October will be key for mortgage rates over the next 15 months

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the key technical level for the 10-year yield that he’s watching right now, and why October is the critical timeframe for mortgage rates for the next 15 months.  Related to this episode:  Mortgage Rates https://www.housingwire.com/mortgage-rates/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  eXp Realty and Newrez form Revenos Mortgage joint venture https://www.housingwire.com/articles/exp-newrez-revenos-mortgage-jv/  FICO to cut 15% of staff, reduce management layers https://www.housingwire.com/articles/fico-layoffs-competition-mortgages/  HUD opens probe into Wells Fargo’s race-based mortgage programs https://www.housingwire.com/articles/hud-investigation-wells-fargo-race/  Unlock MLS rejects Compass demand on clear cooperation fines https://www.housingwire.com/articles/unlock-mls-compass-ccp-fines/  Timberline Homes buy will push Champion deeper into retail https://www.housingwire.com/articles/champion-homes-timberline-acquisition/  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. My guest today is lead analyst Logan Motoshami to talk about the key technical

00:16level for the 10-year yield that he's watching right now and why October is the critical time

00:22frame for mortgage rates for the next 15 months. Before we dive in, here are the top five trending

00:26stories on HousingWire.com. First is the news we broke yesterday. EXP Realty and Nurez launched

00:33Revenos Mortgage, followed by FICO to cut 15% of staff. Then we have HUD opens probe into Wells Fargo's

00:41race-based mortgage programs and Unlock MLS rejects Compass demand on Clear Cooperation.

00:48Finally, we have Timberline Homes will push Champion deeper into retail. Okay, let's get to it.

00:54Logan, welcome back to the podcast. It is wonderful to be here as always, Sarah.

00:59Love to have you. You're looking, you know, if people are watching us online, it looks very dark

01:03wherever you are. I'm not sure where you are. I mean, your face is lit up, but then it's like

01:06this

01:06darkness. It's Halloween. We got to make things creepy a little bit more. Okay, speaking of creepy,

01:12what is happening in the bond market mortgage rates? You know that you said before we got on,

01:19like, what happens now is going to really impact for this month of October, super important for

01:27the next 15 months. Why? Okay, so as the last podcast, we talked about that 535 levels is very

01:35key. On the 10-year yield? On the 10-year yield. So yesterday we tested it. We had a lot

01:41of drama.

01:41It fell back. In the last 18 hours, President Trump told Axios, Axios is basically the talking

01:50point of the media for the White House, that they are preparing to do an attack on Iran before the

01:56midterms. Oil prices went up. The 10-year yield went up all the way to 535, 536, and then just

02:03shot

02:04right back down. I think this is the fourth or fifth time that level has been tested. That's a very,

02:08very key level for me. We talked about it before, but, you know, there's a lot of headlines of a

02:15possible another wave of an attack. So far, the 10-year yield has behaved well because we're at that

02:23key level. Oil prices are starting to perk up again, even though we have more oil flowing. Last I checked,

02:32I think Brent might even be over 100 again. So what happens in the month of October can really put

02:39the

02:40groundwork for what could happen going out for the next 15 months in for housing. And the reason I say

02:46this is that if there is no deal, if this is going to be one of these forever wars that

02:53just lasts

02:54forever, if the Democrats do take the House and Senate and have no ability to stop this conflict,

03:01the ability for the 10-year yield to take it to that next level, and clearly the bond market,

03:07you know, number one, that, you know, when the MOU deal was signed, 10-year yield went lower,

03:13oil prices went lower, everybody was, okay, we're good. Then, you know, the MOU deal broke off. So

03:20bond yields have reacted very negatively. And also, you know, global yields as well.

03:25Then when President Trump said, you know, we're not going to get a deal until after the midterms,

03:29well, you know, the bond market really acted up. So you can see this correlation after that first

03:36MOU deal. But now, the month of October, the bond market is doing a hell of a job fighting this

03:42level

03:44right about now. And last time I checked, you know, it was like 5.30. We went from 5.36

03:50to 5.28.

03:51So, but if oil prices start to perk up even more, and the conflict doesn't end, and it's past the

03:57midterms, and more people are coming in. See, two, three months ago, we talked about the fear of

04:03escalation and more people coming in. Well, the pirates are fighting now. Last I checked, they shot

04:07Saudi Arabia's airfield again. You know, Turkey and Pakistan and all, you know, Syria is now bringing

04:16their soldiers or talking about helping Saudi Arabia. This becomes a tinderbox. And it's the

04:24Middle East, man. People have been fighting for 5,000 years. And the potential of this to really

04:32impact the housing data going out for the next 15 months if the conflict takes it to another stage

04:41is something very critical. This is why I said October is going to be crazy. But, you know, partly

04:46some people could say this is just psychological warfare. Trump is really not going to do this. He

04:51just wants Iran to try to do a deal. You know, this, he uses these headlines to try to put

04:57fear into

04:58them. But the midterms are also coming up. So if the Iranians want to inflict as much damage on Trump

05:05and the Republican Party, that guess what, if you ever do this again, you know, you know, your voters

05:11don't like it, the world economies, everything. So you have two groups that are very vested interests

05:17in making the other suffer as much as possible. But then the tinderbox escalation theory, the chaos.

05:25Oh, I remember the chaos butterfly thing we talked about during COVID.

05:28Yes. It's been a little bit since we talked about that.

05:30It's been a little bit. Yeah. And

05:34that's why I say we have to be a little bit mindful. But if that occurs, like, so what does

05:38that mean? Well, let's just say hypothetically the 10-year yield closes at 538 and the bond market

05:45really sells off, you know, heads up to about 641 on the 10-year yield, which, you know, if you

05:52take

05:52nominal growth and inflation expectations, you know, there's a case that can be made

05:56there. What that does is that deteriorates the housing market even more. And also we're

06:02in October. So November, December, if people are thinking, you know, I don't think I'm going

06:09to be part of the housing market next year because you just don't, you know, flick a switch

06:13and do something that the tip, whatever the sideline home buyer that people have talked

06:17about for years. So this is why October is very key. And then, of course, whatever happens

06:25in the midterms, what happens after. But if you are escalating now into another stage,

06:32you're going to start looking into impacting 2027. Because a 10-year yield can get to such

06:38a level that it's going to take a lot for it to come back down. Now, of course, there's

06:42a deal done if everybody's, you know, it's fine and the Iranian economy gets a little bit

06:48of pressure relieved and oil prices come down and, you know, consumers feel a little bit

06:53better. That'll be a different question. But I'm just, I don't trust both parties in this

06:59situation. Because when you grind yourself into a, you know, it's hard to lose face and

07:05everything. But then there's the political aspect of it on a two-year political cycle

07:10that we have to deal with. Other countries, Russia, Iran, China, they don't have to deal

07:14with it. And it just creates more chaos. But for now, who knows, by the time this podcast

07:20comes out, the 10-year yield has held that line very good. We always have our key levels

07:25that we've talked about here on the podcast for many years. This is a big one. And just going

07:31to be a little bit more mindful now in the month of October, especially going into the

07:35midterms.

07:36So when you look back at the way that, like the forever wars, let's talk about the war

07:42with Iraq, Afghanistan. The reason that that didn't impact like this is because of the Strait

07:48of Hormuz, correct? Because Iran was not involved, because they didn't shut that oil production

07:52down?

07:53Afghanistan had nothing to do, yeah. Afghanistan had nothing to do with oil supply. I mean,

07:58even with Israel and Iran fighting with each other, it doesn't have the impact. So many

08:06people are so used to conflicts and money going into the bond market. But unemployment rate

08:11is low, jobless claims are low, jobless claims came low. I mean, let's just think about what

08:16happened on Thursday. Conflict headlines, oil prices are up. Fed Governor Waller came out

08:24hawkish kind of statement, you know, even though he said the pace of rate hikes, he used hikes.

08:30You have the pirates fighting again. You have multiple countries saying they're going to defend

08:36Saudi Arabia. Trump, you know, brought that headline of a big, big, big attack coming soon,

08:42going into the midterms. And with all that, the 10-year yield held that line. So that to me says

08:47that bond traders realize, remember, there's no bond vigilantes. Bond traders are here to make

08:53money. If you don't make money, man, you get no bonus. You know, the honey isn't happy with that.

08:59And then you're sitting there talking about being a bond vigilante when trillions of dollars are going

09:03against you. Bond traders don't operate in that way. So there are things that can alleviate this,

09:09but we are also in a tinderbox situation. And whenever you have politics and war and the bond market

09:17all merging together, that's like the triangle of drama, you know, into this thing. So

09:26I would prefer this to kind of be the top area and then work yourself a little bit lower. But

09:31if you

09:32break out, you know, it just becomes a bigger deterrent going in for the housing market and the

09:38mortgage market. Companies are going to have to think about what they're going to do with themselves

09:42going out for 2027. So this month is very critical. But for now, for now, a 10-year yield

09:50has held with a lot of crazy stuff being said, being done. Jobless claims are low, all this stuff.

09:57And so we have to be a little bit mindful because that will change the parameter for next year

10:03if that is the case. So right now, I mean, you mentioned several things. There are obviously oil

10:08prices, but also the economic factors. What are you looking at in the next week that could also

10:14impact this one way or the other? I mean, the CPI-flation,

10:19I mean, that report will come out next week. But, you know, if you look at the history of inflation,

10:24going all the way back to 1910, the average has been around 3.3%. So if you look at core

10:29CPI,

10:30it's not. I think my concern about next year with core CPI is that so much of core CPI going

10:37lower

10:37has been rent disinflation. And you're starting to see some markets where rental vacancies are not as

10:45high as they used to be. I know the White House had made this whole premise about if we just

10:49deport

10:50a lot of people and let less people come in, then rental vacancies will go up and rent disinflation

10:57will happen. Well, rental vacancies itself nationally have been pretty stable for the last

11:02few quarters. And of course, housing construction has been falling. So I think it's very difficult

11:09to get a reacceleration in rent data just because wage growth is. I think the concern I have is that

11:15if wage growth starts to pick up and rental vacancies come down and then landlords see that

11:21they have more pricing power, that's the inflation that the Federal Reserve wants to avoid out there.

11:26This is one of the reasons why they liked wage growth going lower. It is policy to get wage

11:31growth below 3%. If you want to target 2% inflation and you believe productivity is run at 1%,

11:37the last thing, the Federal Reserve, the Beth Hammocks, the Lori Logans, the Neil Kashkari,

11:42the smirk, Boston Goolsby wants to see his wage growth start to accelerate. And then all of a sudden,

11:48the rent disinflation that everybody's held their hat on starts to fade away. So there's a lot of

11:54things. There is a lot of things. But one variable is this, is that the energy embedded inflation

12:01with the unemployment rate low, with jobless claims low, the AI boom, the nominal growth up,

12:07there's a lot. There's a lot that's happening right now that's kind of not normal and could

12:12be confusing to everyone. This is why October is very key. In 2023, October was key because the 10-year

12:19yield escalated when Powell went very hawkish at a key technical level. I think it was 435 back then.

12:27I was like, oh man, this thing's going to break and all hell's going to break loose. It broke and

12:30all hell broke loose. And back then, the smirk of Boston Goolsby came on TV and said, I don't

12:36understand what the 10-year yield is going on. Well, homeboy, take a look. Your man just went hawkish.

12:42Even though the growth rate of inflation was falling faster than the Fed forecasted,

12:47you're so bent on the labor supply data that he went hawkish and look what happened.

12:52You know, the bond market, they don't play around. I mean, you go, they can roll right

12:57over you. But the Fed cried uncle, you know, back then in October of 2023. So then that,

13:04you know, whenever the Fed says we're done with the rate height cycle, you get this big rally in

13:09bonds and big move lower in rates. But it took us all the way down to the hoarder line in

13:132023.

13:14We don't have that here because, you know, the Fed is hiking. You know, it's different.

13:20The rate height cycle just started again. So it's a much different backdrop in that sense in 2023.

13:26This is why I'm like very, I mean, I'm not sleeping 24-7. I'm looking at that 10-year

13:32yield action and thinking, boy, can this hold? Can this hold? And for now it has, but we got some

13:38time left before the, before Halloween, before the midterms. And man, just one year, one year of

13:47just normal, boring, you know, Michael Landon, Little House in the Prairie, you know, not anything

13:54about 24 or any show like that.

13:59Okay. Well, I'm just going to throw one more variable out there. Not in play yet. But if we're

14:04talking about, you know, maybe this is a nightmare month, we've got, you know, these reports,

14:10vague reports about a plague outbreak in a very small place in Russia. And so I've seen some people

14:16being like, okay, if something happened, and since the pandemic, we've had, we've had a lot of things

14:21like this where it's like, oh, this is, this could be breaking out or this could happen. It's hard to

14:27imagine something, you know, of that scale. But, you know, what are your thoughts on that just at a

14:32high level? Do you even think about that? You're like, I'm not, I'm not, I'm not thinking about

14:35that till something happens.

14:38No, I mean, no, I mean, if, if, if that was something by now, you'd probably have more. I

14:44mean, I'm, I'm hoping that the world is a little bit more advanced in the warning systems. So this

14:51would be something that would be talked about. I mean, just already, it didn't seem like it

14:57warranted, uh, uh, any more consideration out there, but, but I mean, the fact that it says

15:02plague, I think if it was anything else, like, oh, this, I mean, cause we've had, I mean, Ebola's

15:06raging. We have all sorts of things going on. I think it's the word plague. When you, when you

15:10talk about plague people and a real plague, it gets people's attention.

15:14We, we still haven't had plague X, uh, hit the world. And that's, you know, I mean, you and I

15:20had

15:21this talk many years ago. That's always my biggest concern, even more now than ever, that plague

15:26X, which does not show any mercy. There are going to be no vaccine. It is going to be

15:32ruthless. And because of COVID, you have people who just say, oh, it's going to be okay. And

15:37I, I, I am always mindful that biological warfare is, is something, and it's also now something,

15:44uh, that is, can be used in the sense that, you know, people might think, hey, we're going

15:49to be okay. You know, so, but for now that's not even, I'll need to see more things than

15:56to, than to, to take it more seriously. But, uh, for now, not a variable.

16:00Logan, I'm so glad that you're not concerned about that. I, um, you and I were at a conference

16:05in the spring and I was interviewing one of the executives who had given a, uh, a talk

16:09and he said, you know what? I'm not worried until Logan's worried. So I think that's, that's

16:15a good sign. I think a lot of people feel that way because you're watching a lot of things.

16:18And so, uh, makes me feel better that you're not worried about the plague right now.

16:21We don't need that. Yeah. Yeah. Uh, I'll, I'll, I'll deal with things that are in front

16:26of me and not ghost stories yet. Um, the economy is still grown. Nominal growth is there. Unemployment

16:35rate is low. Jobless claims are low. Credit markets are still doing well. I think a lot

16:41of the confusion I see, I think with credit data is that not a lot of people know that they

16:44take the New York feds, 90 day delinquencies, and they don't realize is that those things don't

16:49have the charge off. So the current credit data, uh, is much better than that. So the

16:55economy is still intact. Uh, of course the existing home sales market, you know, would

16:59have had growth this year easily if rates were lower, but again, another year of inventory

17:04is at a level where home prices are checked. If this was 2023, again, I'm not telling you

17:10it's a positive thing. If home prices were up 6%, I know home prices have done a little

17:15bit better than what people imagine, but still wages are outpacing home prices. Inventory

17:20is up. We're, we're, we are in the framework that we have seen in the eighties, uh, uh,

17:27in, especially from 86 to 91 or the late seventies, early eighties, even through the 2008 crisis

17:33where we have low levels of sales as a base and we're getting, you know, ready to show

17:38some growth. So if now, if home prices were rising faster than wages, that would be a

17:45concern for me. So you still have the economy attack. The credit markets are still working.

17:50Like if credit starts to deteriorate and banks start to pull back, um, then that's a whole

17:56different story. The AI boom is of course, every cycle has an over-investment thesis. That

18:01was part of the sixth recession, red flag model. So you want to look at the, uh, uh, over-investment

18:06that's obviously happening in AI and data centers or something. So you want to work off of when

18:11does that slow itself down, but, but for everything else, we are still intact and moving along.

18:16It's just, we live in a society where we've become so ideological on both sides and because

18:24inflation, right. We go all the way back to November 7th, 2024. Sarah said this can work

18:32if energy prices are low or mortgage rates are low and the dollars are well, everything that the

18:37Trinity thing that we talked about has reversed the dollars rising again for all the people that said

18:43the dollar's worth us. Um, the bond auctions are, you know, are, are still holding up. Uh, but energy

18:50prices are up in mortgage rate. You, do you see why I made that the Trinity is that it it's

18:56difficult

18:57to do any of this. If oil prices are up and rates are up because people just, that's all they

19:02see

19:02every single day, you know, buying a house got more expensive and I have to pay more for gas.

19:08So if you could just close this thing off, you know, at least we can get back to the variables

19:14that we can control in the economy. And this goes to, even if there was no conflict, rates would

19:20have been higher by now because of what the economy was doing in the labor markets. I'll take that

19:25any day, 24 seven. It's not necessarily higher than right now, but higher than they were.

19:31Not, not, not higher, but higher. You see, a lot of people, because mortgage rates were

19:35at 6% when the conflict started, you have a bunch of amateurs who keep on saying, Oh,

19:41rates would have been 6% still. And that's just not how it works. Right. You know, um,

19:47we shouldn't have been there in the first place. I mean, it did surprise me, but if we remember,

19:51a lot of people thought their credit markets were breaking and AI was going to take all the jobs.

19:56So every single year, the 10 year yield goes below 4% because they think it's scarce. So

20:02I still think everything is still intact. The economy is still going. You just got to get rid

20:08of this. And this is why October is key. And, uh, um, we'll see what happens over the next few

20:15weeks.

20:15I'm just, I'm always mindful of conflicts and politics and oil and bond markets when they're

20:22together. That's not right now. It's like, they're all, that's not a, that's not a good drink,

20:26man. That's not, I mean, I I'm a water coffee, diet Coke person. And that is like, that's a bad,

20:32bad, bad liquor combination of those things for economics. Um, and, uh, the world has changed so

20:39much information is disseminated so much. Um, I mean, just, just when we talked about, you know,

20:45in the podcast about the 10 year yield and five 35 and, you know, so many people, Oh, here it

20:51is

20:51again, this might, and all of a sudden it comes lower. You know, people are just, they're more,

20:55uh, things are thrown at them on a 24 seven basis. So a lot of it is in a sense

20:59negative. So you have

21:00that negative feeling. I don't care about the consumer confidence. I care about what people do.

21:05Goods and services are still being consumed. People are still spending. So, but the conflict

21:10is just, Oh man, just get rid of that. We could, we could go on and take care of business

21:16after

21:17that, but I'm just, I'm just very mindful of October. Right. Well, fingers crossed. Here's

21:23hoping that we can, uh, see a resolution soon one way or the other. Logan, thanks for walking us

21:28through. You know what? You are right. It is very dark. I feel like Jason or Chucky. I feel like

21:34this

21:34the scream mask people should be behind me, you know, you know, waving and saying hello. You know,

21:40I'm sure there's some AI app we can do that with. The last time I think it was this dark

21:45was that

21:45time we were at NBA, uh, secondary and you had to record in a closet of a hotel room. I

21:53was in the

21:53bathroom of my hotel room because I was right by this elevator and you were in a closet and literally

21:58that's what it looked like. Only even more. You just, it was hilarious. So anyway, but you know what,

22:03this is because you're traveling, you're doing good stuff. It happens. It does happen. Logan,

22:08thanks so much. We'll talk again soon. Pleasure.

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