Why aren’t mortgage rates dropping along with oil prices?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage rates and why they aren’t dropping along with oil prices.  Related to this episode:  Why mortgage rates haven’t followed oil prices by moving lower https://www.housingwire.com/articles/why-mortgage-rates-havent-followed-oil-prices-by-moving-lower/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  The Top 5:  Trump abruptly delays signing of 21st Century ROAD to Housing Act https://www.housingwire.com/articles/trump-housing-bill-signing/  Why mortgage rates haven’t followed oil prices by moving lower https://www.housingwire.com/articles/why-mortgage-rates-havent-followed-oil-prices-by-moving-lower/  HUD tests a new Operation Breakthrough for today’s housing crisis https://www.housingwire.com/articles/operation-breakthrough-hud-tech/  Fannie and Freddie’s new rules change the playbook for condo buyers, sellers and managers alike https://www.housingwire.com/articles/fannie-freddie-condo-rules/  Fannie Mae to expand title pilot program, Pulte says https://www.housingwire.com/articles/fannie-title-waiver-pilot/  Want more from Sarah? Don’t forget to subscribe! https://www.housingwire.com/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

00:09Welcome, everyone. My guest today is lead analyst Logan Modashami to talk about mortgage rates and

00:15why they aren't dropping along with oil prices. Before we dive in, here are the top five trending

00:20stories on housingmar.com. First, we have our article on Congress passes 21st century road

00:25to housing act sends bill to Trump, which is just a huge, huge story. That's followed by Logan's

00:31why mortgage rates haven't followed oil prices, our topic today. And then HUD tests new operation

00:37breakthrough for today's housing crisis. Finally, we have Fannie and Freddie's new rules change the

00:42playbook for condos, buyers, sellers, and managers, and Fannie to expand title program. Lots of policy

00:49changes in that top five. Now let's dive into mortgage rates. Logan, welcome back to the podcast.

00:54It is wonderful to be here, Sarah Wheeler. A lot, a lot of things to talk about today.

01:00So many things to talk about. I'm in DC and I met with a bunch of leaders yesterday,

01:05trade association leaders, some of the people from agencies, the road to housing act, everyone's

01:10super excited about and mortgage rates, which is what we're going to talk about today. Because it's,

01:16it's interesting to everyone that we we've had oil prices drop mortgage prices and mortgage rates

01:21haven't dropped along with them so much. You wrote an article about this. So let's dive in.

01:26So as we are talking here Wednesday morning, the 10-year yield is down a few basis points,

01:32about 443, 444, last time I checked. Oil prices kind of short-term peak last, I think it was June

01:413rd,

01:42it was about $95. And since that time, oil prices have been coming down. So for 21 days,

01:47we've seen oil prices fall and the 10-year yield hasn't been moving as much. And when we wrote the

01:54article in May 25th and in June 14th, we said, let's, if the conflict is over, kind of 446 to

02:00448

02:01is the base level. We're going to work off of that now because policy is restricted. So what I'm

02:06going to try to do today is kind of give a very, very short tutorial on what's going on with

02:11the 10-year

02:12yield and mortgage rates. And we always say, how do we talk about mortgage rates, Sarah?

02:17Sarah, it's the slow dance, right? It's a slow dance.

02:20I just planked. I was like, I don't know. How do we talk about mortgage rates?

02:23It's the slow dance between the 10-year yield and 30-year mortgage. So we're not,

02:26we're not bringing Shy or Jodeci or Usher or D'Angelo today. We are bringing Color Me Bad.

02:33Do you remember Color Me Bad?

02:36Vaguely.

02:37I, you know, I, I figure you're a Bruce Springsteen or a Belinda Carlisle fan.

02:41Thank you. Yes.

02:42Yes. By the way, I have a very good picture of Belinda Carlisle and I, we looked really good

02:47together.

02:48I have seen that picture. It's a good picture.

02:50But in any case, Color Me Bad is, think about the Federal Reserve. I'm gonna mess you up.

02:58So the Federal Reserve, while this conflict was moving along forward, went from two to three rate

03:08cuts to a rate hike and was very, very hawkish. So what has occurred is while this conflict ended,

03:17we had a Fed meeting and they were very, very, very hawkish. Now, Kevin Warsh could have done his

03:24dot plot if he wanted to and talked about a rate cut. I don't think he wants to put it

03:28out there

03:28that he would, you know, want a rate hike or a cut. You know, I think, you know, there's a

03:33lot of

03:33conspiracy things being said about why he did that. He doesn't want to get blamed for the rate hike or,

03:38you know, he's saving it up. But in any case, life comes at you fast. So the Fed was very,

03:45very hawkish. And now they have not made statements about the conflict ending. And you,

03:53if you go from a, I mean, it's really crazy to think about this. For the first six months of

03:59the

03:59year, we went from two to three rate hikes to now Bank of America talked about three rate hikes,

04:05which we wrote about. And there's like in 2026, this isn't like going out there, which

04:09none of nobody in the markets are forecasting whatsoever. There's no pricing mechanism to

04:14have three rate hikes into the system. So today's going to be one of these things or try to explain

04:19kind of what's going on. Okay. So let's talk about that because through all of this, your range that

04:24you talk about the 10-year yield should be in, it's held. You know, the conflict going up, going down,

04:32whatever, we're still in that range. So let's talk about that. So I don't believe in forecasting

04:38mortgage rates. I believe in ranges. For example, last year in 2025, same range for the 10-year yield,

04:42460 to 380. But I had 7.25 on the high end of mortgage rates because of the spreads. Spreads

04:49weren't back to normal and 5.75. I think the peak was 7.25 last year and near 6%. So

04:57for the most part,

04:58the range stuck with the mortgage rates and 10-year yield. But this year, it's very interesting. This

05:06year, the reason I had 460, 430 to 460 is that if inflation picked up, but the labor data picked

05:12up,

05:12the feds are going to go, oh, the labor's not breaking. We don't want to cut. So they have

05:17made it very clear that they are very hesitant to get to neutral policy in a very fast amount of

05:23time.

05:24And I believe them. So if the labor data picked up, they would start making up stuff. Oh, zero job

05:30creation is fine because we have no labor force. Whatever it is, they left a very, very, they left

05:36a great paper trail, a low bar to start to sound hawkish. So here we are. And what we have

05:44talked

05:44about on this podcast, if the conflict gets past March 21st, it's going to be a problem because all

05:51these Federal Reserve members were talking about, oh, the oil prices, oil prices, oil prices, rates,

05:56oil prices, we got to be hawkish. They went all hawkish. Nothing this week. No statements,

06:06no words, no leakage, no nothing about, oh, well, oil prices are back down. So the marketplace

06:14is basing off them being rate hike mode. So I think to me, it's like a lot of people just

06:21see oil and

06:22they think oil and the 10-year yield should move one-to-one. Not necessarily. And you and I have

06:27talked about this. We've brought this up in the podcast. Fed policy matters more. And a good

06:33example is 2011 to 2014. Oil prices were elevated for years. Go back and look at that chart. It's

06:39elevated much higher than where we are right now. Mortgage rates never got above 4.75.

06:45Why? Because policy was less restrictive. Wage growth was lower back then. Inflation was lower

06:51and nominal growth was lower. So don't put all your eggs into the oil basket on a one-to-one

06:59basis.

07:00The Fed has gone hawkish. And now we have people talking about multiple rate hikes, maybe even this

07:07year. So the market needs to lose this attitude, which it could change very quickly. You get two to

07:14three Fed governors coming out and go, okay, the worst case scenario is over for Fed rate hikes.

07:20We could maybe be neutral or stay the course and see where it goes with inflation. If they do that,

07:28that's very beneficial. But that to me is the main reason that oil prices have been falling for like

07:3321 days, but the 10-year yield hasn't been budging as much.

07:37I mean, early on in this conflict, you were trying to find the correlation at this point between oil

07:42prices and the 10-year yield and what that was going to do. Thankfully, right? It's not when

07:46they shot up, the 10-year yield did not shoot up, right? So on the way back down, I guess

07:50it was

07:52beneficial that it didn't shoot up. Now it's not dropping in the same fashion. And I think that

07:59that was something that you looked at very early on. It was like, what do oil traders think

08:03what's happening right now?

08:05I mean, to me, I mean, just think about oil trading and we do these videos on Instagram daily. Oil

08:12traders to me never believed in the escalation trade. They sold every single rally and technically

08:17this thing was heading lower. So that's a given. But early on in the conflict, the Federal Reserve

08:23was not in rate hike mode. So the 10-year yield took a little bit of time to start perking

08:29itself up,

08:30right? We had 431 level we talked about. So the conflict lasting, and this is the problem,

08:34the conflict lasted so long that the Federal Reserve had time to all go hawkish. Now, if there

08:42are genuine people, Austin Goolsby, Lori Logan, Beth Hammock, and Neil Kashkari, if you are authentic

08:50men and women of this country, you should come out and say, well, oil prices are down. So the worst

08:57case is over. They have not. And if they did, things could be different because then all of a

09:03sudden that 50-50 battle between the Fed governors on rate hikes and pausing or not doing anything

09:11starts to go away. Bank of America, I guarantee you, will turn around and change their three rate

09:17hike call within minutes. But for now, it's a vacuum. This happened very quickly. Over time,

09:26if you get more, less hawkish Federal Reserve members saying this, then everybody starts

09:32projecting rate hikes kind of to rein it back in. And that's the Fed policy. That's the 65 to 75

09:39%

09:39of where the 10-year yield could go is Fed policy. That is right now more important than oil prices.

09:46And hopefully that explains why oil prices have been falling for 21 days by the 10-year yield.

09:51The base level should be that 4.46 to 4 point. And then we just work it off of there.

09:56And here we are. This is where we are at with the 10-year yield and mortgage rates. And that's

10:00kind of how we should look about for the rest of the year going out because we're not that far

10:05away

10:06from kind of low sixes. It's not like mortgage rates are above 7%. Why? Who do we want to hug?

10:14Sarah?

10:14We want to hug a mortgage spread.

10:16We want to hug a mortgage spread because it's mortgage spreads that have kept rates

10:20below 6.64% for most of the year. We've had some brief times above it. And that's made a

10:26big

10:27difference with housing. Even today, purchase application data was still positive year over

10:31year. And we are now multiple weeks with rates near the yearly high. So it's confusing. I get it.

10:39A lot of people just thought one-to-one 10-year yield and oil prices doesn't necessarily work that way

10:44at times. But the Federal Reserve went from, a simple way to look at this, we went from two to

10:48three rate cuts to a rate hike. And now we have Wall Street firms talking about multiple rate hikes

10:54in 2026. So the narrative shifted, right? And a lot of that has to do with the labor data getting

11:00better, number one. Core inflation, core, not headline, not energy and food, but core inflation

11:05picked up stronger. The Fed just basically says, hey, listen, we're not cutting. And then all of a

11:11Okay. So this is my question, because when you think about oil prices going up and the

11:15inflation that that causes in all these other areas, right? If oil prices go up, everything's

11:21more expensive to move, to get there. And so I think that's my question is like, okay, oil prices

11:26are coming down. How long does it take for that sort of deflationary a little bit, right? To have an

11:34effect on the larger inflation picture?

11:36Well, you know, it's the midterms, because President Trump came out today and says, I'm

11:40taking the Department of Justice, and we're investigating oil companies or gas stations,

11:44because the prices are not coming down fast enough. So greed inflation is back on the menu,

11:50boys, you know, so it's the midterm. So you're going to get the standard, you know, everyone's

11:56greedy, they're keeping their prices up. So I think to me, it's the lower the oil prices go,

12:03you know, the better it is for diesel and food transportation and everything. But it's going

12:10to take a few months for headline inflation to account for it. You're going to have really easy

12:16comps in 2027. Like, you know, in 2027, we're going to have some really easy comps to show year

12:21over year growth and inflation being in check. It's Fed probably will wait more month to month stuff.

12:28But, but thankfully, hopefully, it's over. Because the worst case scenario is that this escalates

12:37past second week of June. Oddly enough, it's second week of June is when they signed everything. And

12:42then all of a sudden, you've got a whole mess of trouble. And it's, it's, it's not just here,

12:46it's around the world, especially in Iran, Iran was not getting money and stuff. So let's kind of

12:51move on. And then hopefully, what I'm hoping for is that the Federal Reserve hawkish people that use

12:58this conflict for their hawkish take, come out and give their examples, what what are they thinking

13:04now, that can change a lot of bond traders pricing. I think we saw some of that today,

13:11early this morning with Bonio's falling down just a little bit. But, but yeah, when when Wall Street

13:17starts going three rate hikes in 2026, everybody wants to get ahead of the curve. And just remember,

13:22they say these things, kind of get attention, and then they'll change it very quickly. And it'll be

13:28interesting to see what the hawks say, if they want to say, hey, listen, it really wasn't about oil,

13:33the core inflation is up and labor data is up, we still want to hike rates. Fine, let the marketplace

13:38know that. But you can't come out for months now, use that as an example, and then not say anything

13:45about it. And now that oil was like, I think, at one point, it's under $71 today.

13:52Things that things need to be said now, right? You can't talk all this way up until the point that

13:58all of a sudden, something positive happens, and you go zip it. You know, I was at the National

14:02Association of Homebuilders yesterday, a great group of folks, we were talking and, you know,

14:07we were talking about mortgage rates and the fact that like, they can deal, I mean, you've talked about

14:11how they are so, the homebuilders are very efficient sellers of homes. You know, they have such a long

14:16timeline. These people are experts at this. They like my March of Dimes line, right? I did actually

14:23bring that up. And they laughed when I said, yeah, you know, as Logan Motoshami says, you know,

14:27the homebuilders aren't the March of Dimes, they're here to make money, as we all are. And I think that,

14:32you know, one of the things they talked about with mortgage rates is like, for them, if mortgage rates,

14:37you know, go up or down, they have decades of figuring out how to do that. It's the uncertainty

14:43that is so difficult, especially for smaller builders. And for so many of the people in our

14:49industry, it's the uncertainty, it's the not knowing. So if you were going to give some certainty,

14:55I think, you know, the thing that you've had is that range of mortgage rates that is held all year

15:00long, despite all the craziness. You know, do you see it? Do you see anything there changing? Do you feel

15:06like we're about where we're going to be for the rest of the year? No, because, you know, when I,

15:10when I put those ranges and, you know, I incorporated them in my forecast in the last

15:15decade, you know, I'm just basically taking where Fed policy is and how the year is looking. It takes

15:21a lot to like change the range, like, you know, to actually come out and say, okay, so COVID was

15:29a good

15:29example. COVID happened. And I was like, okay, well, we're doing negative 21 basis points on the low end of

15:36the 10 year yield at 62 basis points, right? If we are above, this was the crazy thing back then.

15:40I said, if the 10 year yield is above 62 basis points, the recovery is on. That was the COVID

15:45-19

15:45recovery. So I will do changes. If there's something material, it takes something material,

15:50like 2022, the Fed went guns of Navarro, rake hike crazy, you know, that was still such a crazy year.

15:592022 was the craziest year ever in real estate, like real estate economics. I mean, that we went

16:06from here to here to where the IMF was going to get Ethan Hunt to get the Fed to stop

16:13hiking rates

16:14because the dollar was too strong. Remember that hole or like, you know, we're like, okay, okay.

16:18The things are, if the IMF is complaining, we're in trouble, but it looks, everything looks right

16:26considering what's going on. Now, if, if oil had been say 200, $250 and the Fed just went, we have

16:34to,

16:34we have to crush the economy to not let oil prices and inflation get a hand. That's different. That

16:39hasn't happened yet. So for the most part, we stayed in the range. I think we, uh, the high of

16:45this year was 4.68, but the forecast ranges for it's supposed to stay in there for the most of

16:51the

16:51year. I don't care about it going down a little bit or going up a little bit for a short

16:55time,

16:55but it can't go above there or under for a long period of time. So for right now, everything looks

17:00the same. The mortgage spread story though, is the salvation. So next time you talk to the

17:06homebuilders, you tell every homebuilder in America to hug a mortgage spread because for them, it makes

17:12their job a little bit easier because the volatility compresses, right? Mortgage spreads, compressing

17:17lower compresses volatility, and it keeps rates in a tighter range. Not like 2023, where we went from

17:256% to 8%. People forget that. We went from 6% mortgage rates to 8% mortgage rates in

17:312023.

17:31I don't think anybody forgets that. I think it's like they're starting from that.

17:35That was an aggressive move, right? And that was mostly the spreads. And that was mostly because the

17:40Silicon Valley banking crisis happened. The spreads were getting better. The spreads were actually

17:45getting better in 2020. And then the Fed hiked after the Silicon. Sarah, to this day, I still don't get

17:51that. But in any case, hopefully now we can explain why mortgage rates haven't come down as much.

17:57The Fed policy has shifted. So you need Fed governors to start saying, okay, the worst is over.

18:05We might wait it out. Or they're going to say, listen, we don't care that oil prices are down.

18:10At least say that and be honest. We don't care about it. We never cared about oil prices. We just

18:15use it

18:15as an example. And core inflation has taken off, but the labor data is not breaking. So Logan's right.

18:20We need the labor data break until we take that next step. And we're not going to go there.

18:25Yeah. Don't see them saying Logan's right. But we will keep an eye on it. Logan, thank you so much

18:30for being on. Also, you wrote a great article about this. So listeners, you should go listen to it,

18:34read it, because it kind of delves in. And of course, it has a bunch of charts.

18:38It has a slow dance chart, right? So don't think Usher, don't think of Jodeci, but think of color me

18:45bad.

18:46The Federal Reserve is, I'm going to mess you up. So they just went hawkish. They went hawkman,

18:53Buck Rogers, hawkman. That's what it is. The Fed went Buck Rogers, hawkman the last few years.

18:59Well, you reached into the archives for that one. That's pretty good. All right, Logan, thanks as always.

19:16You

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