How long can mortgage spreads hold off 7% rates?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage spreads and stable housing data amid rising mortgage rates.   Related to this episode:   Housing demand has slowed, but still stable for now  https://www.housingwire.com/articles/housing-demand-has-slowed-but-still-stable-for-now/   HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q   HousingWire Mortgage Banking Summit – October 1  https://events.housingwire.com/mortgage-banking-summit-2026?utm_source=housingwire&utm_medium=website&utm_campaign=hwd_podcast_0727   More info about HousingWire  https://lnk.bio/housingwire   Top 5 Trending:   The WSJ is wrong about FHA loans and nonbanks, and they know it  https://www.housingwire.com/articles/the-wsj-is-wrong-about-fha-loans-and-nonbanks-and-they-know-it/   Housing demand has slowed, but still stable for now  https://www.housingwire.com/articles/housing-demand-has-slowed-but-still-stable-for-now/   FHA expected to keep Classic FICO as it adds new models in January  https://www.housingwire.com/articles/fha-credit-score-january-launch/   Redfin names former Meta, Intuit executive Alessio Sanfilippo as CEO  https://www.housingwire.com/articles/rocket-companies-names-alessio-sanfilippo-redfin-ceo/   Court keeps door open for Garg proxy fight  https://www.housingwire.com/articles/judges-clear-path-vishal-garg-proxy-battle-better/   Want more from Sarah? Don’t forget to subscribe!   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.

Transcript

00:11Welcome, everyone. I'm joined today by my podcast partner, lead analyst Logan Motoshami,

00:16to talk about rising mortgage rates and the housing data. Before we dive in, here are the

00:20top five trending articles on housingwire.com. First, we have my op-ed, The Wall Street Journal

00:26is wrong about FHA loans and non-banks, and they know it. Followed by the tracker, housing demand

00:32has slowed but still stable for now. Then we have FHA expected to keep classic FICO as it adds new

00:39model in January. And Redfin names former Meta Intuit executive as CEO. Finally, we have court

00:47rulings block betters poison pill, keep door open for garg proxy fight. Okay, we're ready to go.

00:53Hello, and happy birthday, of course. Our fans would want to know it's your birthday.

01:00Yes, yes. The truck daddy's one year older. I think the guy who introduced me called me

01:04Luke Motoshami, and I was like, I finally became a Jedi at 51.

01:10That's too good. You're a Wolverine and a Jedi. Okay, that's pretty great. Okay, well, let's get

01:16to today's topic, which is, boy, we had a big escalation in the Iran conflict, which means

01:21oil prices went up and rates went up. You know, the irony of everything, our podcast

01:28yesterday is what we talked about, you know, what do we really need to focus on? And I know

01:34so much about wars and besant and everything, but the conflict is front and center. And, you know,

01:42then the trade war, there's not much you could do with AI spending. And then, you know, the labor data,

01:46if it stays, you know, constant, but the conflict is just one of these things. And when we wrote that

01:53article a few months ago, why it's hard to get over 7%. But if the conflict gets worse, you know,

02:00so Sunday night, we shot missiles, Iran shot missiles, Trump tweeted some AI slop video blowing up,

02:08you know, Krog Island, you know, I'm like, that's not exactly, you know, what I was talking about in

02:15terms of trying to, you know, call things down. So oil prices went up. It's not like oil prices are

02:23above 100. But you know, where we are right now, the 10 year yield went up, we're 476. The last

02:29time

02:29I checked, you know, mortgage spreads have kept rates under 7%. It did it again today. But man,

02:37there are limits to what spreads can do. And we are we are testing that right now. And,

02:46you know, there's just there's not much you can say, as long as this goes on these headlines,

02:52you know, where the president tweets, I don't know, videos of blowing up islands, that's,

02:57I don't know what like, social media advice they're giving. But the more if you're if you want

03:05lower mortgage rates, maybe less is more. You know, if you didn't care about lower mortgage rates,

03:12then it doesn't it doesn't matter. Because you know, you're all in on this, and you go for it.

03:18But if you're if you're telling people you want lower rates, and then you're AI slopping a video

03:22blowing up an island, and you know what that does to the headlines, this is what we get. So

03:28so pricing has gone up and not shocking, because this is the number one thing we said we need to

03:34focus on. And we got the news on Sunday night and continued in Monday.

03:39You know, on our last podcast, we talked about where it could go on the high end. And like,

03:43what's our best case scenario on the lower end? Do you feel like, yeah, we're going to be over seven

03:48by the end of this week or something like that? Or do you feel like, oh, let's take a look,

03:51you know,

03:52we'll, we'll see.

03:53You know, the thing about

03:58if the labor market was deteriorating, and the Fed hawks were trying to talk about,

04:05you know, maybe balancing their dual mandate, then, you know, maybe the move not might not have

04:11been aggressive. That's not happening here. Because the Fed hawks are going into full press mode.

04:17And the conflict is still going up. So and the conflict is getting worse that you that's not a

04:23good combination. If the White House and the Treasury Secretary and the head of the Fed chair

04:29wants lower mortgage rates. That's that's that that's an issue you you can't have all those

04:36variables working together on going on the other side of the trade. So you know, I mean,

04:43we had a negative jobs report, you know, already, and it doesn't do a thing because,

04:50you know, the feds, the fed, the fed will take some softness in the labor market as long as the

04:56unemployment rates not rising and jobless claims aren't rising to make sure they don't let inflation

05:02get out of hand. And I, you know, I reminded people today that, you know, Beth Havik, who's the

05:07who's the biggest hawk out there, she only has inflation getting up to three percent at the end

05:13of the year, you know, so it's not like it takes much to turn this, you know, but too many,

05:22too many

05:23negative things working against you at once. Interesting. Okay, so you didn't actually answer

05:28my question about, you know, because you've talked about how spreads have kept it under seven.

05:34How long does that last? Is that imminent that we're going to see that go over seven?

05:40No, I mean, to me, it's, you still need a 10 year yield to go much higher, and higher with

05:46duration.

05:51So the longer this conflict has these kind of moments, the closer you get. So we're only 13 basis

05:58points away. And we've thrown everything at this. We've had hawkish fed, we have inflation above targets,

06:03we have 4.1% unemployment, and we're still not at 7%. This is why we wrote that article a

06:08few months

06:09ago that, you know, it's hard to get it up here. But if you if you want to make a

06:15case for it, this is

06:16what this is what you need to see. All right, well, we will be watching that very closely. Okay, let's

06:20talk about the data, the tracker data, which showed that despite all of this, we have it, things are kind

06:27of steady, they're stable, things aren't crashing on the on on any of the housing metrics that you look at.

06:32You know, the tracker again is is telling the kind of the same story. Of course, our principle is always

06:42that when mortgage rates get above 6.64, the longer stays up higher, housing data slows down, it slows

06:48down. We're pretty much kind of flat on the weekly data year over year. The total pending home sales data

06:55is

06:56now still positive for the year, but the growth has really slowed down. So there's nothing abnormal about that.

07:01Inventory growth is up 2.21%. One of the ways I try to explain why inventory growth is less now,

07:09because the majority of the year was rates under 6.64. So it's hard to when demand is growing,

07:15it's hard to have inventory really, you know, have big moves. But we're also at elevated levels.

07:21We're no longer at the 2021, 2022, 2023 levels where, you know, you could have bigger moves.

07:27We're close to normal. The new listings data was, to me, the positive aspect that, you know,

07:33new listings data was positive year over year, still with rates at yearly highs, and that you still

07:40want to see a functioning new listings market. It's still kind of pre-COVID deficient. We're not back to

07:49normal. But most sellers are homebuyers. These are not stressed sellers. These people are just,

07:54okay, I'm fine with where rates are. And we sell our house, we could, you know, go ahead and buy

08:01another one. So that's the one thing that I liked about this weekend's tracker is that in the past,

08:08when rates get up higher to a certain level, but that's, we're talking about rates at seven and a half,

08:13you know, those levels. We haven't seen any deterioration in the new listings data in terms

08:19of the people like retracing back. What do you see when it comes to the percentage of price cuts?

08:26Because that is higher than it has been. What do you attribute that to?

08:31So a few weeks ago, when rates started to get above 6.64 and the demand started to slow down,

08:37one of the things I talked about in the tracker is that I do believe we'll eventually catch up

08:42to the last year's data. And we should go a little bit above that. We are a smidge

08:49above last year's data. So the moves are, the moves are there. They're just not very big,

08:55high velocity moves, but you can see them. Of course, every market is going to be different,

09:00but on the national data size, it's a very slow, methodical slowdown process. And you could,

09:07you could correlate it to all the data lines where it's weekly sales, total pending home sales,

09:12inventory data, even price cut percentage. And you could just see the higher rate effect that we

09:19have seen in the previous years. And it's the same, it's really the same. It's, it's really

09:23interesting how consistent this story has been now for three years and nine months. Rates get below 6.4,

09:31head toward six, demand picks up, rates get above 6.64 and then head above seven, demand slows down.

09:39And then you don't go anywhere. Well, you're just basically stuck at these levels, but here,

09:44because demand, because home sales were so positive 2.4% year to date, it takes a little bit time

09:50for our

09:51slowdown to hit the existing home sales report. So it'll eventually get there. It's just not a very

09:58big methodical move at this, at this stage. So, you know, one of the tragedies, okay, maybe that's

10:05what we're saying, but one of the sad things about this year is that we were, we started the year

10:09pretty

10:09good, right? Well, we had some momentum. It was, yes, we had the snowstorm. Yes, we had different

10:13things, but before the conflict, it was like, this could be a pretty good year for, for those in housing,

10:18right? Obviously it still is for some people, but when it comes to getting more home sales,

10:24the conflict really just, you know, we've talked about that. Yeah. The, the, the conflict is one

10:30again, to me, first, the labor data stabilized that that's a big thing. Um, because again,

10:35when we look at the last few years, uh, the 10 year yield has been able to get under 4%,

10:39but it's not because Fed policy takes us there. It's because the labor market was getting softer.

10:44But I, I, I always try to stress this when the federal reserve has said, Hey, listen,

10:49we are fine with low numbers because of break-evens. That's a big deal. So that to me is number

10:54one.

10:54Then the conflict of course, and now the conflict is going as long as it has. Remember, this was

10:59supposed to be only four to six weeks, you know, so you can, you realize what's going on there.

11:05It's like, it's like what we talked about, uh, three or four months ago. I, do we have a way

11:09of

11:09getting out of this? I don't know if Trump's ever dealt with this in this fashion. Somebody, you know,

11:15he's always used to New York bully ball working, but that's tariffs and that's other stuff like that.

11:20This is different. And, uh, um, everybody always thinks, well, it's midterms and, you know,

11:27you wouldn't do this. And, uh, that's, that's clearly hasn't, uh, detract, but you know what

11:33best that is trying to do everyone, everyone's trying to minimize the damage as much as possible.

11:37But again, we've always talked about what you need to do. If you really, really, really want

11:42lower rates, there are some things in your control and there's some things isn't. So,

11:47um, the positive side, home price growth is slowing down. We're going to have another year.

11:52I have a better shot of my forecast of national prices being down negative 0.62 than I would

11:58have had earlier in the year. I would have, I was clearly wrong, but it's not a big methodical

12:04move. So you just got to grind down to the data nitty gritty. And this is why I think the

12:09tracker

12:09is very useful. When we, when you have normal big moves, either up or down, it's easy to read,

12:15but these, these kinds of things, it's boy, it's, you got to really break into the data

12:19out there. And, uh, um, I would have been wrong with my forecast for sales. I, I, I only had

12:25237,000

12:26more existing home sales if rates stayed six. And of course that would have been too low. Uh, but

12:31we're, it's, we're getting to September now. So there's not that many, not, not, not many months

12:37left in the year for our pending sales and our pending sales data is seasonal. Everything starts

12:42fall. So, uh, but in the past few years, rates would be lower, right? So the year over year

12:47comps, right? I think it's some of this is the year over year comps play. You have to be able

12:52to read

12:52that, uh, uh, uh, and adjust to last year rates falling. Okay. Well, that was my question is like,

12:59okay, we're at labor day almost few days. And then we're at labor date from your perspective. Is that a

13:04big game changer? Like, okay, now we head into that seasonal decline in some of these lines. I mean,

13:10is it kind of like the rest of 2026, not going to be that great.

13:15You, you, you, everyone, every year you have the traditional seasonal decline, but if demand picks

13:20up, you adjust that to the seasonal, uh, average. So our biggest, uh, existing home sales monthly

13:27prints have always come in the winter, not in the spring or summer. Okay. So can you, can you explain

13:33that to me? Because I, what I heard you say is like, there's a seasonal decline, but if we adjust

13:37it,

13:37so what, what does that mean? So basically in that calendar month, you might have more sales

13:44than you would normally have. And they adjust that to the 12 month averages, you know, so this is why

13:50you could existing home sales, you know, is, is over 4 million. You don't sell 4 million homes in

13:56that month. You sell, let's say 270,000, you know, for that period. But when rates go lower and a

14:03lot of

14:03rates do go lower toward the end of the year, that demand picks up. So that monthly number might be

14:08higher than what, what it normally does. And it just, they just adjust it to the total, uh, average.

14:14So this is why you can have the traditional seasonal decline activity, but you might just have a little

14:20bit more sales, uh, and it bumps up the average there. So it's housing is very seasonal inventory,

14:27pricing, uh, uh, uh, uh, new listings, data, weekly pending sales. All that is very seasonal, but

14:34you also, uh, adjusted to where the rate is. And in the past few years, rates would be lower now.

14:40This year is different. We started the year with lower rates, but now we are heading toward

14:46fall with rates at, uh, yearly highs. So much different. So you have to adjust the year over

14:51your comps to that. So we're coming up on, um, October 1st is going to be our mortgage banking

14:57summit in Dallas. You're going to be our keynote. We're also going to have, uh, someone from the

15:02NBA talk about, I, I, you know, if there's a red wave or a blue wave, what is, what does

15:07that affect

15:07the market? Because sometimes we see the market react to, I mean, like we had that with president

15:12Trump when, when he was elected the second time, right? We saw, we saw, uh, positive things for rates.

15:18Do you expect that with the midterms? Do you think that there's like, how does that play

15:24with the markets? The, the bond market doesn't really care about politics. Doesn't really care

15:30about, um, midterms. It does care about the data. And, uh, I know Scott Bessett is going

15:38to try everything he can. Uh, there's a lot of things that the treasury can do. I, I still

15:44look at this as defensive mechanisms, but, uh, they have, they have big bazookas to shoot

15:50if they want to. So, uh, it'll be a little bit more interesting to see the volatility

15:57complex, uh, after September 9th. I know Scott Bessett even, uh, remarked about that today

16:03that, you know, the bond market doesn't think I can do this. I mean, it's never a good thing

16:08when the treasury has to say this, by the way, is to go on CNBC and make this kind of

16:15statement, but this is the world we're in it. And, you know, um, I don't know. I mean,

16:21just, I always tell everyone, hug a mortgage spread, please buy it a house or something.

16:26Cause you know, you, you would have mortgage rates really seven and a quarter to 8% for most

16:32of the year, if you had bad spreads. So the fact that we are still, we're a six, we have

16:38a six

16:39handle 6.87 and housing data doesn't do good above 6.64, but man, uh, you can see the difference

16:46in the data now compared to other periods of times where we already shoot up higher. And then when

16:52you shoot up higher, that buyer, first time home buyer that needs to buy that house that's in the

16:57marketplace. And that seller becomes a buyer too. Those things tend to retrace back because they

17:01finance over 90% of their purchases. Um, the breakdown that you do for that in the tracker

17:09is, I mean, we have people put that on social. It's one of their favorite things because it shows

17:14what it would be, what, where rates would be if we had a different, um, you know, spread right now,

17:21given the 10 year old. So that that's amazing. Okay. Well, what else are you looking at this week?

17:24What do we have coming down? Well, it's going to be jobs week. So, uh, this is, this is the

17:30make

17:30a break week for a September hike. But I mean, again, the fed Hawks won Sarah wheeler. We, we

17:36talked about this months ago. This, the Hawks are winning. They're getting what they want. Uh,

17:41they're getting short-term rates and they're not getting the three month rate higher, but you know,

17:45they're, they're, they're getting the markets to price more restrictive policy. But the problem is,

17:50does that restrictive policy really impact the conflict or trade war? You know, it impacts housing,

17:58but it's not like the housing market is this, you know, booming sector that, you know, so it's so

18:03complicated in that, in that light, because what's happening is impacting a sector that you've not

18:10mentioned that as a problem for inflation, you have mentioned that rent disinflation is good,

18:16but we're not housing starts and permits are at, you know, multi-year lows. So you're starting to lose

18:21that factor. So it's, it's just the world we live in. This is why I want to get people off

18:27of

18:27Besant and Warsh and Pulte and more on the, because, because higher rates might not necessarily

18:34impact any of that, but it does impact the housing sector. Uh, so it not in, you know,

18:41what Kevin Warsh has said, as other fed people have talked about policy, isn't restrictive for

18:47the economy. Uh, it's restrictive for housing, but everything else we're, we, we haven't seen

18:52that. And that's, that's the concern that this thing keeps on going and the fed gets more hawk.

18:57I mean, all the fed is doing is saying that they just want maybe the emergency or insurance cuts

19:03for last year gone. That's true. They're not going anything. I mean, Beth Hammock is talking

19:07about, well, I just think we get to 3% inflation. So you don't need to go more than that,

19:11but this

19:13goes on. Right. And the labor data is the key because the, the more stable the jobs data is,

19:19the more of the Hawks will come out. So it'll, we'll do our jobs preview on what to look at,

19:25but, uh, this is the make and break for those four voters that they need. The Hawks, Beth Hammock

19:30is pleading for these four people to raise rates. You know, she's, she's that girl in, uh, Wonka.

19:36I need it now, you know? And I think part of her concern is that if the labor data gets

19:41softer,

19:41it might not be soft enough for her. She doesn't care, but the other fed members will be like,

19:47I don't think I could pull the trigger on this now.

19:50Ooh, the timing of this. Okay. We will be, it's a big week. We're going to be, uh, watching it

19:54all

19:55week and we're going to be back on here. Logan, thank you so much as always.

19:59Pleasure to be here, Sarah. Enjoy Michigan.

20:03You too.

20:03You too!

20:04...

20:06...

20:07...

20:09...

20:11You

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