- 3 days ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about what the Supreme Court’s tariff ruling means for mortgage rates, and what other factors could bring rates down.
Related to this episode:
Trump’s tariffs overturned by Supreme Court in 6-3 decision
https://www.housingwire.com/articles/supreme-court-trump-tariffs/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
To learn more about Trust & Will visit trustandwill.com
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.
Related to this episode:
Trump’s tariffs overturned by Supreme Court in 6-3 decision
https://www.housingwire.com/articles/supreme-court-trump-tariffs/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
More info about HousingWire
https://lnk.bio/housingwire
To learn more about Trust & Will visit trustandwill.com
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.
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NewsTranscript
00:10Welcome, everyone. My guest today is lead analyst Logan Modashami to talk about what the Supreme
00:15Court's tariff ruling could mean for mortgage rates and what other factors could bring rates
00:20down. Before we begin, I want to thank our sponsor, Trust in Will, for making this episode
00:25possible. Logan, welcome back to the podcast. What a Friday morning. You know, Sarah, I'm just
00:32glad to be here because going to Utah, our plane had to ride up right at the last second because
00:38it couldn't land. And then landing in John Wayne Airport, the tire kind of broke off. And next thing
00:44I know, I'm looking out the window, there's like two fire engines, five ambulances. And I was like,
00:48they didn't give us a heads up that what was about to happen. And they had to tow us in.
00:53So I'm like,
00:54okay, I've had my once in a lifetime plane drama. Hopefully that ever happens again,
00:59especially on one trip to have all that plane drama. I'm just glad you're back. Okay, well,
01:04as you said, crazy Friday morning, we knew that today was a day that the Supreme Court might
01:08release some of its rulings didn't know which ones came in and said that they found that what Trump
01:15did the way that he imposed tariffs was illegal by saying that it was a national emergency.
01:20So that's huge news on top of some other economic news we got at the top of the beginning of
01:27the day.
01:27So let's take the tariffs first, because I think that's just such a huge topic. What is your take
01:34on what this means for mortgage rates, for the economy?
01:39So this is our second trade war tap dance that we've had since 2016. Trump, the first time when
01:47he did it, he waited until like the tax cuts are in the midterms are over. And then he went
01:52on his little trade war tap dance, the economy kind of, you know, on the labor side and other stuff
01:57were things weren't working as normal. Here, we have, you know, GDP growth, a lot of deficit spending,
02:04AI, all this stuff. But it was the 21st century lows in job creation. So this is now twice now
02:12that something has happened where the labor market isn't really growing. But back then,
02:19what had happened once the trade deals were started to be announced and signed off,
02:24the economy started to reaccelerate rates went lower. So in a sense, you have two ways of thinking
02:30of this in on the mortgage side for everyone listening. Number one, there's a group of people
02:34that says, well, there's going to be less revenue. So there's going to be too much bond market supply
02:39and rates can go higher. I'm not a big believer of that camp. The money wasn't really going to like
02:47pay the deficit down. They're like giving bailouts and stuff like that. But if the economy does
02:54reaccelerate with less confusion, which I don't think is the case, Trump just announced that he's
02:58going to do some subversions of tariffs and those kinds of things. But the Godzilla tariffs now
03:04are off the grid. There's no more unilateral Godzilla tariffs. You just can't randomly wake
03:13up in the morning and do 100% tariffs on everybody or anything like that. You're going to have to
03:17get
03:17Congress involved in it and the midterms are coming up. So on the mortgage rate side,
03:22if the economy on the labor sides does accelerate, then it becomes, well, what does the Federal Reserve
03:28do right now? Because they made this all about tariffs and now they said the tariffs one-offs
03:33are gone. So, you know, they should be a little bit more dovish on their statements going out in
03:40the future, you know, because we're not going to deal with Godzilla tariffs. So it's a big question
03:46mark because there's still so many moving variables, but there's two sides to the camp on the rate side.
03:52The 10-year yield wasn't doing very much. I brought that, you know, turn the lights off,
03:57dancing me in a club kind of thing. The bond market is just kind of yawning right now. But
04:02I can understand the two different points of views that this can be bad for rates or this could be
04:08good for rates. I always subjectively say it's the labor market and Fed policy that runs a show.
04:13So to me, it doesn't change these big variables out here, but I understand other people's takes.
04:19So, you know, you mentioned Godzilla tariffs. That was definitely different than the trade war
04:23tap dance we saw in the first Trump administration. So we've had that, we had the effects of that. And
04:30so now if that's repealed, I guess one of the questions is, you know, no one really knows,
04:33like, do people get paid back? Do companies get paid back? Do countries get paid back?
04:39Mark. What does, and what does that mean?
04:41That's going to be very messy. That's going to be a legal mess house. So I wouldn't look for any
04:47clarity on that. That could be stuck in the courts for years. So who knows? There are already companies
04:53ready to sue or in the process of suing the government for that. It's chaos, you know, and in chaos,
05:02you're not very sure. But I always say that, you know, if the labor market didn't get softer last
05:07year, mortgage rates wouldn't have made that move. And Fed policy is now much more dovish than it was
05:13in 2023. And mortgage spreads are better. Those to me are more important variables. But now we,
05:20obviously, there's not going to be any more Godzilla tariffs. And what we've talked about,
05:24you know, in the past, it's very hard to do these things with two year political cycles.
05:29Yeah. Like China doesn't have to worry about this because, you know, there's kind of a state rule
05:34out there. But here we have two year political cycles and affordability became an issue for the
05:39White House. And this is why they're pushing everything they can to kind of fight affordability.
05:44But now this happened out here. So we'll take it one day at a time. This morning, the bond market
05:51had
05:52a very mild reaction to it. So from your perspective, this doesn't change anything on your forecast for
05:58mortgage rates for the year. No, I mean, unless the Federal Reserve wants to come out and say we
06:03can be more dovish. Like those are those are the things that we've always and and we were we could
06:09bring this up now because we've done 19 nurture events, or speaking things already in 2026. And
06:16one of the things that I'm hearing from people is that a lot of consumers are saying, well, when
06:23Trump gets worse and they're going to cut rates and rates are going to really go down, that's not how
06:29it works. So if we look at the history of housing economics and the Fed funds rate in 30 years,
06:36the slow dance, you know, the spreads, everything we've talked about, we did a little mini dissertation
06:41on this on Instagram real today. It's really hard to get mortgage rates under 5.75 with neutral policy.
06:49Like there's just not a lot of history with that. But there was a lot of history when we had
06:55zero
06:55interest rate policy and QEs and everything, all that was in there and rates stayed lower on a
07:02historical basis than any time in recent history. We don't have that marketplace, nor is anyone even
07:09talking about that. Even Stephen Myron, Trump's trade guy who got into the Federal Reserve,
07:14basically said, hey, I don't want 150 basis rate cuts anymore. We want 100. So neutral policy is
07:2350 to 100 basis points of rate cuts maybe left in the system, unless the labor market breaks.
07:29And that's kind of where everyone should have their mindset. Now, what do I say? Like how do rates get
07:35below 5.75%? Mortgage spreads, 1.91 last week. If they go down to 160, the low end of
07:43the forecast
07:44or what I'm talking about, today's mortgage rates are 5.74%. No help from the 10-year yield at all.
07:51There you are. That's 5.75. If you get the lowest mortgage spreads and then the 10-year yield heading
07:56down to 3.80, it's really hard to get below 3.80 with neutral policy. But you can get mortgage
08:03rates
08:035.375 or 5.5. It would take something like that. If the labor market broke, then all bets are
08:10off.
08:10Mortgage rates go below 5.75 because the Fed's got to play catch up. But jobless claims are historically
08:16low still. So that's not happening. So my job is just to basically talk on the history, not to give
08:21people like, okay, X is going to happen and don't worry, rates are going to... All these really super
08:27rate discussions don't incorporate models. This is my observation out there. There's a lot of
08:32theories on X is going to happen, but this is why it's been hard to get below 5.75%
08:38because there's
08:39nobody talking about mortgage rates going to or Fed policy being a comative. It's always about how to
08:46get to neutral. And we're almost there. I mean, it's not far off. I mean, we're at like 30 basis
08:50points
08:50away from 5.75. But that's why I keep that level there. To make that next leg lower, you need
08:56very
08:57low levels of normal spreads. You need a dovish Fed. You need the labor market breaking. You need
09:02the Fed policy to get away from neutral. And then it makes sense because we've had periods of times
09:07in the last few years where the 10-year yield goes much lower than 380 because the market believes
09:11we're going into a recession. Like the bond market will get ahead of the Federal Reserve. But every time
09:15it's been shot back up, now we're close to it. So be a little bit mindful of that, the history
09:21of
09:22mortgage rates going back decades with Fed policy. So when you hear, when people are asking these
09:28questions, are they asking because they're like, hey, I have this question, or this is what I'm
09:32hearing? Like even their customers, their clients, their consumers are saying, hey, we expect mortgage
09:39rates to fall once we have a new Fed chair. If all these stories are true, loan officers are hearing
09:47from people saying, oh, I'm just going to wait because Trump's going to get rates much lower.
09:52And then you have people with certain YouTube accounts or anything saying, oh, AI is going to
09:57create this massive recession and mortgage rates are going to go back to 3% or 4%. Okay. So these
10:03are
10:03all speculative theories that the Federal Reserve is not guiding policy to. So it doesn't matter what
10:10some guy or lady says on Instagram, YouTube, TikTok, X, Facebook, which I tell everybody do not listen
10:15to. But it's really how the Fed policy is and how they guide the markets. And this is why that
10:22line in
10:23the sand is 5. We're 2026. We had the lowest job growth in the 21st century last year, and we
10:29still
10:29have not left neutral policy. Because going back to 2022, we said the Fed's not going to pivot like
10:35people think until the labor market breaks. And that's jobless claims rising. So it's much better
10:41now, right? We're almost there. You can get there with certain things without the labor market breaking.
10:47But that's why it's hard for people that are thinking 3%, 4%, even at 5% where Fed's going to...
10:53Even
10:53even Stephen Myron, who is like Trump's boy who got put into the Federal Reserve to cause chaos.
11:00He's even cutting back on some of the rate cut expectations. So we'll take it. Well,
11:07one day at a time, we write this on the weekend tracker all the time. But hopefully this explains
11:11why 5.75% has been my line in the sand and why I just, I can't see us going
11:17really below that
11:17unless certain things happen.
11:19I think that's so valuable for you to outline those four or five things. You're like, if all
11:23these things happen, we can go to 5.75% because it's crazy if consumers think that they need to
11:29hold out for 3%. They are never, I mean, I don't ever see 3% happening again in the near
11:35future unless
11:35something really bad happens.
11:37Well, I mean, some of the theories is that AI is going to be so disinflationary and that it's going
11:43to create such a high unemployment rate. And again, I always tell people, I'm so blunt with
11:49my takes. If you're debating on should you buy a house, just remember every year that goes by,
11:54you're closer to death, right? You're not immortal. You're closer to death. So if you're sitting here
12:00waiting, I'm going to wait for the next massive recession. And I just generally don't believe in
12:07that theory that there's millions of people sitting there waiting for rates to go lower. But
12:10in any case, Sarah Wheeler, ask me if you should buy a house.
12:15No, no, no. This is a trigger.
12:17Ask me if you should buy a house.
12:18Logan, should I buy a house?
12:21Absolutely not. Who are you to ask me if you should buy a house? You're a grown-ass adult.
12:27If you have to ask another adult if I should buy a house, hell no, you should not buy a
12:32house.
12:32You are so not ready because you, you know yourself. You go to a bank, you go to a loan
12:38officer. They're going to tell you because of qualified mortgage, how much you could afford a
12:42house. That's your payment. The payment's fixed. Your wages rise. Millions of people buy homes,
12:47but you ask another adult if you should buy, you are not ready. You're not the millions and millions
12:53of people. This has been your answer for years. Always been your answer because I've brought it up
12:58several times. I'm like, you know, people want to know, like, is this a good time to buy a house?
13:02You're a lifelong renter in my life. In my, in my mind, you're a lifelong renter. You're not ready
13:06to own a house. You, you, you are the only person that knows your finances and situations. You go to
13:11a loan officer, you go to a bank, you get yourself pre-qualified. That payment should be very comfortable
13:16for you, right? Especially if a 30-year fixed payment and then, you know, you, you, you go with
13:21it. But I don't ever need to like market housing because millions of people buy homes,
13:26demographics, affordability, all these things. But man, if you were an adult asking another adult,
13:30should you buy a house like a permission? Oh, homie. No, no, no, no, no, no. You are so not
13:36ready to ever own a house the rest of your life. But I do think it's a different question to
13:41be
13:41like, should I wait for rates to go down? I do think that's a different question. And I think
13:44that it's good that we're preparing people so that when they hear that, it's like, if people are
13:49expecting three and 4% rates, like that, I mean, prepare to not be buying a house anytime soon.
13:55Yeah. I mean, I think that, you know, the, the, the concept of that lower rates needs zero interest
14:01rate policy. Also, we have to remember like the global banks, like everyone was that we had
14:05trillions of dollars of negative yields back then. So you need something like that. And for right now,
14:10no one's talking about that. We're just fight. We're just trying to get to neutral policy,
14:16you know, not zero interest rate policy and QE and MBS. And just remember the Federal Reserve has
14:22stated they do not want to ever buy mortgage backed securities or do QE ever again, unless
14:28there's zero interest rate policy, which means something is different has happened around the
14:32world. So just take it with that. And just remember, every year, you're closer to death.
14:38Okay, you know what, that's, I'm going to put that on a pillow and put that on my, on my
14:42couch.
14:42Every year you're closer to death. Okay. Let's talk about, we had some, a lot of other things
14:47come out today on Friday. So GDP, GDP was a miss. What are you making up?
14:52Yeah. GDP miss of estimates. You know, a lot of people say the, the, the government shutdown
14:57impacted it. Just kind of remember the, the, the real final domestic sales GDP portion. If you just
15:04look at that, that's a very consistent data line that the Federal Reserve tracks because the export
15:09import data investment, those things can be very wild on GDP. But if you look at the consumption
15:15data, final sales, that's been very stable. And that's what the Federal Reserve looks at. As long
15:20as that is growing, they feel comfortable out there. I remember I was just putting a chart like that,
15:25like GDP could go up and down like crazy just from some of the trade data, but here. Okay. It's
15:32relatively stable. Now, of course the labor market was really slow last year, but again, does this
15:39mean if there's some clarity on tariffs that do we do the late 2019 economics or is Sarah
15:45really, you didn't know me back then, but late, late 29, the economic data started to get better.
15:50Once the trade deals were starting to get set. And the first two months of 2020, everything was
15:56positive. Retail sales, PMI data, service PMI data, housing starts, new home sales, purchase
16:02application data, the jobs data of January and February were beating estimates. Everyone that was
16:07talking about a recession in 2018 and 19 were wrong because they don't have working models and then
16:12COVID happened and then life changed. So. And then life changed. Okay. So GDP, inflation.
16:18Inflation, actually the, the PCE inflation, again, hit the, kind of the Fed's target, you know,
16:23at 2.9%. So I know a lot of people are asking about truflation and all that, you know, the
16:28Federal
16:28Reserve does not look at truflation. They look at the PCE data. And again, they kind of said,
16:35you have a one-time price hit with tariffs and then that should fade away in 2026. So they're a
16:42little bit mindful. So hypothetically speaking, we'll see what other plans are happening with
16:47tariffs, but the, but the Federal Reserve needs to come out and make some statements. If they believe
16:52that if this is the end of tariffs or anything like that, that'll be good for rates because they
16:59made it all about that. Right. So they should come out there and some of the hawks who use tariffs
17:04as
17:04it's to say, well, if this, this is over, well, then we could be a little bit more dovish. Uh,
17:09so
17:10watch how many people of the Federal Reserve would say that my bet is zero. So because I just say,
17:20I just think they, they, they, they created a model to where they really believe wage growth has
17:25to be under 3% because productivity is really at 1%. Um, and there'll be 2% inflation that way.
17:32And until the labor market breaks, meaning jobless claims, they're going to stay as restrictive as
17:37possible. I think the tariffs were to a degree, somewhat, um, uh, an excuse to stay, uh, uh, a little
17:45bit more hawkish, at least some of them, but, um, we're probably going to get some subversion of
17:50tariffs and everything. So I don't think that, that story goes away, but I've, I've always worked off of
17:54that principle that they believe if you suppress wage growth and productivity, like a lot of people
18:00say, productivity is really kicking up and all that, but I don't think the Federal Reserve really
18:04100% buys into the productivity story. So interesting. Kevin Walsh, at least oddly enough,
18:10Kevin Walsh and Lisa Cook are on the same page on this. And, uh, some of the other Trump people
18:14are
18:15going to say productivity is great. And that's going to keep a lid on inflation, but wage growth going
18:20down, uh, inflation expectations like the Atlanta feds business inflation expectations pre COVID
18:25levels. But Bostick came out today. He's going to retire as the Atlanta fed president, but he was
18:31like, Oh my God, we, we still have to worry about inflation yet. He used that inflationary data line
18:36as his main objective for a kind of cutting rate. So it's the Federal Reserve. This is just how they
18:41operate. I'm just, I just never quite bought into that. They're really, they just needed to keep
18:46things as restrictive as possible. Cause if wage growth was at 3% or under, I think they would feel
18:52much better about inflation than that. Right. Okay. Next, next topic. We have so many existing,
18:57uh, new home sales. Sorry. Yes. Uh, new home sales, same story as ever new home sales are at multi
19:04-year
19:04highs, right? They're at 2019 levels, which would equate to one to 1.3 million more existing home sales.
19:11If they, if they did that, but it's not gone anywhere for like 10 years. If you take the COVID
19:18burst in sales and the lows in 2022, we've just been in a channel and the article that we wrote
19:24for that is trying to explain like, why are housing permits so low? Then if you're a multi-year size,
19:30the builders, even though it looks like they're making progress on their monthly supply and their
19:35total inventory data, the total units completed of sales over 120,000. We did that podcast recently
19:40and they just don't feel like putting the pedal to the metal out there. So, uh, uh, that headline
19:46print, you know, their purchase application data on a year over year basis is up 2% year over year
19:51from the NBA. Remember the NBA has a monthly purchase application just for new homes, not the NBA weekly
19:57data for the existing home sales market separate right there. Uh, so much of the same, there's really
20:02not much going on in the sector for years. And it's really confusing. A lot of people,
20:07because a lot of people thought if new home sales crash and housing permits crash and
20:10residential construction workers, we're going to lose their jobs in big numbers. And there's a
20:13recession. We quite haven't, it's a very complicated cycle in that regards, but, uh, yeah, pretty much
20:19near multi-year highs, but, uh, not much going on with permits and the builder's confidence data
20:24faded a little bit out here. So, uh, it's such a unique cycle. I mean, it is, I think anybody
20:30who's
20:30like a data miner, this was very fun because the previous expansion was really boring. There wasn't much
20:36going on COVID was like a unit, you like a crazy shock that you either went depression or you did
20:42a COVID-19 recovery model on April 7th, 2020, but now it gets to the nitty gritty, uh, stuff. And
20:49again, recessions, typically growth slows down, investment slows down, industrial production falls,
20:54uh, retail sales fall, everything where the whole economy, even though it could be just a few sectors,
21:00simply can't sustain enough demand, uh, that companies have to fire people, not hire anymore,
21:07but just fire people and jobless claims spike. And it just goes linear and vertical. And that's
21:12how economic cycles have worked post-World War II. Logan, thank you for walking us through all of this
21:18as, um, as our audience tries to figure out how to talk to their, uh, customers about this,
21:25the consumers about this, and also figure out for themselves. So thank you for being on and we will
21:29talk again very soon. Pleasure.
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