- 2 hours ago
On today’s episode, Lead Analyst Logan Mohtashami talks about why mortgage spreads have become the critical factor for housing in 2026, 2027 and 2028, shaping how high rates stay and how much pressure buyers and sellers will face.
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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:
HousingWire | YouTube
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https://events.housingwire.com/mortgage-banking-summit-2026
More info about HousingWire
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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.
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NewsTranscript
00:10Hello, everyone. Wow, wow, wow. What a crazy week. We're doing this on Friday morning.
00:19And that was one of the more crazy weeks we've had in the bond market. And the irony is,
00:25because the Saturday before when we wrote the tracker, the discussion was, and we did a podcast
00:31on this about like, what does it take to get six? What does it take to get eight? And what
00:36is the
00:36base case? And the premise for 8% rates was, number one, the conflict gets worse, especially with the
00:44Houthis. We saw that last week where the Houthis bombed bases and tried to go for pipelines and
00:52everything. So the conflict has to get worse. A, we had that. B, the economic data had to be firm
00:59and good. And the economic data was firm and good. And we're still growing as an economy. And jobless
01:04claims are under 200,000. And the PMI manufacturing and the service sector, all these things are
01:13positive lately. So that's number two. And also, you know, the Fed has to stay hawkish. The Fed
01:19cannot come out and try to talk down the bond market, you know, kind of what they did in 2023
01:25and 2024. They have to stay hawkish. And Barr stayed hawkish. And he was a voting member. And
01:32like we've talked about in the article, you know, majority of the moves higher in the 10-year yield
01:39after August of 2020 comes from three days around payrolls and or Fed speeches or talking points,
01:45either as Powell or the vice chair, Waller, and now Barr's in there. So we saw the volatility
01:52really take off, especially intraday, where one Houthis headline, oil prices up, 10-year yields up.
01:58This oil 10-year yield trade is really taking its grip onto the marketplace. And it's broken some key
02:08levels, you know, 514. And the next one to me is 540. And that's kind of the premise. We're talking
02:14here on Friday. Pricing was about 7.49%. So if you get another 20 basis points move on the 10
02:21-year
02:21yield, and you know, you'd get no improvement on the spreads, you get a little bit worse. That's
02:25what it would take to get there. And all those things have to stay constant. The economic data
02:31has to be good. The conflict has to still be going. The Fed has to stay hawkish. We've had times
02:37in the
02:37past where Fed governors, Lori Logan is a really good example. I like to use her because she's in the
02:43Dallas Fed. In 2024, just to tell you how much she has changed, when the 10-year yield was going
02:49up,
02:50she came out and basically said, we don't need to be as hawkish anymore because the long end of the
02:56bottom market is doing our work. There's nothing at all going on. In fact, Austin Goolsbee, who will
03:03be a voting Fed member next year, kind of just said, hey, listen, we're going to be aggressive,
03:09and we're going to probably hit sectors of the economy that are not providing the inflation.
03:16And this is the trade-off we did not want to do, but we're here. So very, very fascinating week
03:23on
03:23how these headlines and these oil prices, the 10 years is taking up to another level. So now all of
03:29you know what it takes to not only stay up here, but a 540 is that next key level. And
03:35we'll see what
03:36happens by the time this podcast comes out. It's Monday morning. Who knows what happens over the
03:41weekend? But again, we're getting closer to the midterms. And one of the things I've talked about
03:46to another trader is that really the bond market shifted when President Trump gave that statement
03:53that it looks like we're not going to get anything done until after the midterms. Well,
03:59there is a lot of time between now until after the midterms. You know, a lot of discussion that the
04:06Iranians might lose their leverage a little bit more after that. But for now, hey, you go with that
04:13oil, a 10-year yield and headline trade until that stops. So very, very volatile day. But today's
04:20subject is mortgage spreads. And really the entire housing market right now,
04:27not only for this year, but for next year in 2028. Mortgage spreads are the only thing that
04:33are preventing rates from being higher. You know, in 2023, this would be, I mean, even over 860.
04:40But that's the worst levels of the spreads. And in 2023, the last time spreads were that bad was in
04:451986. We had a lot of drama. We were hiking rates in 1986. So there was a lot going on.
04:50I think the spreads on that part, how we track it, got as high as 3.37. That was the
04:55last time
04:56mortgage spreads got above 3%. So it's not normal to have spreads that high. But one of the things
05:03that better spreads does, it makes it easier to get to a lower rate. You know, so when I kind
05:10of joke,
05:11hug a mortgage spread, people go, do we still want to hug a mortgage spread? I said, hell yes, even
05:16more,
05:16because we always talk about how things could have been worse. But if mortgage spreads were as bad as
05:22they were, it would be so difficult just to get rates back down to seven and a quarter. I mean,
05:28you would need a really, really big move lower in yields to get even down to seven quarter because
05:34you're probably over 860 or you're 850. You know, it takes a lot just to get. And the reason we
05:40say
05:40this is that for the last three years and 10 months, housing data tends to perform better once we're under
05:476.64, down to six. We've talked about this all the time when we're above 6.64, especially getting
05:52above seven, especially a week like this. Like I'm expecting the tracker to finally get hit because
05:57when you have such a violent move in one week, people just don't go gung-ho. Let's get in.
06:04There's no what we call sideline homebuyer marketing that a lot of people say, well,
06:08rates are going up. We're going to rush out to, you know, get that. That kind of doesn't really
06:12apply to housing. But in this case, man, if spreads get worse, it becomes a very big problem
06:21for the housing market because you really, really need economic deterioration and kind of what we've
06:25already talked about this week. We highlighted it in the articles and the podcasts. Boy, with the
06:31deficit spending going on, the CapEx spending, the balance sheets of America, you know, it's really
06:37hard to get kind of a big negative downturn unless you have some kind of credit shock, something
06:41something out there that will impact it. And private credit, wasn't it, this year? AI taking
06:47all the jobs, wasn't it? You know, the Silicon Valley banking crisis a few years ago, you know,
06:53the Fed can clean up messes very, very clean. So the key really is that spreads kind of have to
07:00stay
07:00here around this level because if they don't, that means it's very, very difficult to get rates even
07:08down to the low sevens or even under seven then. And that's, you know, the history of spreads say
07:15that, you know, if the Fed starts to get very aggressive and then when they get very aggressive,
07:19the spreads need to compensate because rates need to go higher. That's really the cycles of Fed rate
07:26height cycles that, you know, now we're starting a new rate height cycle. The Fed's going to want to
07:31push rates higher. But the one saving grace for this cycle is that we didn't cut rates to go into
07:37a
07:37recession. We just try to get to neutral policy. If you were cutting rates to an accommodative policy,
07:43that's different. That's a whole different ballgame. But that's the difference. And that's how I would
07:48explain it to even other trader types or market players that this wasn't one of these cases where we
07:57cut rates to stimulate an economy to get into a recovery phase or get into a commative policy. We were
08:04just trying to get to neutral. We never got to neutral before the first rate hike. So you get a
08:09lot of things that are priced in. But for now, the conflict still has its grip. And you got about
08:16now
08:17until what, early November. Now, does a deal happen? The Iranians just don't want to push the lever too
08:22much. You know, there's already been enough pain inflected into the president's approval ratings and
08:28the Republican brand going into the midterms. Or do you wait until after and who knows what happens
08:35then? At that point, Trump just says, hey, listen, we're not going to at this point, there's no point. I'm
08:40not
08:40running anymore. We're going to so that I think there's some back and forth about how to deal with that
08:45phase. So over the next, I would say five to six weeks until the midterms, we really just need to
08:51keep an eye on
08:52these headlines because of volatility like this. And if the Fed doesn't come out and say something to
08:59try to calm down, because, you know, you always have the dual mandate for the Federal Reserve, you know,
09:04price stability and also keeping maximum employment. But they kind of have a subjective third mandate in
09:11the back, you know, keeping long term rates somewhat stable out here. But to this day, there's nobody out
09:19there. And one of the reasons why I say the Fed's not coming out and talking is because spreads have
09:24gotten better. Right. So they only see the long end moving, really. And, you know, in that if it's not
09:29bringing stock prices down, then it impacts housing. But again, if this was 2023 or 2024, mortgage rates
09:36are well above 8%. So that's not even a question. So oddly enough, I can't prove it unless the Fed
09:42governor says it, but they're looking at the spreads and they're going, this is maybe not as bad as 2023,
09:47but we're starting to get to those levels out there. So it'll be really interesting to see
09:53if the conflict gets kind of any closure, the closer you get to midterms. It'll also be interesting
09:59as the Federal Reserve ever kind of steps in. This last week that we saw in the bottom market was
10:04not
10:05normal, right? If any Fed governor says, well, this is normal. No, it isn't. But also, it's not
10:12really their privy to try to manage a conflict in the Middle East. Like, what do you do? The Houthis,
10:17he's bombed Saudi Arabia's air base. All right, oil prices got up. What can the Fed do with that?
10:24Obviously, Scott Besson's house of trade on that I am the house kind of trade that he was talking
10:30about that has failed big time. But now we're talking about diesel bans. And we're getting
10:36close to the midterms, man. And when we get closer to the midterms, and the incumbents aren't,
10:42you know, very popular in the polls, they are going to throw everything you can out there.
10:47So be a little bit skeptical. If you see capital gains being removed, I know there was a mention
10:54that Trump says, we're going to remove all capital gains from housing and stuff like that.
10:58Don't put your eggs into any basket unless something is said. There's a bill, something gets signed,
11:04and it goes into law. Because there's a lot of things that get said. I don't know if you guys
11:08remember, remember the 10% credit card, we're going to lower everyone's credit card percentage
11:14to 10%. Well, you run the math on that. And a lot of people's credits would be taken away. That's
11:19actually to be a credit would be tightening because of that, because a lot of people are just too much
11:26of a risk. And it doesn't make sense for the bank to even have their credit cards open. That you
11:31never hear that anymore. I know there's a there was a big, you know, talk about that $5,000. That's
11:36$1.3 trillion that you have to borrow. That's more treasury supply. And that is inflationary,
11:43right? The Federal Reserve has made a really good case about, you know, if you do even have shortages,
11:48shortages and creating any kind of stimulus just makes that inflationary problem worse.
11:56That's why when you see, you know, cutting the gas tax or stuff like that, you know, that in itself
12:03will keep spending going. So they're probably looking for some type of demand destruction to
12:08make their jobs a little bit easier. But so far, it's it's the train is still going. And we talked
12:14about this before the deficit spending we have right now or what we commonly see in recessions. A lot
12:20of that has to do with mandatory payouts. We just have a lot of people above age 65. We are
12:25close to
12:26$10 trillion of CapEx spending that's going to happen in the next eight years. A homeowner's balance
12:31sheets have never looked better. So there's a lot of cash for the middle class and upper middle
12:36class. So that spending is going. It's a complicated cycle for the Fed, how to manage this with a trade
12:42war and a conflict in the Middle East at the same time. So two of those things are something that
12:49can
12:49be managed, right? The economic growth, not so much AI is going to be here, balance sheets are going to
12:54be here. You can't do anything about that. But you can just get the conflict over. And if you just
13:01get
13:01the trade war not to get out of control, then at least you could condense the volatility, right?
13:07And you can get yields to start to go lower and start pricing in a Fed that might not think
13:12the
13:12worst case scenario, because the Fed taking their insurance rate cuts back from last year is one thing,
13:18right? That's kind of what the market is starting to wait. This might be a lot more.
13:23And until you see some demand destruction, the bond market is just
13:28heads away, you know, and some of the strong economic data really kicked in. So you can't
13:33have strong economic data, hawkish Fed, a conflict and trade war headlines all together in this time.
13:39But what you can keep a focus on is the spreads cannot get worse. Because if the spreads get worse,
13:46then it's going to be harder just to get to the low sevens, let alone to the low sixes. And
13:51I think
13:51that's something that we'll keep an eye on. We write about it on the tracker all the time. And
13:56the history of mortgage spreads is really, Fed gets much more aggressive than the market is pricing.
14:02That's part of the reason why the spreads, I think, got worse this last week. You know,
14:06the volatility in spreads and how we track it, which is more of a weekly data,
14:10can't sometimes be captured when the spreads get really wild on a one-day or two-day daily basis.
14:17But that's something to focus on for the future. Because if you just get toward six and a half and
14:246.75, right? And we just always have to have the mindset that mortgage rates getting below 5.75%
14:30just does not happen with Fed policy here, right? That's the thing. It will never occur as long as
14:37these variables are here. Something big has to change. And that's why we don't really stay
14:43near 6% for a very long time. But credit markets are something else to keep an eye on.
14:50When there is a credit situation and there's a bank or a hedge fund or somebody goes over,
14:55the spreads can get wild in that environment. But for now, as crazy and as bad the last few months
15:05has been. And really, there's one thing about Trump saying, we're not going to get a deal until after
15:11the midterm. A lot of this volatility got worse after the MOU deal broke off. And after that,
15:18you really saw the bond yields and oil trade really take hold of the marketplace.
15:25So that's something to think about in the future. When the tracker, the next podcast comes out,
15:29we'll keep an eye on the tracker. But this is the time where in the past few years, we've seen
15:34a
15:34little bit more weakness in the data. Inventory should grow a little bit more. Price cut percentage
15:40should increase. The weekly pending sales should get hit. And that would be very common to what
15:46we've seen in previous where rates go from the sixes all the way towards seven, but then have that
15:52big high velocity move up out there. And last week was crazy, guys. I'll be very honest.
15:59I've been tracking the markets for a very long time. Those bond market weeks are very, very rare.
16:05The bond market is not designed to act that way. I know a lot of Fed governors, I know Kashkari
16:11and
16:11some other people beforehand were saying, well, the bond market looks very orderly to me.
16:16This last week didn't, but it's also, what is the Fed going to do? It's a conflict.
16:21They're running on hooty headlines. That's not the Fed's preview out there. So there are things that
16:27can be done. And I think those in the mortgage and real estate industry probably just want some
16:32kind of closure to this conflict so you don't have to deal with this on a daily basis. Because
16:39your job is really not to look at how the Middle East conflict is going or who's fighting right now.
16:45Your time needs to be put into helping buying and selling and mortgage rates and listing homes and
16:51selling homes out there. But the conflict is now impacting your business more than any other time in
16:56recent history. So you get that closure, we'll get a little bit of less volatility. We don't make
17:01trade point 2.0 any crazier than it is. On the economic growth side, there's not much that can
17:07be done. The Fed's not going to really push rates up 2% or 3% in a very short
17:13amount of time to try
17:14to take the AI boom out. They're probably going to just take the insurance rate cuts back and then move
17:19on from that. So crazy week. And, you know, jobs week is going to be coming soon. And or, you
17:28know,
17:29it'll be here. And we'll see how the labor data and just remember, the labor data has been improving
17:35for some time now. And we'll do a whole jobs week preview. But the first year of a trade war,
17:41Godzilla tariffs, typically the economy doesn't work. The second year is better. And I go back to the
17:46podcast Sarah and I did toward the end of last year. The backdrop for the economy is to have a
17:52better year where tax cuts are in, those manufacturing spending and CapEx comes in,
17:59and then you flow with that data off of a weak year. So jobs data, as crazy as this is,
18:05as long as it's above 33,000 per month, the Fed's like, okay, you know, they care about the
18:11unemployment rate and jobless claims and jobless claims was very low. So good luck to everyone.
18:16It's probably going to be another crazy week. Who knows what the news was over the weekend, but
18:20keep an eye on the spreads. The spreads are more important now, not only for this year,
18:25but for the next two years as well. Good luck.