Mohtashami: Stability in rates matters more than cuts for the housing market

? (?) 00:00.000

All right. So, you're smiling. What about home buyers? Should they be smiling? What direction is the home market going? We just kind of hit on the fact that mortgage is above 6% do you see them getting below 6% coming up in the new year?

Logan Mohtashami (Lead Analyst) 00:11.440

It's very hard for mortgage rates to go below 5.75% with Fed policy where it's at. So, unless the labor market breaks, jobless claims heads up, unemployment rate gets worse, this is as kind of the low level we're going to get. However, since late 2022, as long as mortgage rates

Logan Mohtashami (Lead Analyst) 00:27.360

just stay near 6%, we've seen home sales grow just a little bit. It's never going to be a booming housing market in terms of sales, but it's something you can work with. And unlike last year, last year at this time, mortgage rates are already at 7%. This year, it's different.

Logan Mohtashami (Lead Analyst) 00:41.120

Mortgage spreads have improved. We have a lot of rate cuts in the system. As long as rates could just stay near 6% and not shoot up again like it has in the past few years, we could get a little bit of sales growth in 2026. All right.

? (?) 00:52.840

So, you mentioned the Fed. We got the Fed minutes yesterday. Um, a lot of members saying that they they kind of see uh the rate should stay on hold for quite some time. So, straighten us out, because everybody talks about cutting rates and the housing markets and mortgages and

? (?) 01:05.200

the fact that they cut rates, we actually saw mortgages go to the upside. How big of an influence does the Fed have on housing rates, even though they have a, you know, they're cutting rates, but that generally has a bigger influence on the 2-year. So, just straighten You know

? (?) 01:17.200

this out, give

Logan Mohtashami (Lead Analyst) 01:18.800

us the real story. It's it's really when when the when the bond market thinks the economy's going through a recession, the 10-year yield goes low and mortgage rates follow with the 10-year yield. So, uh again, unemployment rate has been rising uh because of that the only reason

Logan Mohtashami (Lead Analyst) 01:30.920

mortgage rates are even here is because the unemployment rate is risen. So as long as the labor market is kind of soft, rates should stay here. Now, the X factor is if jobs starts improving, unemployment rate goes down, wage growth starts to pick up, I do believe rates will go

Logan Mohtashami (Lead Analyst) 01:46.000

up under this Federal Reserve uh uh uh mandate. However, with that said, we have a lot of rate cuts in the system. Mortgage spreads have improved. That's a really big deal for the housing market. We can explain

? (?) 01:56.840

that one, Morgan. You can't just throw that out. Why are you saying mortgage spreads have improved, and why is that so good?

Logan Mohtashami (Lead Analyst) 02:02.280

Mortgage spreads are the difference between the 10-year yield and 30-year mortgage rates. Back in 2023, it was over 3% and now we're about 2%. That's a 1% difference in mortgage rates. That's the big variable that's changed now compared to 2023 and we've improved from 2024. So,

Logan Mohtashami (Lead Analyst) 02:18.360

as long as the 10-year yield just stays around here, uh uh doesn't matter what Fed rates policy is anymore, we can keep mortgage rates near 6%, which wasn't the case in the past few years. 6% that mortgage rates could get sales to grow a little bit. That's been the model that's

Logan Mohtashami (Lead Analyst) 02:33.600

working the last few years. And now that mortgage spreads have improved a lot since 2023, that gives us a better backdrop for rates to stay lower for longer. All right.

? (?) 02:43.360

So you say inventory is expected to grow in 2026 and the the growth of pricing is expected to slow down. But talk to me about affordability. Those are great trends, but what about affordability? Um do you see any change in the affordability of housing or more just inventory

? (?) 02:57.560

coming on uh when it comes to new housing, which I I think would push prices down, right?

Logan Mohtashami (Lead Analyst) 03:02.000

Now, affordability has gone a little bit better cuz wage growth has outpaced home prices the last two years. I'm looking for that to be the case again in 2026. So, it's not going to be spectacular in any ways, but we get a little bit of improvement. Again, when you're working

Logan Mohtashami (Lead Analyst) 03:16.840

from the lowest levels of existing home sales ever really adjusting to the population, it doesn't take much to move the needle, but the key is as long as rates just stay near six and we have stability, right? Stability and rates not have these wild 1% moves like we've had in the

Logan Mohtashami (Lead Analyst) 03:31.360

past. You get a little bit of sales growth in 2026. We got a little bit of sales growth in 2025, so we could just keep moving with that trend. But if the labor market accelerates, wage growth picks up, unemployment rate goes down, with this Federal Reserve, they'll sound very

Logan Mohtashami (Lead Analyst) 03:46.080

hawkish because inflation is still 1% above target and rates should move up there. That would be a detriment to the housing market. But as is, we're going into the year with a little bit of demand growth, that should continue in 2026 as long as rates stay down here. 00000