Logan Mohtashami on his 2022 forecast
There are lots of economic uncertainties as we head into 2022. Fed tapering, mortgage rates, housing inventory and homebuilding are all top of mind for those in mortgage and real estate. In this episode of HousingWire Daily, HousingWire Editor in Chief Sarah Wheeler interviews Lead Analyst Logan Mohtashami on his 2022 forecast, discussing what we can expect over the next year and what has surprised him most as he looks at the data from last year.
Mohtashami is one of the few experts predicting mortgage rates could actually go lower in 2022 based on the 10-year yield. Here is a small preview of the interview, which has been lightly edited for length and clarity:
Sarah Wheeler: Let’s talk about your mortgage rate range on the high end and the low end. You’ve talked about the fact that they [mortgage rates] could even get into the 2s…
Logan Mohtashami: So there are a lot of factors that can actually send bond yields lower next year. And if that happens, we’re going to have mortgages — mortgage rates — under 3%. And we’re going into the spring season with inventory near all-time lows, and then mortgage rates this low again. So, I think that’s the main thing I want to talk about in terms of the 10-year yield. Until that level cracks, we don’t talk about a 4% mortgage, right? Even this year, with all the talk about growth, inflation, and the Fed, the 10-year yield is exactly where it should be. So, kind of think about mortgage rates in ranges, not targeting a nominal mortgage rate level.
And in the article, I’ve showcased what I did in the previous expansion and you can see that that held in check, and expect the same. And we also go over all the different variables of why it would be difficult for mortgage rates to go over 4% and the factors on how you would even get mortgage rates over 4% in this environment.
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Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:
Sarah Wheeler: Welcome, everyone. We’ve got a really special edition of “The Rundown” podcast, which is part of our “HousingWire Daily” podcast, here with Logan Mohtashami and his much anticipated 2022 housing forecast. Logan, welcome.
Logan Mohtashami: It is great to be here.
Sarah Wheeler: Great to have you. We know that people have been asking you for a couple of weeks. Our listeners are very interested in your forecast for the next year. And, boy, we have had a lot of economic news. So, it’s already published on housingwire.com. So, people can go look at it there. In fact, I made it really easy. I titled it “Logan Mohtashami 2022 Housing Forecast.” So, there you go. They can go and find it really easy. But let’s dive in because it was… I know it started out being really long, you cut it down, we edited it together. So, it covers a whole spectrum of things. The foundation for your forecast is your work on the 10-year yield. So, let’s talk about that first.
Logan Mohtashami: Yes. Like for everything I do, everything has to have economic models, and the 10-year yield has been such a big focus of mine over the years. And, again, mortgage rate targeting I’ve never believed to be a more efficient way of talking about economic cycles. So, naturally, what I wanted to do is explain to people that we can have mortgage rates under 3% next year, and it would look perfectly normal. I think the confusion has been that because inflation, the rate of growth of inflation is hot, the economic data is hot, the Federal Reserve is talking about tapering, rate Fed rate hikes, and naturally, everyone has assumed that this means mortgage rates have to go higher. If you follow technical basis work on the 10-year yield, that’s how I get these forecasts going along with where mortgage rates should be. So, mortgage rates can be under 3%. And I just wanna add right here, because this is something we’ve talked about on HousingWire all year, tapering does not mean mortgage rates and bond yields have to go higher. In fact, every single time this has occurred in the previous expansion, whatever QE1 or 2 or QE3 ended, bond yields and mortgage rates have gone down. And even just after the recent Federal Reserve meetings, the 10-year yield is down again, right? In that range of 1.33 to 1.6 on the 10-year yield that we talked about all the way back to April 7th, it’s holding, and it looks perfectly right. So, don’t fall, or I’m not saying don’t fall, but don’t put all your eggs in the basket that mortgage rates have to go higher. This is why in the summer of 2020, I talked about that 1.94 level on the 10-year yield, that is gonna be a tough one to crack. And we’re almost done with 2021, best growth, hottest inflationary data, Fed rate hikes tapering. The 10-year yield is below 143.
Sarah Wheeler: So, let’s talk about your mortgage rate range on the high end and the low end. You’ve talked about the fact that they could even get into the two. So, tell us what your ranges are.
Logan Mohtashami: Yeah. So, if I’m sticking to my 10-year yield forecasts, which I’ve always done in previous expansions, 0.62% on the bottom end, 1.94%. It’s the same thing, 2.375%, 2.5% on the low-end range. And then the upper-end range would be 3.375% to 3.625%. So, that range where we are right now currently at below kind of 1% and 4%. We’re kind of in the 3% area. So, we’re kind of in the middle of it. So, there’s a lot of factors which can actually send bond yields lower next year. And if that happens, we’re gonna have mortgage rates under 3%. And we’re going into the spring season with inventory near all-time lows and, again, mortgage rates this low again. So, I think that’s the main thing I wanna talk about in terms of the 10-year yield. Until that level cracks, we don’t talk about a 4% mortgage, right?
And it’s in 2019 and 2020 and 2021. That’s a hard one to break even this year with all the talk about growth, inflation and the Fed, 10-year yield is exactly where it should be. So, kind of think about mortgage rates in ranges, not targeting a nominal mortgage rate level. And this gives you some perspectives. And in the article, I’ve kind of showcased what I did in the previous expansion. And you can see that held it in check, and expect the same, and we go over all the different variables of why it would be difficult for mortgage rates to go over 4% or even the factors on how do you even get mortgage rates over 4% in this environment.
Sarah Wheeler: Yeah, I know. It was a great deep dive. And I recommend that highlight was very informative. And this is a different take than many economists. I mean, we’ve heard that 4% mortgage range from a lot of people. And I think it’s just because it feels intuitive like, you know, of course, they have to go higher, of course, we’ve got inflation,
Logan Mohtashami: Four decades of targeting nominal higher mortgage rates without the perspective of a 10-year yield has been an ineffective way for people to talk about housing and mortgage rates. That’s basically how I say it. And this is just a pure technical basis call on a four-decade trend that’s been there and evident. And I think it’s easier for people just to say rates have to go higher because they’ve been doing it for many years. I think, for me, the difficulty is in 2018 when everyone thought mortgage rates are trying to convince people that technical matters on the bond yield forecasting. And we’re having it again, right? We’re here. We’re witnessing. This was supposed to be the year of mortgage rates skyrocketing. This is it. We’re not gonna get hotter economic growth or even hotter rate of growth of inflation just because we’re working from a higher base, and look what the 10-year yield. It did exactly what it should do because the technical people had been winning this battle for four decades. You kind of want to jump on that train, not the other one.
Sarah Wheeler: Well, let’s talk a little bit, you know, considering where mortgage rates are right now, right, where it’s December 20th, where we are right now and where you see them going in 2022, then that has an effect on existing home sales, which is another part of your forecast.
Logan Mohtashami: My concern for rates is that in the previous expansion when mortgage rates got really about 4.5%, housing cooled down, right? Demand cooled down. It never created a housing crash, but sales rate of growth gets hit. And the problem is that inventory levels are at all-time lows. This is different than what we saw from 2008 to 2019. So, my work is always separated in two, so years 2020 to 2024. The key is, you know, if economics is demographics and productivity, housing economics is demographics and mortgage rates. So, the demographics are there, right? All this talk about population growth falling for many years, guess what? More Americans are buying homes in 2020 to 2021 than any period from 2008 to 2019. That looks normal.
So, if mortgage rates stay low, the demographic demand for me is what I term replacement buyers. I’m not a housing sales boom or a credit boom person. In fact, my sales ranges might not even have any growth in sales, but it’s at a very high-level compared to the previous expansion. This is why I’ve always talked about if total home sales, new and existing homes, are above 6.2 million, I look at that as a beat because I’m not a credit boom person. Right? But the replacement buyers for 2022, because I originally thought years 2022 to 2023 were gonna be the sweet spot years ever in history. So, the demographics are there, rates are lows, so demand should be stable.
So, existing home sales ranges are a little bit under than what I talked about this year that 5.84 million and 6.2 million were a little bit underneath there, but that keeps demand stable and above pre-cycle high. So, expect that because the demographics are there, right? And unless the 10-year yield gets about 1.94%, rates are just simply low to hit the marginal homebuyer. And that’s what we saw in 2013, ’14. That’s what we saw in 2018 and ’19. A higher mortgage rates with duration. And the key is duration. We’re not talking about a one spike and just coming right back down. The rate of growth of home sales cools, especially in the new home sales market. But, again, we’re talking about 4.5% to 5% mortgage rates. We’re still at 3%. So, demand should be stable again. And that 6.2 million level between new and existing homes should stick once again because demographics mortgage rates are at the best levels we’ve ever seen.
Sarah Wheeler: So, we’ve got the demand. Of course, the problem is the supply, right? So, why don’t you talk a little bit about new home sales, housing stats, inventory, all of that?
Logan Mohtashami: Yeah. This is… Again, for me, this is… The odd thing for me is that the one thing that I’m worried about always has been an escalation in prices, right? And it all revolves around to that 2014 discussion that total inventory has been falling since 2014. Purchase applications have been rising since 2014. Don’t make it any more complicated than that, right? The theory of escalating inventory when demand is stable is borderlining on being insane right now at this point. So, inventories are most likely either gonna be at all-time lows, fresh all-time lows, or near all-time lows. And demand is stable so that you’re not gonna get any help from housing stats, right? And new home sales… The one thing about housing that doesn’t really get talked about, when it gets hot, people get greedy.
So, the builders are doing exactly what they should do. They’re patting their profit margins, unbelievable. They’re doing great. I mean, just look at the builder stocks, they’re doing wonderful because they have pricing power, right? Their natural inventory levels are low just because their competition, the existing home sales market, something that did not happen from 2008 to 2019 are at an all-time low. So, their product has pricing power, which boosts the median sales price much higher. So, the concern is, again, if rates can go higher, the sector gets hit. But with rates this low, housing stats have the legs as long as the six-month…the monthly supply is six and a half months and below on the three-month average. It was that the entire year, basically, in 2021. So, we had a spike in inventory on the monthly supply inventory, but it never broke that. And what are we doing? We’re ending 2021 on a very solid note. Builder confidence, housing stats, purchase application, mortgage demand, right?
Everybody’s all talking about iBuyers, they’re less than 1% of the market, right? Mortgage demand is what drives this. When that fades, so does housing. There’s no Wall Street moat that, you know, all of a sudden, a few Wall Street firms who don’t even buy that many homes are gonna come in and swoop everything up. No. It’s always based on mortgage demand. And, again, what we saw in the last 15 weeks is purchase application data was getting noticeably better if you knew how to read the data correctly, and nobody cared about it because not many people know how to read that data. And look what’s housing is doing. Pending home sales are up. Existing home sales are up. And now let’s see if the new home sales follow suit because housing permits and stats are coming.
So, we’re ending the year off in a very good note. And, again, the two things that drive housing, mortgage rates and demographics, are there. So, look for more housing construction. I’ve got to my 1.5 million level. This has been a big long-term call for me in the previous expansion where we were never gonna start housing stats at 1.5 million until years 2020 to 2024 because demand would have warranted. We’re going to get there finally. So, don’t think of housing as a construction boom, but as long as monthly supply stays low on a three-month average, below six and a half months, as long as mortgage rate is low, we could slowly move forward with housing stats.
Sarah Wheeler: Well, all of this affects home prices, right? So, tell us what you’re looking for for 2022 home prices.
Logan Mohtashami: So, going into this 5-year period of mine, I thought if we only get 23% cumulative home price growth, we’ll be okay. Right? Because wages rise every year and rates are gonna stay low. Unfortunately, you know, even though all these interviews I did early in the years that people should worry about home prices escalating, not crashing. Right? The forbearance crash bros are some of the most untalented housing people ever in our history. They’ve no idea what they’re talking about. And guess what happened? Home prices off of a 10% gain in 2020 escalated even higher. So, housing has limits. And the reason I talk about housing having limits is because there’s no credit boom, right? But, again, when inventory is this low, prices can still rise, right?
So, I’ve targeted, I’ve given people targets to watch to when you actually get some noticeable cooldown and housing. You need total inventory levels, about 1.52 million or 1.93 million. We’re not there. All right? So, home prices are gonna still rise, but the rate of growth should cool. It’s already cooling right now. Case-Shiller lags a little bit. The rate of growth was so high, it cannot be sustained. So, you have to work off of that equilibrium. That’s why I wrote that article in April. Home prices should cool down. But the rate of growth of cooling down is still above what I’m comfortable with. So, kind of in that 5.2% to 6.7% how 2022 I’m hopeful the rate of growth cools down in there because, again, my concern has always been we have five years of double-digit home price growth just because the inventory channels will. And that is not a healthy market. That’s not what we want. People want choices. The term is a B and B market. We want boring and balance. That’s gonna be the sexy housing market. We don’t want this kind of action because, again, it just makes the whole process of buying and selling homes a little bit difficult. And, hopefully, something happens to where the inventory channels can rise. But, again, it’s not happening right now when you see the inventory is seasonally fallings, but they could fall to new levels. So, rate of growth cools, but again above what I’m comfortable with, and this will be year three now of that happening.
Sarah Wheeler: I don’t see boring and balanced anytime soon, which, you know, makes it fun for us to write about, but I know that it makes it a challenge for those in the industry. Well, let’s talk a little bit, you know, you talked about the Fed tapering just a tiny bit. Let’s talk about the macroeconomics for a minute, just, like, what’s going on in the economy?
Logan Mohtashami: Okay. And, again, this is a very important discussion. As somebody who wrote the America’s backup recovery model on April 7th, the U.S. was not going into recession then. Household formation economics is the lifeblood of any economy. The U.S. has this advantage over other countries. So, the fact that we’re outperforming shouldn’t be a surprise. But the economic rate of growth is very hot, it cannot be sustained. Right? We’re going into a year where the Federal Reserve wants to cool the economy down, right, by raising interest rates. World growth is still not running as it should be just because everyone is still dealing with variance. But because of that, you have to be mindful that mortgage rates and bond yields can go down if the Federal Reserve wants to cool down the economy, if the rate of growth of the economy is cooling down.
And one thing about inflation is that not a lot of people know this. I understand. But, typically, the U.S. dollar makes its biggest percentage run right before the Fed rate hike. And you see that in the data currently. It’s not making that aggressive of a run now because we’re not there yet. But if that happens, typically world growth slows down, commodity prices get hit. All these variables going into 2022 does not scream higher mortgage rates and higher bond yields. So, if the 10-year yield goes below 1%, we’re still in a very expansionary mode. And also the fiscal government spending plans right now are on hold, but they’ve been watered down.
First, we were talking about $5 trillion, $3.5 trillion, $1.7 trillion. If you average that over 10 years with an economy of our size, it’s not that big. So, there’s a lot of factors where we’re talking about rate of growth slowing. That’s one of the things I talked in the article of retail sales. Retail sales is on fire, right? Job openings, 11 million. Jobless claims are at the lowest level since ’19. There’s all these… This is a really hot economy. I don’t think people have ever seen something like this. So, trying to talk about data is a little bit different and unique that the rate of growth cooling down doesn’t mean something terrible is happening. It’s just that growth cannot be sustained at a certain level. And retail sales cannot be sustained where it was. We’re not gonna get the growth that we saw in 2021.
So, things when they cool down, don’t panic, don’t go into the recession mode discussion right away. But, again, if this is the case, it’s gonna be really hard to have mortgage rates and bond yields really accelerate, and the 10-year yield has been screaming to everybody about this for a very long time, and people don’t care or listen. So, be mindful of that. Expansionary. For myself, I have recession models just like expansion models. We’ll go through it every single week one day at a time, one data line at a time, and we’ll explain this. But don’t look for a rate of growth picking up compared to what we saw in 2021. Usually that rebound effect, especially with all the disaster relief where savings rates fall down, disposable income is back on trend. These things are normal. All things fall back to a proper trend, you know, that whole moderation. And the housing data, we talked about it toward the end of 2020. Housing data will moderate. Don’t overreact. People overreacted to it. It found a base and moved up higher. It looks perfectly normal. Similar kind of to what the economy is. We’ll find that kind of normal trend and move along with it with all the economic data that we go over here at HousingWire.
Sarah Wheeler: I know that you… And you mentioned April 7th. That was April 7th of 2020, mind you. So, that was a pretty amazing call with the America’s back model. A lot of these things you have predicted and they’re continuing from 2021. Is there anything that surprised you? If you were looking… At this time last year, if you knew where we were this time this year, is anything surprising?
Logan Mohtashami: The spending on durable goods is… I mean, retail sales is just completely off the charts. And even for myself, even for somebody like me who is probably the most bullish person, especially just because of the household formation, the spending that Americans are doing during the 2021 period have shocked me. And I just don’t think that can be sustained. I think also people have to remember that in 2018 and ’19 the whole trade war tap dance, you know, the domestic investment that companies make, we had no domestic investment actually in the last year in 2019 before COVID hit because the trade war was on people’s mind. There’s gonna be some definitely CapEx or domestic spending for companies to open up and to make sure that supply chains and everything’s gonna be running normal. That’s a benefit. That didn’t surprise me, but the consumption on retail sales, especially on the durable goods is still, like, to me, it’s one of the more shocking things. And I put that chart in the forecast article. You can see the deviation in there. And I don’t think it can be sustained. I think durable goods spending goes down, services pick up. But the rate of growth, remember, rate of growth will cool because that was one of the more phenomenal data lines I’ve ever seen in my career.
Sarah Wheeler: Well, we can’t talk about a forecast without talking about jobs. You’re kind of famous for your JOLTS 10 million, but now we’ve revised that up. So, tell us about jobs.
Logan Mohtashami: Here’s the interesting aspect. Out of all the data lines to get back to pre-COVID, I didn’t think we could get the jobs data back there until September of 2022. And I understand that people that were probably maybe a little bit more bullish than I was, there’s a lot of things that are still going on in this world that just aren’t functioning well. And the jobs data is typically a lagging. Usually, there’s a bunch of other economic data lines that recover first. The America’s back recovery model explains that. The interesting aspect is that I targeted September of 2022 for all the jobs to come back. And I do think we’re gonna get big job revisions on the positive side, on last year’s or this year’s data.
So, we have a pathway to get there because why? Job openings are at 11 million. Job openings for manufacturing jobs are at all-time highs. Construction jobs are picking up. So, they are there, but the labor force is much different now. And this is why I’ve always said you want to stay away from anybody who talks about labor force participation rates. That is the number one rule of bad economic takes. Job openings are real. There were 7 million before COVID hit. Baby boomers are aging out. They’re moving on. Death and aging are very powerful economic forces. So, the labor market will be healthy. Once all these drama, variants, and COVID goes away, we have a free-moving to that level. And because of Omicron or Delta, things slow down a little bit on that front, you know, restaurants might close down, stuff like that, but eventually, you’ll get back there.
And the question is, do we get all the jobs back? Because this is much different than the previous expansion where the job openings were about a little bit over 2 million at the worst levels or the early stages of the recovery back then. We’re at 11 million now. Jobless claims are at the lowest level since 1969. The economy recovered so fast that I already raised one of my recession flags because there’s a more mature phase. So, job openings are there. It looks normal to me. Jobless claims are low. Rates are low. The economy is in expansion mode. It’s a good pathway to get all the jobs back, but, again, we’re dealing with things that are non-economic. It doesn’t crash the economy, right, search two, three, four, and five, and now with Omicron.
We’ve learned to consume goods and services as a country with an active virus infecting and killing us. That’s been a big theme of mine since 2020. But does this slow things down to prevent us from getting all the jobs back in September of 2022? Because it’s there. Labor is needed. There’s parts of the U.S. that don’t have much prime-aged labor force gross, or when their elderly workforce retires or moves away, they don’t have that many young people coming in and replacing them. But there are young people around… The U.S. has a young replacement workforce, but they’re not evenly distributed. So, the labor force is there. Job market has ways to go. We’re gonna have… Of course, in every year, we’re gonna have two or three bad job reports. Don’t put too much weight into that. Look into the trend and realize that some of these varying effects slow down some things on a one or two-month basis, but then things pick up again.
Sarah Wheeler: Well, Logan, I’ve listened to you long enough to know that trend is your friend. Right? That’s one of your catchphrases. So, we’ll keep looking for that. Great economic forecast, housing forecast out today on HousingWire. Thanks for sharing it here, which I know you go into a lot more detail and the backstory of all of the different points that you do in your article. So, people can go there for more information, and we will see you back here again next week, same time.
Logan Mohtashami: Sounds great. Merry Christmas, everyone.
Sarah Wheeler: Merry Christmas.