Logan Mohtashami: July rate cuts from shadow Fed Chair Chris Waller?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about unlikely July rate cuts, whether Chris Waller will be Trump’s shadow Fed president and the latest homebuilder data.   Related to this episode:   Single-family construction is getting worse due to rates  https://www.housingwire.com/articles/single-family-construction-is-getting-worse-due-to-rates/  ⁠⁠⁠  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.

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the possibility of

00:11Fed Governor Chris Waller being the shadow Fed president, July rate cuts, and the latest

00:16builder survey. Logan, welcome back to the podcast. What a week. Man, I hope Jerome Powell is wherever

00:24he goes for a drink. I hope he finds a nice bar and just has some scotch.

00:32Yes, absolutely. So we are recording this on Friday. And so far, you know, he still has a job,

00:39hasn't been fired. And we got some interesting news today from the Fed President Waller, right?

00:45Talking about interest rates. Tell us what happened. Well, oddly enough, when our podcast was

00:52going on yesterday, where we were talking about like, like, what's the variables that will make

00:58no rate cuts happen? Christopher Waller, Fed Chairman Waller, who we actually endorse as the next Fed

01:06Chairman, hashtag Team Waller. He came out and flat out said, I'm cutting rates, July. And

01:14if everyone had to pick someone that's reliable and like, not crazy, he would be everyone's choice

01:24in real terms, considering who we're talking with out there. So it would be beneficial for everyone

01:32that President Trump doesn't fire Jerome Powell. If he wants to do the shadow Fed president thing,

01:38that's fine. But getting Christopher Waller, somebody who's already at the Fed, somebody who could

01:44coherently talk about policy, but also can maybe get his other fellow Fed presidents to come along

01:52with them. Because if the fellow Fed presidents don't come along with you, right, then you got a

01:57problem. And this is why firing Powell doesn't necessarily work unless you want to fire everyone

02:02that doesn't give you emergency. I'm going to give you guys a good example. This morning, I don't watch

02:08TV. But this morning, I saw a clip of CNBC and House Speaker Johnson was on TV. And he said,

02:16we need to cut interest rates right down to like one and a half percent. And even the CNBC anchors who

02:23are conservative, you know, pro-Trump, it was like, wait a second, isn't that inflationary? Or,

02:31you know, why would you cut rates that much if the economy is hot? Because that's the language that

02:35they use. It's a hot economy. A hot economy doesn't have massive rate cuts. So for myself and Waller,

02:41it's basically trying to get to neutral policy as fast as possible. And he had a very good, again,

02:48he can talk about it in a coherent way. He talked about the same points that I talked about yesterday.

02:55The private sector payrolls are slowing down noticeably for some time now. And, you know,

03:02he doesn't want to wait for the labor market to break, then go, oh, my God, we missed it.

03:09Oh, no, we're shocking. It happened again, you know. So that's a more coherent argument to make

03:16to other Fed presidents to just get to neutral policy. Now, will Trump be happy with that? No,

03:22Trump wants mega rate cuts. That's not going to happen. But at least this is someone that everyone

03:27could somewhat trust and not, you know, go off the deep end and try to do crazy things.

03:33Okay. So he says he wants a July rate cut. Is that what's going to happen? He's one.

03:38No, he has no power whatsoever. It's a committee. One person doesn't matter. So, but

03:45he has a coherent process to, I want to kind of get to neutral, right? Michelle Bowman is kind of also

03:54in that camp as well. If he's Fed chairman, there's a better chance that he might convince

04:00other people to let's go to neutral. I mean, to me, you know, when the Fed cut half a percent

04:06last year, it really was Jerome Powell. Hey, listen, we waited. We waited too long. Okay. We got to cut

04:1350. We should have cut a quarter last time. We didn't. And now we have to cut 50 because we waited

04:17too long. Chairman Waller can, can do that. I'm calling him chairman already. He can be a little

04:24bit more coherent rather than having someone like Kevin Warsh, who was never, who would be hiking

04:30rates in this environment, you know, and all of a sudden, Oh, we'll need to cut rates. So nobody

04:34trusts him. They, they, they look at him as like a kind of a puppet to Trump. So I would be team Waller

04:42here because it's not because he wants a July rate cut is because he has a little bit more of a

04:46coherent stance on talking about, let's just get to neutral and neutral policy. If the labor market

04:54breaks, you, you don't have to aggressively cut rates. You're already out of place. And then maybe

04:58if rates could just get down to 6%, you don't have to worry about, you know, uh, housing stars falling

05:04even more or losing construction labor because you are very, you're at, you do not have a wide margin

05:10anymore. If manufacturing jobs were lost the last report, if you have manufacturing construction

05:15jobs lost, that looks like every recessionary data line we've seen post-World War II. So his point is

05:22valid. It's better for him to say it to the other fed presidents than to have New York bully ball fire

05:29someone that you don't want, you know, and try to, you know, cut rates down to one and a half percent.

05:35Okay. So, um, not going to ha not going to happen, but let, let's talk about the builders. Okay.

05:39Let's talk about housing starts, housing permits. Where are we? Because again, this is a big part

05:45of your, when you look at what's happening in the overall economy, you're looking at those

05:48construction workers, you're looking at the new home sales. So let's talk about it.

05:52Single family starts falling, single family permits falling, completed units falling.

05:58It's not good. Right. Uh, and not shocking, uh, as somebody who wrote on July or was it June or July

06:05of 2021, when rates go up, this is all going to end, you know, it's, this is not builders are not

06:10the march of dimes. They are here to make money. And people go, well, cut prices, make it for you lose

06:19money that way. Right. It's, it's, it's, this is part of the problem when you have people who have

06:25never run a business in their life, start to give like business advice and go, listen, your job at

06:32Olive Garden doesn't qualify you as, you know, uh, uh, uh, a CEO of a home builder. But, um, in this

06:40context, it doesn't take much to just get things going because when mortgage rates just get down

06:46towards 6%, both times the builder's confidence picks up small builders confidence, right? We're

06:52not even talking about the big publicly traded. It picks up, you get something going here, but it's

06:58got to head towards six and stay there. And we're only talking about 65 to 75 basis points lower.

07:04It's not that far off, right? Mortgage spreads have gotten better this year. The volatility of

07:09mortgage rates have compressed very low. So that next stage, we're like so close. That's the

07:15frustrating part. That is the, such the frustrating part because the federal reserve doesn't make policy

07:22around housing, but their, their policy impacts housing more than anything. So you have this

07:27expanding economy, but you have this one sector that has just a black eye and I mean, a really,

07:33really big, ugly looking black eye. And you're just running around thinking, well, we're modestly

07:38restrictive. And here's this person with a black eye. Like, no, this is still here. So, uh, but it is,

07:44it is what it is. They do not work around the existing or new home sales market because there's been

07:50plenty of times where the, you know, we were housing starts to falling, permits are falling,

07:54jobs are being lost in construction. And they just go, well, the general economy, it's, it's a late

07:59labor trigger. So I do, I do cherish what Waller saying. Let's just not wait this time to the private

08:06sector. And he said, and he used the same exact lines I did. He said, the last jobs report, it's

08:12like half of his government jobs, right? The private sector jobs is not, you know, so, uh, I'd rather

08:18have him than, than anyone else. Let's talk about those construction jobs, uh, specifically,

08:25what level are they at? Like when you compare them in context? So this is the, like the, the,

08:32the answer to this question has been very complicated. Nobody understands why the builders

08:38aren't laying off people because they look at the data and they think why they should be firing people.

08:44Like a lot of people who want to see the U S get into recession, one group of people, guys, just

08:49one, um, they don't get it yet. And, and, and we've tried to, we've explained it in many articles

08:55and we've talked about this new home sales are still at 2019 levels. They are very elevated compared

09:02to the existing home sales market. The builders have a massive backlog, the biggest backlog in the

09:08history of America of homes that haven't started yet. It's not a lot. It's like 119, 117,000,

09:13whatever it is. It's not, it's not big in context terms to 147 million total housing units,

09:20but it's enough for the builders to go, Oh God, we just need 6% mortgage rates. We'd get things

09:25going. So they are keeping their, the, uh, the labor as, as elevated as possible because

09:31they've seen mortgage rates go down twice to 6%. And then the builder's confidence picks up

09:36the forward looking traffic data picks up. And that's how the builders operated for many decades.

09:42But now it's like, you know, you're seeing single family permits fall. Now the builders,

09:47the big publicly traded builders, which are not part of that index. I mean, the home builders

09:51confidence index is near COVID-19 lows, but it starts to get more expensive, right? Profit margin.

09:58I mean, imagine if the builders didn't have the profit margins this time, things would have been

10:02worse already. So here we are trying to hold everything at bay. And, uh, uh, that's why they

10:08job growth and residential construction workers are not like booming at all. And we have to remember

10:14a big portion of that is remodeling work. There's a lot of homes that are old that need a lot of

10:19remodeling work. So that's, that's keeping them going. But in terms of housing construction,

10:23like single family homes and multifamily apartments, we're at COVID-19 early recession levels now.

10:30So, uh, it's one of these things to where the data line hasn't broke. People don't understand,

10:35but if you explain it this way, if new home sales were below 2022 levels, single family permits would

10:43fall more single family starts. We're just quite not there yet. And it's just a very, it's, it's,

10:48it's the most complicated housing starts cycle ever, because you really have to break the data down

10:54and try to explain things that traditional. I mean, for two years now, people said, why aren't they

10:58laying off white? And then when you look at it that light, uh, they, they still keep their

11:02employer. That's why it's so frustrating. It's just 65 to 75 basis points lower and we can get

11:09this going, but no, it would change everything. It would change so much. We've seen that before.

11:15I think that we don't have to worry about home sales booming higher and prices going up 15 or 20.

11:21This is, this is where being soft really hurts. Right. And we say this because when we always bring

11:28this up, when mortgage rates get down to 6%, the fed freaks out. It's what I call the COVID-19 policy.

11:34If you suppress your people from buying homes, having sex, having kids moving, then you got,

11:40you suppress inflation, right? Except if you stay restrictive long enough, then you destroy the

11:46future production of housing. And then here we are again, right? So, um, where in the previous

11:51decade, we had low mortgage rates, uh, um, affordability was much better, but it was the

11:57weakest housing recovery ever. Cause there were so many, uh, uh, existing homes available for sale.

12:01The builders were at a complete disadvantage. That was my whole working theory last year,

12:05starting back from 2010. It was going to be the weakest housing. Here is a little bit different.

12:08New home sales are outperforming, right? People need shelter. They offer lower rates. Boy, it's a deal.

12:16Right. So, um, it's one of these things that it's totally frustrating to watch, but the federal

12:22reserve doesn't make policy around housing, right? Unless, unless jobs are being lost or foreclosed

12:27or something like that, they don't really work in that environment. Uh, uh, so, uh, we're here and

12:33we don't need much and it's not going to be like a booming housing market. So home sales aren't going

12:39to go back to 6 million anytime soon. Home prices aren't going to go up 15, 20% or anything like that,

12:45but it gets a, just a little bit of traction. You can get permits growing a little bit more

12:50and something workable than this. I think the interesting thing is that, um, just that context

12:57you provided about, like typically the existing home sales, that's where all the action is.

13:01And new home sales is, is such a tiny percentage. It's just because we've had this complete flip-flop

13:07in the last couple of years that the new home sales have become such a big deal, right? I mean,

13:12there's still a tiny number, but it's just that existing home sales have dropped so much.

13:17So existing home sales are roughly around 4 million. Uh, the last new home sales report is

13:23around 623,000. The other one was like four, 741. So just kind of average that out. If I took

13:30the equivalence of existing home sales and try to tag it to new home sales, new home sales would be

13:36under 300,000 today. We're already laying off probably half the single family workers at that

13:42point, you know? Uh, uh, so new home sales have outperformed because advantage, disadvantage,

13:48active inventory was really low here. The builders going, Oh my God, they can't give their buyers

13:53sub 6% rates, but we can. Oh, everyone come here. Brand new house. Look at that ugly 1965 carpet.

14:01You don't want that. Look at that wallpaper. Come here. Bells and whistles, four and a half,

14:06five and a half percent mortgage rates. Come on. And people go, uh, yes, please. You know,

14:11but the completed units of sale, which is really the key data line for the builders that is finally

14:16caught up to them to a level to where, if you look at the history of, uh, us economics, they permits

14:21are just dead. You know, they're not going to do it because there's too much supply there. So they're

14:26just like sitting there hoping that rates just go back a little bit lower so they can start building

14:31those homes and finishing them and selling them. And it's a complicated business, but, um, yeah,

14:36it's one of these things where we wrote that article a few days ago. The builders are in stress where

14:42the existing home sales market sales crash in 2020. We've been basically hovering here. Uh, and their

14:47inventory growing is a benefit to them because it makes housing more affordable in a sense that price

14:52growth is slowing down wages grow in those various two different sectors. Hopefully everyone can see

14:57this is why we have fight club rules. What are the fight club rules, Sarah Wheeler? You do not mix up

15:02the new home sales market and the existing home sales market. You don't cross the streams. It's,

15:06it's like ghostbusters. Okay. Don't do it. You don't cross the streets. It was funny because

15:11stock traders, again, guys, ladies and gentlemen, boys and girls, you do not get housing advice from

15:18middle-aged men podcast stock traders. They are the worst. They are simply the worst. And a lot of

15:24them, what they did is they looked at the new home sales. We still have clowns. And when I mean clowns,

15:30I'm talking about the most grotesque looking clowns in the world that are sitting there and saying

15:34existing home prices have been down for three years because they're looking at the census data

15:38for new homes and thinking that's existing. Oh God, there are some men who just need to read a book.

15:45In any case, they see the monthly supply for new homes. It's like eight, nine months. So they think

15:50that's millions of existing homes. Why? They never read a book. And when you don't read a book and burn

15:56them, you're not an educated person. I was like, that's not the existing home sales market. Yes,

16:00it is. No, it isn't. Show me the numbers of completed sales. They're like, what? You have no

16:04idea what I'm talking about. Why? You're a stock trader. You're a really bad stock trader too.

16:08And your podcast sucks. Go read the completed units of sale. And there you go. Look how many

16:14homes that is. They're like, oh my God, that's only like 75,000. Oh my God. Is that millions of

16:21homes? It like, it took me two years to get these people to realize monthly supply for new homes

16:27doesn't actually even mean completed units of sales ready to go, right? There's homes that are under

16:32construction that haven't even started construction yet. And it, ah, two years, two years to get grown

16:38asked men to realize how to read. Two different subjects, like two different existing homes

16:42inventories raw. It's open. There it is. Those are homes available for sale. Go in there, make an

16:48offer. There you go. The new home sales market is different. They have categories of construction,

16:52right? Haven't started yet in construction and then completed units. But man, that's why we stress

17:00reading. Even if you couldn't read, visually see the charts, right? So you can't be, if you're,

17:05if you're dubbing blind, then I get it. Okay. But then you could hear, if you can't hear probably

17:11out of luck, but come on people. So that's why we don't mix them up. It is really interesting.

17:16I think that the home sales thing in general, because if you think, oh, that's happening every

17:21month and you're saying that's completed, you get so much more than 4 million. I mean, that's why

17:25they'd have to know, like, these numbers don't add up.

17:31Sarah, men in this world, men do not like to read, right? Okay. So we try to do crayon charts

17:40and it's just, we've made some progress. Okay. The nerd tour, everything we've done,

17:47social media, we've made some progress, but you know, there, there, there, there are some people

17:52that are just born in after 1913 that just can't escape the reality that they live in a world where

17:59there's a federal reserve and they just can't. And these are the people I challenge and debate all

18:03the times. Lord have mercy. If I could get every single one of them live on camera, I will light

18:08them up. Every one of them if I could, but they won't. They're probably good on their part.

18:15Okay. So this weekend, um, which by the time this comes out already, it will be live the tracker.

18:21What do you, what should we look for? Yes. So finally we got the two weeks of crazy July the

18:26fourth data out of the system and then we could go back to normal. So we want to see, uh, mortgage

18:30rates have ticked up a little bit, uh, uh, from, uh, about a month ago. Um, but we want to see if we

18:36could go back to the stabilization before July the fourth happened. We had two weeks of stabilization

18:42in the data, meaning that inventory wasn't really growing, even though it's the seasonal time that it

18:47does grow. Uh, price cut percentages were kind of flattening out. Uh, the new listings data wasn't

18:53growing as much as it was. So there was some stabilization in that data point. We've got

18:58enough inventory growth this year to be a plus a plus, plus, plus, plus, plus. I love 2025 for the

19:04inventory growth. That's, that's not going to change. Uh, but we always want to teach supply and

19:08demand economics by the slope of the curve of our tracker data. What we believe is, is the most

19:14efficient and most functional way to look at live, fresh housing data. Uh, and all of you guys,

19:19if you wanted to, you go to Altos research, you could get a free zip code. You could, you could

19:24just, uh, understand what we're talking about more or the tracker data has it every weekend.

19:28So I just want to see if we get back to that or has this little, uh, move in rates higher, change that,

19:34uh, but we can get the July the fourth story out of there and then push forward out.

19:39That is exciting. Okay. Everybody check out the tracker. It's on housingwire.com. You just have to go to

19:43the housing market page. There it is every week. And you can look at the archives and see everything

19:47that we've done. Logan, thanks for keeping us up to date on all of this. Team Waller fed chairman

19:54Waller, Christopher Waller, go team Waller. Yes. Not anytime soon. Just as a shadow fed,

20:00we don't want, we don't want, I don't care. I I'll take him tomorrow as a shadow fed as long as I know

20:05it's him. Right. I just don't trust anyone else. Right. I know he's going to be legit. So, so we are,

20:11we are hashtag team Waller, uh, hashtag anybody, but Warsh, Warsh, what does it call? What do you

20:17say? How do you say it, Sarah? It's like wash only Warsh, like from Missouri. Okay. There we go.

20:22Missouri. Yes. Okay. So we know where you stand. We will see what happens. Thanks again, Logan.

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