- 4 days ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about whether the Federal Reserve should care about home prices and make policy accordingly.
Related to this episode:
Home prices hit all-time high, but more inventory cools price growth |
https://www.housingwire.com/articles/home-prices-hit-all-time-high-but-more-inventory-cools-price-growth/
Enjoy the episode!
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.
Related to this episode:
Home prices hit all-time high, but more inventory cools price growth |
https://www.housingwire.com/articles/home-prices-hit-all-time-high-but-more-inventory-cools-price-growth/
Enjoy the episode!
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.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about whether
00:11the Federal Reserve should care about home prices and make policy accordingly. It's a
00:17very timely topic, so let's dive in. Logan, welcome back to the podcast.
00:21It is wonderful to be here. It's Thursday, so this is the day where Trump is going to,
00:29I think, meet with Powell at the renovation place, so that should be some popcorn material too.
00:38Again, Fed meeting is next week. We've got a lot of drama, but today's topic, there are some Wall
00:46Street players that are starting to say, well, home price growth is cooling down. There are people
00:54that need to refinance, and the Fed is keeping rates too high. If home prices start to fall,
01:04people will pull back on spending because of the wealth effect. I didn't agree with that at all.
01:12I said the Fed really should not care if home prices are falling on the existing home sales side,
01:19unless the economic data around it was getting weaker. I mean, deflation is rare in America post-World
01:27War II. I mean, nominal home prices falling is rare outside of World War II. But the two times that we
01:35had the Case-Shiller Index go negative, of course, 2008 was an anomaly event. But 1990, 0.7% decline.
01:441991, 0.2% decline. But I think that conversation, I'm willing to have that the Fed should kind of
01:53ignore home prices falling if the economic data around it is still doing well.
02:00Let's talk about that because you have definitely called out the Fed and said, hey, they don't care
02:04about housing. And at different points, we've had a headline that says, will the Fed start caring
02:09about housing now. So what part of housing should the Fed be paying attention to? And why is this
02:15different? So obviously, they don't care about the existing home sales market because they say
02:22nothing, right? Existing home sales had the fastest home sale crash in history in 2022. I mean,
02:29literally the second half was just a waterfall dive. It has been here at the calendar year,
02:35third calendar year of the lowest home sales ever recorded history and nothing because how they look
02:42at it on the economic side, it's a transfer of commission industry, right? So wages are down,
02:50incomes are down, commission checks are down. On the overall side, they don't really put too much
02:57weight into the economic factor of it. But the new home sales sector, residential construction,
03:03new home sales data came out today, three negative revisions, misestimates, but the completed units
03:12of sale for that sector has now prevented housing permits and starts from growing. So housing permits and
03:17starts growing is a variable there. But to me, if residential construction workers, especially now,
03:28now that private payrolls have slowed down, if they start losing jobs, then that can push the
03:33jobless claims data, which jobless claims data came out today. Fine. Excellent. We're, we're near
03:38back, back near 210,000. Again, continuing claims are elevated, shows you the, the, the, the labor market
03:46is getting softer. But, but for me, the federal reserve is a, listen, we're not going to budge until
03:51we see the labor market break and jobless claims are low. So the new home sales sector has a little bit
03:56more merit because if they're cutting prices and their profit margins are falling down and they can't grow
04:02sales, those jobs will fall into the residential factor. And then there's specialty trade,
04:08uh, uh, that data line, that labor data line started to roll over. That makes sense. But the existing
04:15home sales market, you know, we have places in the, in, in the U S where they're, they're not anywhere
04:22close to the peak of where they were in 2022. And they're still functioning economies based on the
04:27Fed's dual mandate. So I'm taking the other side on this argument that, you know, if home prices fell
04:36like 2.1% nationally, is that really good on like, you know, is the wealth effect where you have like
04:44$36 trillion of nested equity out there? Is that going to really like, you know, pull the strings or is
04:50policy too restrictive? That consumption starts to go down and a big ticket item purchases go down,
04:57or capital investment into, you know, think rates are too high for people to want to invest. We're
05:03not there. So I don't think the Fed should look at that, how some people are talking about it right
05:09now. They're really trying, uh, there's a lot of people really pushing on the, on the rate thing
05:14because Trump is doing it. It's funny. I see this, you know, I'm not a political economic theory guy.
05:19Cause I always say, what do we always talk about? I see really smart people get dumb very fast because
05:24they get into the political rise. And I've seen people who are like screaming that the Fed should
05:29have been raising rates and keeping rates high. And all of a sudden, no, the Fed should do massive
05:33aggressive rate cuts. And I just don't want to be that kind of jackass, you know, that all of a sudden
05:39my guy's in power that I'm going to turn my principles all the way around in economic theory
05:44because of that. And I just, I just, just like shoot me. If I become, I always tell people,
05:48if I ever turned to one of these block me, don't ever listen to me. Don't, don't look at my
05:53Instagram. Don't I, I, I've become what I've despised the most. But in this case, I would make
05:58a stand that as long as the economic data is firm and labor is holding up, the Fed probably doesn't
06:04care or nor should they care. Um, deflationary aspects and the negative consequences of that.
06:11And if, if consumption starts to go down and jobs are risk, that's a whole different thing,
06:16but we're sitting here. It's all, it's almost August, 2025. Home prices just hit an all time
06:22high. Hopefully now people can understand why it's, it's, it's like really hard to have nominal
06:28home prices fall, uh, nationally, but also these big mega huge national price crash declines,
06:35uh, uh, forecasted for many, many years just haven't happened even with three years of the lowest sales
06:42ever recorded, uh, uh, in history when you adjusted to the workforce.
06:47I think you would just say, you just don't want the Fed to be old and slow.
06:51Like they don't need to change their entire way. They do things. They just need to,
06:55to not be old and slow.
06:57My, my approach has always been the same since 2022. I have no problem with the let's mirror
07:05the Fed funds rate with three, six, 12 month core PCE. I have no problems with that. That was,
07:11I was completely fine. They changed the, the, the ball game because of global pandemics,
07:17very inflationary. And then the disinflation happens. Now we've already done a soft landing
07:22because the disinflation already occurred in the labor market is, is stayed intact. What's happening
07:28right now has nothing to do with the soft landing. That discussion ended, uh, last year. We don't sit
07:33here and keep on talking about a soft landing that that's over. The economic cycles don't
07:38work for the last a hundred years because of a, of a soft landing theory. Uh, um, the Fed funds rate
07:45doesn't mortgage rates don't need to be up here. It's not going to change anything if they just go
07:50down to six. Right. And that's what you, like I always said, the, we have a, we have a, we have an
07:57economy where private payrolls are slowing down and we have one sector, just one sector with
08:03a black eye, a broken nose and missing teeth. And we're just showing itself. And it's like,
08:09they're like, uh, uh, cause I know they're afraid, right? I mean, the whole, the whole concept of
08:15people buying homes, having sex. One of the reasons why the Russians hate us, the Iranians
08:20hate us, the Chinese hate us, the anti-Central Bank people hate us. People buying homes, having
08:24sex, getting 30 year fixed mortgages, fixed debt costs, rising wages. This is one of the huge
08:30advantages post-World War II in America. Right. And if you, they believe you keep rates elevated,
08:36people are going to like the only wet fantasy these guys had was 2008 because they thought
08:40it was lower rates to hire us. No, it was a credit boom, credit bus, exotic loan debt structures.
08:44Here's not the case. So in this case, you don't need to be that restrictive. You could get down to
08:51neutral faster. That's completely different than what Trump wants. Trump's wants emergency rate cuts
08:56because interest payments are going down. You know, the deficit data goes better. So there's a
09:02whole different concept, uh, uh, around here, but we go back to the Trinity discussion with that,
09:08that Trump believes he could win this if he has lower energy, uh, prices, uh, lower mortgage rates,
09:15uh, uh, out there. And that those two together would offset any kind of increase in goods purchase,
09:22you know, goods prices, when the tariffs start to come in, uh, and they're always going to be on,
09:27uh, uh, a higher tax rate. Somebody has to pay the piper here, but they think as long as consumers
09:33consume a good, who cares that they could win this argument before the midterms happen. So that that's
09:39why they're really trying to push down rates. That's the, uh, Trinity lower dollar, lower energy
09:44prices and lower rates. Two of the three have been had just the third one hasn't. And we're only
09:50talking like getting to six, we're like 55 to 75 basis points away. And you can get this to work.
09:57It's just, that's, that's the frustrating part that, that they just, that, that, that is just
10:04holding things at bay. And now it's just going to be a popcorn show with, uh, Trump and Powell and,
10:11and, and a lot of conservative types who are all of a sudden big rate cutters, man. Ooh,
10:17they are just, these are deep rate cuts that they want down to, you know, uh, one and a half,
10:231%, something to that nature, which is, which is something they, they would not have backed in,
10:28you know, uh, a year ago or two years ago. What would happen? I mean, I don't think there's any
10:35chance that, that Trump can get those kinds of rate cuts, like 3%, things like that. I mean,
10:40there's just no way to do that right now. Um, unless he gets someone in there besides Powell,
10:45which, but it, don't you feel like, like everything else that would happen if that did
10:49happen, it would just destabilize other things. Right. So it's like in the net net,
10:54I don't think we get what we want. If that happens, you know, there, there's two ways of
11:00thinking of this. Usually the fed plays catch up with the bond market, not the fed cuts rates
11:07massively in the bond market has to follow. I mean, with COVID, we all knew what was happening.
11:11This was a huge deflationary event. The 10 year yield, God, it was a March 9th, 2020 was 0.32%.
11:19You remember that? That's that day. I remember that day. Cause I just, I tweeted out. I was like,
11:24Oh boy, we're about to have a mortgage market meltdown. You know, like the whole system was
11:30not designed for like a 90% ratio or EPO sector was a boom. You're just going to get that. So, um,
11:37we don't have cycles that work that way. You don't have like, let's fire the fed. Let's put somebody
11:43in there. Let's fire all the regional fed and let's cut, you know, 3% rates to, uh, below where
11:50inflation is. That's extremely accommodative policy. Uh, uh, it would be a lovely test case. I tell you
11:57this, I, the nerd, the nerd in me would be like, what would the bond market do? Some people say that
12:04the 10 year yield would go up and mortgage rates would go up. Some people would say that
12:07eventually mortgage rates will go down to 4% or something like that. In that situation that you
12:12have to deal with the consequences of that. In any case, uh, it would be a great test case study to
12:18fire, not only probably the federal reserve, but regional fed presidents put, Oh, Turkey does stuff
12:23like this. Didn't end well for them or a much different country than, than what Turkey is. So it's
12:29just, there's one thing if you want to talk down the federal reserve and try to get neutral policy,
12:34but he's not talking about neutral policy. He's like saying, we're going to save a lot of money
12:38in the deficits. And we brought this up like well before, like watch the deficit discussion
12:44because the net interest costs will go down. And then a lot of conservatives say, Hey, listen,
12:48we go into recession and we're doing this on purpose. Cause we have to refinance our debt.
12:51You know, that wasn't, that was, they've made up a really good, they have like this summer camp
12:55of lies on the internet where all the groups working together. And then all of a sudden they
12:59stopped talking about it. Like that wasn't a thing that that's very amusing to me, but
13:03I, I, you know, it would be a good test case of something like, I don't believe that's going
13:09to happen. I don't think Bessage would actually kind of allow Trump to go that wild into there.
13:18And of course the mother marketplace corrects everyone. I mean, just the 10 year yields getting
13:23back up to four 60 made the Fed, you know, made Bessage and then come into the white house and go,
13:29Hey, Hey, delay the tariffs out. This isn't working.
13:32Okay. So, you know, talking about things that maybe can be controlled or, or, or there's
13:37something that, you know, Trump and his administration can do. Have we seen any results
13:43from trade deals? Have we seen trade deals and, and any results there for mortgage rates?
13:48You know, to me, you're going to need a lot of trade deals to finally happen, get signed.
13:57And, you know, where the federal reserve can actually set, okay, these are the percentages.
14:01Now, obviously Godzilla tariffs weren't going to work, right? That the markets just threw that up
14:07in a second. And the inflation expectations, especially like the Atlanta fed has a inflation
14:14expectation from businesses. And when Godzilla tariffs were there, that thing just went,
14:19you know, vertical that has come down a lot. You know, we're not back to pre Godzilla tariffs,
14:25but we're heading that way. So when the federal reserve starts to say, okay, these things weren't
14:31as bad as Godzilla tariffs, but they're not as good. Okay. Maybe we, we have a light at the end of
14:37the tunnel, then they could start hawking a little bit more dovish and, you know, the bond market and
14:43everybody would, would adjust to that because where, where the 10 year yield is and where mortgage
14:48spreads are, it looks perfectly fine to me, like 435 to 470 on the 10 year yield. You know, as long
14:55as the labor market isn't breaking or economic data is getting terrible, that looks fine. So today,
15:01like this morning, jobless claims came out, was really good. Bond yields went up three or four basis
15:07points. Other economic data came out, bond yields fell three or four basis points. So we're just
15:12hovering around here, which, which would make sense. But let's just say that all the trade deals are
15:16done. They're all signed. Then the Fed presidents go, okay, we have a little bit more clarity on where
15:23we're going. Then, you know, you could just slowly move that Fed funds rate, you know, guide the market
15:29down and the bond market feels a little bit more comfortable. And we're, we're talking about, you
15:34know, the calendar year of 2025. We're not talking about long-term Fed funds pricing down to 27,
15:40like markets don't really care about, nor should anyone else. You know, it's what's happening now.
15:46So more clarity is a positive, but clearly Godzilla tariffs, that wasn't working. So you get more deals
15:55signed, you get something with China, you get something with the EU, Mexico and Canada are big
16:00trading partners. And then we could kind of move forward with that. So it is, it is a positive
16:06because the Fed has the question marks, but it is a positive for me to see the Atlanta Fed inflation
16:13expectation data, which look, focuses on businesses, that things start to come back down because there'll
16:20be less pressure on them on that side. And again, all we are talking about, we're not talking about
16:27Trump wants, just getting down closer to neutral policy where you could get that 10-year yield easily
16:33down to 4%. And with mortgage spreads where they are, if it gets a little bit better, you don't
16:38need a sub 4% even to get near 6% rates. And then, you know, you could take it from there, but the data
16:46in the past, things work a little bit better in that front.
16:50So you mentioned jobless claims today, you know, and when you say they're good, you mean like,
16:57so if you're in, if you're in housing, of course you don't want people to lose their jobs,
17:00but you do want rates to come down if they could. So when you say jobless claims were good,
17:04good for you.
17:05Jobless claims are good. They're good, but you know, they're, they're not having the impact.
17:11Good jobless claims data isn't pushing the 10-year yield, like up to 5% or anything like that anymore.
17:17You know, we're, we're in a much different mindset. So, um, the continuing claims, which is a second
17:23version component of jobless claims that still is elevated. Remember labor markets getting soft.
17:28Again, all of us would be having a different conversation if government jobs actually lost
17:33jobs instead of, it's so funny to me that this month where the whole much is so much of this
17:38is still based off of that one job support where government really saved it. So, um, in this,
17:44in this context, jobless claims fine. You don't need, you don't need the labor market to break,
17:49to get the 10-year yield. Obviously this has happened a few times now. Uh, but the markets,
17:54if you want to stay lower for a longer, the fed funds rate has to come down and the, the market
18:00has to believe that we're getting toward neutral policy, then you could get, you know, near 6%
18:05rate. So, uh, again, I'm not, I'm never going to be that person that says I'm rooting for jobless
18:11claims data to be bad, you know? So as soon as that, as soon as that report came out, I tweeted the
18:18chart out there. And as I take that doomers American flag with a muscle, you know, not yet,
18:24you know? So, uh, and then hopefully by now everyone's listening, hopefully by now,
18:30whoever you were listening to do for the last few years that were adamant about the impending
18:35recession any day now, you know, with this chart and that chart and people take like challenger charts
18:41and they show this and no, no, there are, there are certain data lines that traditionally have to
18:47break or break to certain levels before we can go there. And we've made that stance in 2022. We said
18:53jobless claims have to head up toward 323,000 on the four week moving average, not the headline
18:59because the headlines, you have these seasonal spikes and moves ups higher, moves up lower, these
19:05waves that look perfectly normal and that we haven't had that labor market breaking. So, uh, residential
19:11construction workers, specialty trade can suck. If you lose that sector, uh, then that jobless claims
19:17data can shoot up. But, uh, the new home sales report today for, for what it's worth, uh, we've been
19:23in a sales range really since 2018. You take the COVID-19 bump up in sales and then the 2022 crash in
19:30sales out of the day, we're pretty much just stuck in a range out there. And again, the builders have a
19:36lot of homes that have not started and they're just like, okay, we just need six, man. We just, we could get
19:42things going. So they're holding onto that labor, uh, out there. And, uh, so far there hasn't been any like
19:50mass reports of projects not being able to be done because of ice or anything like that. So, uh, we'll take
19:57every report in again, housing starts, new home sales, very critical to economic cycle work, but, uh, uh, as bad as the new
20:05home sales is, it hasn't started crashing below the 2022 levels. If that, if that was the case,
20:11that's a whole different subject, you know, but it's still kind of held onto this range for the last,
20:16uh, uh, a few years. Okay. So next week jobs week, right? Fed week jobs week. Oh my, oh my crazy.
20:28That is, uh, that's, that's going to be true. You know, again, uh, if, if government jobs were lost
20:37in the last report, I think we'd all have a different conversation. So, uh, we kind of want
20:42to see what, what happens. We want to keep an eye on private payroll data, uh, uh, on that government
20:48jobs can't bail out the BLS report, uh, you know, uh, every month. I wouldn't think so. Uh, yeah,
20:54it's just, yeah, it is. You can't, you can't hire that many state people. I can't, again,
20:58I just, that, that was such a hilarious report. Um, but you know, the fed, you know, the fed,
21:04of course the fed isn't cutting rates. You're going to get some, I'm sure Christopher Waller
21:08is going to dissent and say he wants a rate cut. Maybe Bowman does the same thing. The Q and A's
21:13are going to be, but, and you know, again, the whole thing, labor over inflation now, hopefully now
21:17that, you know, the growth rate of inflation fell so much, but mortgage rates didn't, the labor
21:21market really runs a show. So of course all jobs a week are going to be very, uh, uh, uh, uh, key,
21:27but you can have clearly, you can have low jobless claims and the growth rate of, uh, of payroll
21:34slow down. You know, the one thing, you know, what we've talked about going into this year is labor
21:39force growth with less immigration out there. The labor force growth isn't really picking up anymore.
21:45And again, it just means the unemployment rate can stay lower for a longer period of time. If less
21:50people are looking for work. So that's something to keep an eye on, uh, uh, for the rest of the year.
21:55And even for 2026, that you really need demand shocks and things to, to break, to get that
22:01unemployment rate higher, but you can have this like slowdowns in, in payrolls, uh, uh, and
22:07have it be an issue, but not have the unemployment rate take off as much as people think.
22:14Logan, we are out of time. Thank you so much. There is so much going on and who even knows,
22:19because all that stuff with, uh, Trump and Powell is going to happen after this podcast. So good
22:25thing you're on tomorrow too. Get your popcorn ready. Pop, pop, pop, popcorn, get it out. And the
22:32next, the next, God, next eight, nine days, big time popcorn. I don't really eat popcorn. I don't
22:38know why I say that. Oh my gosh. I love popcorn. I eat it all the time. Oh man. No, I don't eat fries
22:44either. So you're just, you're just not, no, it's, uh, I, I went and saw a Superman, the movie
22:52and I was, I was trying to get, you know, stuff to eat. And I was like, wow, I don't eat any of
22:56these things anymore. I'm not a, you know, like a teenager. I used to be popcorn, Skittles, M&Ms,
23:01you know, Cokes. And I'm like, I'll take a chicken sandwich. They're like, what? For a movie?
23:08Hey, when you get, when you get to be almost 50, things change. You can't eat like when you were
23:13a teenager. You are coming up on a birthday. That'll be 50 soon. The F5 vote chart. Daddy made
23:19it. That is wild. Uh, still a baby. Okay. We'll talk to you tomorrow. Thank you so much, Logan.
23:25Bye.
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