2018. And
01:56there are limits to what Trump will, you know, tolerate with the stock market. He didn't mind.
02:06There was a few corrections back then and a near bear market. But the bond market, I always tell
02:12everyone that the stock market is one thing, but the bond market is mother God to everything.
02:19Right. And it is interesting that, you know, the bond market reaction, it was so swift on overnight
02:29trading, but in an aggregate, in big, big theory, it wasn't like a, like a total crazy move. Like
02:36I saw people can say, oh my God, nobody wants the US that there are some men out there that should
02:41never be trading stocks or bonds or anything, man. They just, they are just the softest little
02:45marshmallows. Oh my God. Everything is nobody wants or didn't know where that's not us. But
02:50you could clearly see that the bond market was front and center with the white house, because
02:57there's one thing for stocks to go down and there'll be implications to that. But if the stock market
03:04goes down and then the 10 year yield goes up, that wasn't the marketing plan, right? You see all these
03:11conservative Twitter accounts. They're all like, oh my God, the 10 year yield is under four
03:15percent. The, uh, uh, uh, the tariffs are working. And that was like, now it's like, what? Wait a
03:22second. So unfortunately mother marketplace, I always joke with, uh, um, Sarah about this,
03:32you know, mother economics is just serial killer. She wants to get caught. Mother bond market is telling
03:38you, don't mess with me. Just don't just whatever you want to do. Let's just keep it somewhat tame
03:44because if I go reversal on you and Bonnie, let me do a hypothetical theory here. If the 10 year yield
03:50was North of five and a quarter and like going up higher, that is a legitimate bond market scare
03:58because the fed funds rates at four and a half, they're not hiking anything. If they were talking
04:03about hiking rates, okay, you can make a case. If something like happened on a daily basis,
04:08you know, that's not a good thing because that's something different. So you could see there are
04:16levers now to pull the problem with something like this is you're showing all the cards now.
04:23And this was the concern. Sarah, Sarah and I had this podcast a few weeks ago where I said,
04:27sometimes you might push yourself in a situation that you didn't really want to get into. And you
04:33just, I don't know if you know how you want to get out of this. Like if you're going to make deals in
04:38the next few weeks or two or three months, okay. But now it's like, everyone's seen the playbook.
04:45Right. And I don't know, to me that it wasn't so much the stock market, it was a bond market.
04:52And that you could, you could see there, there are, there are, there are things that can get
04:56their attention. And you know, this because I see a lot of Trump people talk about, Hey,
05:01the 10 year yields down, the 10 year yields down, the 10 year yields where, where for me,
05:05it was like last Friday, I was talking about the 10 year yield really should be at 4.35%.
05:09Oddly enough, it kind of closed there yesterday. And, and I was thinking this looks about right,
05:15but here the volatility today, stocks are down big. The 10 year yield is up a little bit from,
05:24from, from the lows. So there's less volatility today in, in Thursday's trading,
05:29but you can see pressure points. And, you know, I think Q told James Bond, never let him see you
05:38bleed and always have an exit plan or escape plan, you know? So here I'm wondering what the backdrop
05:46of the conversation is that now that, you know, the cards are all out there, bond market is really
05:54the key here. Oil prices are down. Of course the inflation report was very tame today, but going
06:00out in the future, it gets, it just gets more interesting. Yeah, it sure does. Let's talk about
06:08that inflation report. Talk to me a little bit about what you're seeing on that end. You know,
06:14I wrote the article yesterday saying that the fed is going to really need to see labor market break
06:21to, to get some aggressive cuts. So I'm going back to before the trade war, before Trump won,
06:28the federal reserve said, okay, you know, we cut rates. We are going to take a moderate approach
06:33because we're in a good spot. So they had two rate cuts priced in for 2025. Now the interesting thing is
06:40the marketplace is trying to call their bluffs. The marketplace is saying, no, you're, you're doing
06:46four rate cuts. Fed president Goolsbee came, said, Hey, the market's ahead of us. We don't have to do,
06:52we don't have to do that. There's already a verbal tiff between fed presidents saying, Hey, what are you
06:59doing with four rate cuts? We're not there. You know, the hard data looks good. The soft data looks
07:06bad, but the hard data. So it doesn't. So now you're getting into the, what I didn't want to see
07:13happen, which is going to be case. There is going to be an all out war for Trump against every fed
07:19president out there who, who doesn't, because if the economy goes into a recession, let's say
07:26investment, it really slows down. Consumption goes down. We, this, this trade war shock puts us into
07:33recession and the 10 year yield doesn't go anywhere. Doesn't go down. There's no aggressive fed rate
07:39cuts. All hell is going to break loose in that. You could see the original game plan with everything
07:47because when you incorporate a trade war into an economy, you know, naturally people are going to
07:53invest less, consume less because they're not sure until the rules are set. So the white house
07:59economic team was counting on the 10 year yield falling and oil prices falling to, to soften the
08:05blow a little bit. Oil price did fall. The 10 year yield has fallen a little bit. We, we, we talk
08:11about this purchase application data is positive year. I mean, we, the last print had double digit
08:17year over year growth, 9% week to week, but they really need that 10 year yield and mortgage rate
08:22to go lower with all our oil prices to soften the blow until they figure out what the final verdict
08:27here is. And the inflation report tame month to month was negative. Actually it's the first,
08:33I think declined since 2020. Uh, but it's the same thing as always the growth rate of inflation,
08:40the pandemic caused inflation to break out. And now that supply chains were working again,
08:46the growth rate of inflation falls down. This is the history of global pandemics for centuries,
08:51right? There's nothing abnormal here, but we're talking about monetary policy and where they want to
08:58get to. And, uh, obviously the white house wants a lower 10 year yield. They would love a lower fed
09:03funds rate. And the, um, Powell and the fed presidents are still, we're going to wait.
09:09We're going to wait. We have, we penciled in two rate cuts. They're not necessarily saying that's off
09:15the table, but they're going to wait. The thing about waiting is all this chaos is happening while it's
09:22waiting. So, uh, it, it, it's a little bit more complicated, but, uh, if things do progress worse,
09:30where the hard data starts to get, uh, worse for the fed, it'll be interesting to see how they react
09:36because the marketplace is saying, Hey, listen, you're cutting four times this year. And I don't
09:41know. It's just, it's, it's, it's at a battle between fed policy, the white house, the confusion
09:45around the tariffs, the trade war tap dance. Um, and there are things that can be done this fast
09:53to change everything. So we'll see kind of what happens in the next few weeks, but the volatility,
10:00right? We talked about this on November 7th, 2024 guys get ready. Oh, you, you, you had you,
10:06this is going to be much different. And for those of us that remember 2018 and 19, uh, this is a bigger
10:12version of that. Yeah. Um, so what about jobless claims? Jobless claims looked good. Jobless claims
10:21looked fine. The labor data is fine in the context that the labor market is slowing, but not breaking.
10:29So for those of you that are new part of the, uh, housing wire daily family now, uh, at the end of
10:352022, I believed whoever this person was went to the feds Christmas party and spiked the
10:42feds eggnog. And they said, we're going to be super, super hawkish until the labor market breaks.
10:48Because before, before somebody spiked the feds eggnog, Jerome Powell went on TV. I'll never forget
10:54this. He said, we would like the fed funds rate to mirror three, six, 12 month inflation on the PCE
11:00side. The fed funds rate is 3% today. If that's the case, CPI inflation came out to handles, you know,
11:09on some of these things. It's not, it's not that they don't see the growth rate of inflation falling.
11:14It's just that they believe they need to keep the fed funds rate above the growth rate of inflation
11:21until the labor market really starts to break. They did. They reversed their entire policy
11:28after a Christmas dinner. And then we're dealing with this now in the past, they would have been more,
11:36you know, aggressive in maybe cutting rates and getting to neutral, but they're, they're not in
11:41this policy right now. So it doesn't really matter that the inflation report was, was soft or tame,
11:48right? They are keeping their policy. They say it's modestly restrictive, which in their eyes is,
11:53would be a fair statement. But to me, the only time they blinked is when we started to get really
12:00big revisions, negative revisions on the jobs report. They're like, oh, 50% high, 50% rate cut.
12:06Let's do another two. So they put himself in a position that they can, they can act now with a
12:12little bit better backdrop. It's just the course of when are they going to act next? Do they just
12:19go ahead and cut twice this year? Or does the trade war bring us into a weaker, harder data where
12:28they're saying, hey, listen, well, we have to do our dual mandate. That's going to be the conflict,
12:32right? Between the White House, the Federal Reserve, the dual mandate. But I say not a dual
12:40mandate anymore. I say a dual, right? It's going to be Trump and Powell, wild, wild west, six shooters
12:48out, walking 10 feet. And that aspect gets more interesting the longer this trade war goes on.
12:56So what do jobless claims have to be to break?
13:00To me, the levels that I set back in 2022 is four-week moving average jobless claims have to
13:07head toward 323,000 and break that. And that ties with every single recession we've seen post-World
13:15War II from the 60s when they started carrying this data line. I always adjust everything to the
13:22civilian workforce. So my numbers might be a little bit different than others. But for now, look, it
13:27held. Think about all these recession calls in 2022, three, four, five. But the jobless claims data still
13:34came in. It was 223 on the headline jobless claims. I like the four-week moving average because weekly
13:40data can be very volatile. The four-week moving average is 223,000, oddly enough. So we're like 100,000
13:47away. But when things break, they break fast. This is not something that just kind of creeps up.
13:54And then all of a sudden, you know, it starts to break, break, break. And that means the economy is
14:00in such a contraction that it doesn't have like these few weeks where it goes up and then comes
14:06back down. So I've always thought the goal is to prevent something like that, but it's a more
14:12complicated year in 2025. So let's go into purchase app data. What's going on there?
14:18Yeah. Now that is, you know, some people were surprised that it was positive. It was a very
14:23strong report on a week-to-week and year-over-year data. Always remember that the rate drama that we had
14:32just happened. So it's most likely that it's next week's data that's going to get hit. And whenever we
14:40see rates spike up, I mean, it's not that big of a move in context, we're just, we actually went from
14:46like 6.75 to 6.55. Then we went up to 7% and we're a little bit lower than it. But whenever that
14:53happens, the index, especially that it's been rising, it typically fades. But this will be,
14:59this will be a good test. Like it's not like mortgage rates got to 8%.
15:04The data line was getting subjectively a little bit better, even with a seven handle on the low
15:12side. So we'll see how much damage that rate move did. I always think the volatility of rates
15:19doesn't get enough attention in terms of how people operate in real estate. You know,
15:25you get a bunch of people that go, okay, my quote, you were rate at 6.5%. And then 24 hours later,
15:31what? It's 6.9. You know, that's, that's a detriment. On the upper downside, the speed is
15:37just, you don't want to see that you want to see a kind of a calm situation. But again, chaos,
15:45mother economics, mother bond market, these, man, she doesn't play around. You cannot control her,
15:52man. You do stuff like this and things get wild. And we obviously see that in the stock market,
15:57which is really interesting. Now that we think about since the point of liberation day,
16:03stocks have continuously go gone down outside of the 90 day tariff, you know, removal from,
16:10from a lot of companies are a lot of countries, but we still had it from Mexico and Canada and China,
16:16which are our big trading partners. So the question is now over the next, whatever, few days,
16:23what happens, you know, if things get worse, do they, do they make another deal or they can't
16:30really come out and do another headline news or do they just kind of hold their ground and just,
16:35you know, let the market do its thing, but it's the bond market. That is the key. So for right now
16:42at 4.36, I think right now is the last time I saw it. It's okay. But purchase apps, it's really
16:47interesting. All of our data is still positive year over year on a, on a week to week basis too.
16:53And it's, it's been a while since I could say that in April, but it is really encouraging to see
17:00growth with elevated rates. And, uh, I got asked this question, like, how do you explain this?
17:08Like, how is this? I go, first of all, number one, always we are working from the lowest levels of
17:15sales ever. This is not, you can't compare this to 2008. You can't even compare this to the lows
17:20in the early 1980s at 2 million. We have over 162 million people working. We have over 340 million
17:27household formation, all these things. You know, when you think of home buying, you think of the
17:33five kind of pillars of home buying. There's first time home buyers, move up buyers, move down buyers,
17:38cash buyers, investors, but you also have five generations, Gen Z, uh, uh, millennials, Gen X,
17:44baby boomers, even the silent generation are still buying homes. So you have a big swath of home
17:50buyers and it's not like we have underwater mortgages, holding people from selling. We
17:55have a ton of equity. Oh my God. 37, 38 trillion dollars of equity. Um, it's not like credit is
18:01being retracted. If Freddie and Fannie were publicly traded companies and the markets were doing like
18:06this, you can make a case that maybe Freddie and Fannie is going to retract, uh, credit because
18:10this is what happens in times of stress, but that's not the case. They're still in conservatorship.
18:14So you have the things in place. It's just sales are really low. And every year that goes by wages
18:20grow every year that goes by household formation, every year goes by dual household incomes. See,
18:27when you put two household incomes, the affordability levels don't look that bad. So this is why we have
18:34near 5 million total home sales. So we look at 2010 to 2019, the peak during the last decade combined
18:42them was near 6 million. We're near 5 million. We're missing a million mortgage buyers. So rates
18:47go down, get a little bit more demand. You start to get back to the retracement of the last decade,
18:52which would be kind of normal. So it is, it is interesting that we say this, but it's true.
18:57Existing home sales have collapsed to a very low level. New home sales are at 2019 level.
19:02You get lower mortgage rates. You get closer and closer to what we used to have in the previous
19:09decade because new home sales are still elevated, but the existing home sales, it doesn't take much
19:14to move to needle. And it's just the sheer size of our workforce, the sheer size of our dual household
19:20income. So you get a little bit of growth, but if it just heads to 6% and stays there, we could run
19:25this entire year positive, which would be, it's been so long since we've seen that, but there are
19:32some similarities to other periods. I always say the 1980s, early 90s housing market looks so much
19:38like the early 1980s, except we have, the only thing is we have less inventory. Now we have better
19:43homeowners, better financials, but we have a lot more equity now as well. But even in the 1980s with
19:50affordability worse, even with two recessions, more inventory, nobody can buy a house, inflation,
19:55all this negative things that were saved back, rates went down 2% plus home sales went vertical
20:01higher. This is why I always like to show the 1980s existing home sales chart for everybody,
20:06because it was worse back then and still home sales because millions and millions of people buy
20:12homes every year. So Logan, that was great. Do you have anything else that you want to add to the
20:18conversation? Yes, this morning, this podcast is going to come out before, but we are going to have
20:25a housing economic webinar for the first time ever. Myself and Ivy Zellman will be speaking at the same
20:31event. Dale, who's a Wall Street analyst, will also give his, you know, a long-term kind of take on
20:37the structures of the housing market, which was going to be very incident. You could register online,
20:42free webinar, but I think you consider everything that's happened, you know, this year and all the
20:50things that are showing in the housing data. Oh, it'll be a very interesting conversation to see
20:55our takes on where we are right about now. I am looking forward to it. Thanks, Logan.
21:03Thank you so much.