On today’s episode, Senior Director of Data and Content Tracey Velt talks with lead analyst Logan Mohtashami about Trump's moves on the Federal Reserve, mortgage rates and market volatility.
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/
Housing Market Tracker
https://www.housingwire.com/housing-market/
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/
Housing Market Tracker
https://www.housingwire.com/housing-market/
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, everybody. This is Tracy Velt, the Senior Director of Data and Content,
00:10filling in for Sarah Wheeler this week on HousingWire Daily. And today's guest is
00:14Logan Motoshami. He will answer the question, is Trump looking to fire Jerome Powell? We also talk
00:23about the mortgage rates and market volatility. So enjoy the podcast.
00:30All right. Our time is coming to an end, Logan. This is the last one.
00:33I know. So much fun. And I feel like I was free. Sarah wasn't here to boss me around and tell me
00:39what to do and stop the editing, take that out. So I enjoy not only the podcast, but the edits,
00:45everything. I love it. Oh, well, until we meet again, let's get into this one. So I want to
00:53start with the Fed and Trump's pressure on Jerome Powell to lower mortgage rates. Tell me a little
01:01bit about what's going on there and what you think is next. So there was a lot more verbiage
01:08and discussion on social media this week that because of the Supreme Court rulings, the talk
01:15was President Trump actually asked the Supreme Court if he could fire the head of agencies.
01:20Really, everyone's just seen. Does that mean he's going to try to fire Jerome Powell? Some people
01:26who this is not my legal stuff is not my wheelhouse, but some people are saying the Fed would be probably
01:32blocked off and other people say, no, the Supreme Court will actually go with him. In any case,
01:37that's brought up again. So I'm going to have to eventually address this if it does happen.
01:42We've been having a very big theme in our work that he's going to go after Powell at some point
01:49because there's three things that President Trump needs to do this trade war right. And we highlighted
01:57this back in November. We talk about it all the time in many podcasts and articles. He needs the US
02:02dollar to go lower because the dollar being too strong doesn't do him any good. That's happened.
02:06The dollar's under a hundred. So he got that. Oil prices are lower. People are worried about
02:14expected growth, not only around here, but around the world. So oil prices are good. Mortgage rates
02:19were heading lower. Purchase application data was positive year to date, year over year. All of our
02:27weekly contract data, by the time Monday comes out, we'll know if that is still the case. But now the
02:3410-year yield is reversed. Now the 10-year yield to me is still in its range that I was looking for.
02:41So it's not like the level itself is detrimental to me, but people were heading toward, hey,
02:49home sales are growing, everything. And all of a sudden, because of the market chaos, things have
02:54shifted. And we're talking, these are very, very violent moves. So going out in the future, let's just
03:01assume the president doesn't do kind of any deals anytime soon and economic growth gets hit. Does he
03:09try to fire Jerome Powell and maybe fire a few Fed presidents that, you know, doesn't see eye to eye
03:18with him, get people in there that will see more eye to eye and have them cut the Fed funds rate or do
03:25do whatever they can to keep the 10-year yield lower? Because that's their thing. That's the
03:32marketing line. They were highlighting that when the 10-year yield got below 4%. And this is why,
03:38you know, I caution everybody, boy, if it wasn't for the stock sell-off, we really wouldn't be here.
03:43But this is a legitimate question going on in the future. Now, if we do a few deals and things calm
03:48down a bit and everything gets kind of back to normal, there'll probably be less appetite to do
03:53something like that. But I've been saying that there's going to be a fight. And this is getting
03:58more and more discussions. We'll see how it plays out for the rest of the year.
04:03Do you think the fight is more personal or more strategic where the Fed has a different way of
04:09going about this than what Trump or his cabinet feels is the right way to do it?
04:16So this goes into this question. This morning, we're talking on Friday morning,
04:24New York Fed President Williams came out and said, I expect inflation to rise to 3.5% to 4%. I expect
04:33GDP growth to go down to 1%. And I expect the unemployment rate go up to 4.5% and 5%.
04:40And then he said, monetary policy is fine because inflation expectations are anchored.
04:48If I was Trump, I'm pulling my hair out. With everything he said there, you would probably
04:56want the Fed to go, well, we are going to be a little bit more dovish. No, he held the line.
05:04There's other Fed presidents that have kind of said the same thing the last few days, that
05:09they're kind of holding on. That's why I wrote that article, that until you really see job losses
05:15aggressively, the two rate cuts that were priced in was going to be priced in anyway. But the market
05:23is going one way. They're saying more rate cuts. And now other people say we're anchored. So the fact
05:28that the Federal Reserve has raised this inflation expectations, raised their inflation targets,
05:33means that they're more prone to standing still or doing what was originally expected before the trade
05:42war, which is at most two rate cuts. But then it gets into the point, well, if there's jobs lost,
05:47what happens? I'm sure President Trump doesn't want to even get to that point that we have that
05:54discussion. So this is a White House with their view on what they want the economy to be. And the
06:02Federal Reserve says, okay, we just have a dual mandate. We want maximum employment and price
06:06stability. The tariff thing is your call, not ours. You did this. So we are just doing our job. So
06:13there's where the conflict is going to happen. And the president doesn't like to be told that,
06:20you know, I'm going to do this this way. So again, if there's deals done, and things go back
06:27to normal, there will probably be less appetite for this. But I thought if the 10-year yield had
06:34gone below 4%, which I wouldn't have agreed with the economic data, but if it did,
06:41the White House would probably be very happy because they have the three things they wanted.
06:45The three things we've highlighted since the end of last year, a lower dollar,
06:49lower energy prices and lower 10-year yield, because in their minds, they think the consumer
06:55says gas prices are this, people are buying homes again, okay? And the dollar is getting weaker,
07:02we can export stuff. So two out of the three, but the big one, the 10-year yield has reversed on them.
07:08So they didn't get that one. But that's where the fight gets injured. If the 10-year yield had been
07:13lower, I would not be talking about the subject today. I don't think Trump would have cared
07:18one way or another, but since things are reversed and things have calmed down, and he even mentioned
07:24that, you know, I did the 90-day pause because people are getting nervous. So it'll be interesting
07:31conversation if things get worse and bond yields don't respond.
07:36Yeah, I mean, it seems to me like something needs to break with China for Wall Street to be happier
07:45at this point.
07:47Yeah, you know, with what's happening with the stock market, we have to remember, this is just from
07:54what I've heard. Everybody was hippie-ki-yay, markets are up, Trump's people are saying business
08:02investments up, everybody's enthusiasm, it's going to be deregulation, markets are going to do good.
08:07So the markets were very priced for perfection, if you believe in that concept or theory.
08:14However, Godzilla tariffs were not part of it. And from what I hear, not even half the White House
08:23staff or workers knew that was coming. So I think this is the problem. It would probably be better
08:29for President Trump to get rid of Peter Navarro. Peter Navarro just has such a warped view on trade
08:35that he doesn't realize that Wall Street and the bond markets don't care who he is.
08:40And I think Navarro and these guys basically did it. So if it is true that half the economic team
08:47didn't know about that stuff, then you could imagine Wall Street was shocked. The global markets
08:53were shocked. So all of a sudden, whoa, do we have to price in a recession now?
08:59Okay, that's a whole different ballgame. So markets sold off, liquidation,
09:03heads funds, all this market drama is happening. Eventually, it'll calm itself down. I think right
09:09before I got onto this podcast, the 10-year yield was at 4.44. So we're not at a level that I see
09:16to be obscene. It's just the speed. And when you have speed and you have targets that you can get mad
09:25and stuff, all this chaos happens. For someone like me, I love it. This is my cup of tea. But
09:31for everyone else, the consumers, the Michigan Consumer Index has just imploded. People think
09:37their inflation is going up. People think that they're going to lose their jobs. The confidence
09:41index is completely warped. So eventually, this will pass. You can't do this for four years. Something
09:48will be done. But I think the chaos speed, the rate of change of equities and bonds and everything
09:56has got everyone worked up a little bit more, even though the total levels of where the 10-year yield
10:02is right now, isn't very extreme. I mean, it's not even in my peak forecast call for this year.
10:08Yeah, I think perception is reality for consumers. So the chaos scares them and they immediately go
10:18negative or concerned.
10:22Yeah, it is interesting. I find the survey indexes completely useless.
10:28I mean, we had confidence index basically at the low levels of COVID with the economy growing at
10:363% and retail sales growing. So I'm very skeptical of surveys, but because of what happened with the
10:45stock market and the bond market, everyone sees it, right? Whatever people think about equities,
10:53when they see stocks falling, they don't think anything good. If stocks weren't falling, bond
10:59yields fell, mortgage rates fell, energy prices fell, oh my God, the consumer would be like, great.
11:04But it's one of these things where tariffs are something that people just aren't used to or we
11:12don't talk about it a lot. It's just when Trump's here, that's his thing. And there's a lot of kind
11:17of confusion. Both inflation reports this week where both came in lower than estimates. The CPI
11:25inflation has a two handle, the PPI inflation fell. So it's not like inflation is breaking out,
11:30but now you're starting to get Fed presidents raising their inflation targets again. And we've
11:36talked about this in other podcasts. They're probably going to raise their inflation targets
11:39and unemployment rate targets again. And Fed, President Williams with the New York Fed has already
11:44done that in a more aggressive fashion than what the general Fed presidents have.
11:50So let's talk about the market stress just on mortgage rates. I saw some on Diego's LinkedIn,
11:57someone was expecting like 8% rates and there's all this speculation around mortgage rates right now.
12:04So talk to me a little bit about that.
12:07So we're not getting 8% rates because the spreads are not as bad as 2023. We would have
12:14never had 8% mortgage rates if the Silicon Valley banking crisis never happened. The 10-year yield
12:21Friday morning at the peak level was at 458. Mortgage rates, 710. The spreads got a little bit worse
12:31today, but we're about 70 basis points away from kind of the worst levels of the spreads before.
12:38So 8% isn't the fact. 7.25% was my peak forecast for this year. But the spreads have been getting
12:47worse during market stress. So all year long when the bond yields go up, the spreads get better. It
12:53limits the damage. So it's a more calm marketplace. But this is why the faster you get some resolution,
13:01the better. The spreads could act normal and everything could kind of somewhat come back to
13:05normal because the spreads have been a better story. I mean, we would not have had the positive
13:09year to date, positive growth in purchase application data, which Ivy Zellman was even
13:16surprised. I was surprised, but we'll talk about that a little later. But the spreads compressing is a
13:22positive. And here today's case is a good one. We would be near 8% today if we had the worst levels
13:30of the spreads in 2023. So the Fed funds rate is lower than what it was. So that's a positive in
13:37that sense. And it's going to take a lot more to get the 10-year yield to really thrust up higher
13:44than 470. That's why 8% rates are a little bit more difficult now. But as this happens, as bond yields
13:51go up, the Federal Reserve looks at that as financial conditions getting tighter in their eyes. So
13:57they do less or they talk less hawkish when that happens. But President Trump had two of the three
14:05things he wanted, but the bond market went against them. If it wasn't the case, it'd really be
14:10interesting if the 10-year yield was at 380 and mortgage rates were near 6%. I don't know how much
14:16he would budge on the trade war stuff because he's got these three things. So again, we'll take it one day
14:23at a time. Who knows? By the time this podcast might happen, everything could change. We just
14:28don't know. We say this during podcasts now. 10 minutes from now, I could get off. I mean,
14:32last time when we talked in our podcast, as soon as I got off, I went up. Oh, the 90-day thing. So
14:38it's the speed of everything. It's just one or two headlines. And when one or two headlines could
14:43change everything, you're just sitting there waiting for that big variable to come in.
14:48Yeah, I think that's also the kind of scary part for consumers and homebuyers and even sellers is,
14:56you know, they went from an administration that really there was none of this chaos, not a lot of
15:02things really happening to all of a sudden, just total every day, there's something new. Every hour,
15:10there's something new. So it's just a dramatic shift from administration to administration.
15:15What is your prediction right now just on the housing market in general? Have you changed from
15:21your forecast? I was going to be too low with my home sales because I would have never, ever said
15:28all of our positive forward-looking data lines are year-a-year growth in April with rates still
15:36elevated. I would have taken that bet if I knew mortgage rates were going from 6.64 down to 6%.
15:41I'd take that bet every single time. That's what the data's shown. But to have this happen, like,
15:46I'm excited about the housing market because if I'm seeing this now, that means whenever you get to
15:51that next level of rates, that means you really have that backup pent-up demand there. That even
15:58with elevated rates, you could still get some growth. Imagine, just a hypothetical, imagine if
16:03mortgage rates were 4.875 to 5.75 for a year. We're growing sales everywhere. The builders existing,
16:12you know, we don't have policy for that. So that's why I don't go there. But you can clearly see the
16:18builders were able to keep sales at 2019 levels because they pay down rates. 2019 existing home
16:26sales from here is an extra 1 million, basically. So there's something there that you can see where
16:33just, it's just that rate aspect, you know? And to have the data show year-over-year growth with
16:40rates here is just a testament that we're just at such low levels. And every year, more people get
16:46jobs. And every year, you have dual household incomes. And even with record home prices,
16:53all-time highs in prices, mortgage rates are elevated compared to the last decade,
16:59property taxes, insurance, demand was growing this year. So this is something for everyone to
17:06remember. If that mortgage rates go lower towards 6%, like it did the last few times, and sales grow,
17:12you got to go with it. If the demand data goes positive, you got to go with it. I'm still seeing
17:17people out there who are just simply ignoring these things and think that home sales are crashing.
17:21They're not, right? So follow people that track live weekly data and let them tell you what's
17:30really happening. Yeah. I know in my neighborhood, there's low inventory. Houses are turning over
17:36in less than a week, easily, multiple offers still. And I'm in Florida.
17:42Again, when I look at the total active inventory, if I use the NAR data, and we stressed this at the
17:52webinar today with Ivy and Dale, I said $2 to $2.5 million is the norm since the 1980s.
18:01We had one deviation breakout in 2007 where the inventory got to $4 million. We had one really big
18:09deviation breakdown where we got under a million, but we're at the last existing home sales report
18:16was $1.24 million. That would be record all-time lows pre-COVID. We're working our way back. I'm
18:23actually not a low inventory person. I look at inventory a little bit different than everybody.
18:27Ivy and I had a little debate on this topic. I actually think if you get to 2019 inventory levels,
18:33I'm fine. I'm never going to usher the word low inventory ever again because you have a functioning
18:37market. The days on market are above 30 days. You don't have too many multiple bids. Those things
18:42were common in the last decade. We just got to a really, really bad place right when COVID broke
18:47out. It was the worst timing ever that the housing market authentically broke out right before COVID
18:54hit. And we had pre-cycle highs in demand, but then inventory crashed in 2020. Like literally,
19:02we didn't have any seasonal curve. And I'm like, oh boy, we need higher rates because it just got to
19:09such a low level. I mean, just for our auto state, a 240,000 single family homes in March of 2022
19:15with a country of our size and our population, our workforce, that was savagely unhealthy. So
19:22I love this year because I'm getting balanced. But again, for sales to grow, we have the framework
19:29and I would feel much better about the housing market when all the inventory level is back to
19:362019. And then I am zip. You'll never hear me talk about low inventory ever again.
19:43So we are, we did, you did do a webinar with Ivy and Dale. What was like maybe your greatest takeaway
19:51from it? Um, you know, to me, obviously the, the discussion, a lot of it revolved around
19:59affordability and I have a kind of a different take. I always go, what does affordability look
20:05like? Like what's an affordable house? And I always say that it's always the person's income
20:10and where rates are. I look at it in this, this way, we have record price growth in a very short
20:17amount of time. And now that's cooling off. We had elevated mortgage rates that are somewhat
20:22cooling down. And even with property taxes and insurance, we have near 5 million total home sales
20:31in the previous decade. The decade peak total home sales new and existing was around 6 million. So
20:38even with the second worst affordability period in history, we're missing just a million mortgage buyers.
20:45Millennials still were the, they were the biggest home buyers until last year, the boomers took them
20:51out, but there's still a very big portion of the workforce. I, I just simply believe the data shows
20:56if rates could go down, we're growing sales or the notion that home sales are just about to have
21:01another stage lowered. No, that's history hasn't shown that because there's the group of home buyers.
21:06And I think this is one thing where Ivy, Ivy and I might disagree. Ivy's almond was talking about,
21:12you know, the median dual income is 82,000. Well, how do we get 5 million home sales with 62% plus of
21:20the buyer dual household incomes, home buyers, two thirds of the economy, dual household, they make
21:26more than the median. There's one third of the society that are lifelong renters, unless they're
21:32part of a dual household income. So the home buyer aspect. And if you look at aggregate data going back
21:39decades, the middle class actually shrunk because we have more people making a hundred thousand
21:43than every time before. It's not that, you know, uh, uh, the wages were less. And if you put that
21:49together, this is how you explain near 5 million total home sales, even with how crazy things have
21:54been even this year. So I think going out in the future, I think, uh, another thing Ivy and I talked
22:00about, Ivy said that the consumer confidence is really getting hit and people are going to pull back.
22:05Okay. And Sarah and I have been talking about that because Sarah says that as well. And I go,
22:10well, then purchase application data would decline, right? It has it throughout this whole thing. Now
22:15the 10 year yield going up, mortgage rates going up, that impacts the purchase application data. But I've,
22:20I've followed this stuff for the last 14 years. And I can tell you, we've had a lot of drama in the
22:24last decade. We had COVID, right? Forget about stocks are falling. People are like dying and
22:30Oh, my rates are 3%. Let's go out of house. So I, I, I'm always going to say the 10 year yield
22:37to me just moves with housing data much more fluently than confidence data because the confidence
22:45data was terrible. You know, October, November, December of last year going into January and the
22:51forward looking data got better as rates fell. So it's that equilibrium trick about how do you look
22:58at consumer data? How do you look at actual hard data? And the federal reserve presidents will tell
23:03you that, well, the hard data still looks fine. The sediments are terrible. Like the Michigan
23:07confidence, the Michigan consumer index is the worst reports I've ever seen in my life the last two
23:12months. Like if you saw it, it's just like, you're basically thinking a meteorite's going to come
23:16and destroy earth, but you get a little bit of closure on some of the trade wars. You get a little
23:22compression, less volatility. We were there. We were going there. So that's why I'm excited. I just
23:30hope that the new listings data could still grow. We're starting to get to the seasonal. What you
23:35don't want is what you saw in 2022. All of a sudden people just pull the plug and go, I'm not listing
23:39in this. I don't know. That's what you don't want to see is people not list their homes like we saw in
23:442022 and 2023 in the second half of 2022. So that's another thing I'm going to keep an eye on
23:50is that I don't want to see new listings. I want to see inventory growth and everything becomes a
23:55balanced market and you let the marketplace work how it is. And those are some of the things that
24:01we discussed in that webinar. Well, Logan, I fear I've been way too easy on you this week.
24:07I can't wait for Sarah to get back and I know I was like, this is so chill. This is, I love it.
24:15Oh, but thanks so much for everything. Appreciate it.
24:20My pleasure.