Logan Mohtashami on jobs data and the bond market
Today’s HousingWire Daily continues the Rundown miniseries, hosted by HousingWire’s Editor-in-Chief Sarah Wheeler and Lead Analyst Logan Mohtashami. In this episode, Mohtashami discusses what the jobs data, changes in the bond market, and the Omicron variant could mean for housing.
Mohtashami also explains why he doesn’t expect mortgage rates to rise in 2022, and why he’s raised his first recession warning flag.
Here is a small preview of the interview, which has been lightly edited for length and clarity:
Sarah Wheeler: On Friday, you wrote a jobs report, which you usually do for your blog but have now started writing for HousingWire. Can you tell us what happened with the jobs report?
Logan Mohtashami: My job is to connect the dots from the progression of the expansion to the recession, and the recovery to the expansion stage. The jobs report for me is a really big deal, and I highlight all the variables in the jobs data to show where we are in the labor market. Again, this is much different than the 2008 recovery. Job openings are over 10 million already and jobless claims just two weeks ago had the lowest print since 1969. So, we have a lot of ways to go until we get all the jobs that we lost to COVID-19 back. However, I believe those jobs will return by September 2022. Currently, people think there’s a massive labor market waiting for jobs, which isn’t true. Most functioning people who want to work are working. So, you marginally have to take into account where the civilian labor force growth and jobs are going. That being said, it’s not shocking to me that all the jobs aren’t back. Again, we’re in a mature stage in the economy… But we’re also at the stage where we’re talking about the first Fed rate hike, and for me, now the two-year yield becomes very important. My rule of thumb is that when the two-year yield gets above 0.56%, which it did recently, then the first Fed rate hike is on and typically the dollar gets stronger or has the biggest significant run before the first Fed rate hike.
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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 back to “The Rundown” podcast. Super excited on this Monday morning to be here again with Logan Mohtashami, HousingWire’s lead analyst. Logan, welcome.
Logan Mohtashami: It’s great to be here on this Monday morning.
Sarah Wheeler: Oh, we had so much going on over the weekend. First, let’s recap the fact that on Friday, you wrote your jobs report, which you usually do for your blog. You have now started writing that for HousingWire. So tell us what happened with the jobs report.
Logan Mohtashami: Yes, and for myself, as always, my job is to kind of connect the dots with people with the progression of the expansion, to the recessions, to the recovery, to the expansion stage. So the jobs reports for me is a really big deal. And I highlight all the variables in the jobs data to show where we are in the labor market. And again, this is much different than the 2008 recovery. Job openings are over 10 million already. Jobless claims just two weeks ago had the lowest print since 1969. So we have a lot of headwind to…a lot of way to go until we get all the jobs back that we lost to COVID 19, but I always thought that it’ll be by September of 2022 or before. You know, people think that there’s this massive labor market sitting there waiting for jobs. That isn’t true.
Most functioning people who wanna work are working, right? So you just have to marginally take the civilian labor force growth and where the jobs are going. So it’s not shocking to me that all the jobs aren’t back, but again, we’re in a much mature stage in the economy. So in that jobs report, which had lots of charts and lots of data in it, the missing labor force or the highest unemployment rate are those without a high school education, this typically is the case. And it had a big jump down in the unemployment rate, about 5.7% for that group. So there isn’t a massive amount of labor that’s out there that people think, but we should be able to get all the jobs back by September of 2022. But we’re also at the stage where we’re really talking about the first Fed rate hike. And that really for me now, the two-year yield becomes very important.
So my kind of rule of thumb is that when the two-year yield gets above 0.56%, which it did recently, then the first Fed rate hike is on and the big economic factor that typically the dollar gets stronger or has this biggest significant run before the first Fed rate hike. So does that crush commodity prices, does that lower inflation? So one of the things that I’m trying to relate to people is that don’t put all your eggs in the higher mortgage rate basket just yet. You know, there is a reason why I said, you know, that 1.94% is a very crucial and critical level. And as we see recently, that channel that we talked about all the way back in April 7th, 2020, America’s back recovery model, if the recovery does happen in 2020 and 2021, we need that 1.33% to 1.60% level. And again, with a super hot economy, bond yields are still going down. And it looks perfectly normal to me if you respect the long-term downtrend in the 10-year yield since 1981, which means the long-term downtrend in mortgage rates as well.
Sarah Wheeler: Well, you know, I know you had a ton of questions over the weekend from readers and from people who follow you about that bond rate range. So can you talk a little bit more about why it’s important that it stays in that channel?
Logan Mohtashami: Well, if it stays in the channel, that means it was gonna be very difficult to get above 1.94% in 2021. So, I would say a lot of bearish takes on housing was mortgage rates getting to 4% or 5%, not the case, right? So I always tell people, take a chart of the 10-year yield, go back to 2012, look at 2018 in November, 3.25%. I remember that because I was at a conference trying to tell people rates were gonna go down in 2019. Take a little crayon, draw that line down. You could see why we’re holding at these levels, but also go back to 2012, draw the line at that 1.33%. Guess what? Friday we hit 1.33%. We bounced off of that. I think the 10-year is at 1.38%. Technicals matter here. And this is why mortgage rates have not gotten above 3.75%, which is something I talked about in the summer of 2020 that if you wanna make, like, housing’s gonna cool down or days on market’s gonna grow, you need the 10-year yield above 2%, just not part of the forecast.
So the bond market and mortgage rates look about right to me, but I think it’s confusing to people because you have a super-hot economy. You have hot inflation data. If mortgage rates don’t go up on this, when will it? So I think that’s a good discussion because a lot of forecasts on 2022 is that mortgage rates have to rise because of inflation and growth. Well, this is the year. This is the year where economic growth is gonna be the hottest, you know, in a very long time. The rate of growth and inflation is hot. So economic growth, rate of growth is gonna cool down, and if inflation cools down, is that a valid premise that it’s gonna rise next year? So do we get over 2%? This is why I consistently talk about that 1.94% level all the way back in 2019 too. So bond yields, mortgage rates doesn’t necessarily go so much on what the economy’s going as long as that downtrend is being respected. So I think that’s the big confusion this year. A lot of people are thinking that rates have to go higher now, but no, technicals are working here.
Sarah Wheeler: Well, and I think for our audience, especially mortgage rates are, you know, top of mind, they always wanna know about that. And you are one of the people, we talked about this last week, who really are saying you don’t expect mortgage rates to get to 4% next year, but you think they might go down.
Logan Mohtashami: So a lot of people made their forecast in the last month and the bond yields have gone down, so mortgage rates haven’t had that big velocity move on it. But if I keep my same channel, 62 basis points or 1.94%, this is what I’ve done always, you know, in 2015, ’16, ’17, ’18, ’20. So I like to do ranges, right? So let’s go all the way back to 2014 when the taper was like finishing, like the Fed was winding down its taper and QE3 ended. During that entire phase, bond yields went down and mortgage rates went down. So if growth slows next year, if the Federal Reserve is hiking rates to slow the economy, if commodity prices get crashed, you know, or get hit because the dollar’s getting stronger, is this the environment for higher mortgage rates? It sounds like an environment where rates can go back down a little.
Now, if it stays in that channel, you know, 2.375%, 2.5% is probably the low end, the high end is 3.375% to 3.65%. You know, this isn’t of the 100% sure mortgage rates are gonna go up. So don’t wait until you get conviction by the 10-year yield saying, “Okay, we’re moving up higher.” Like I can go against my own work and say that if the world economies are maybe moving together and there’s no more variants and supply chains are noble that all bond yields rise together. That is not happening. And this is the year that has the hottest growth and hottest inflation. So there is more at play here than just the economics.
Sarah Wheeler: Really great points. And actually, you know, talking about the other variables, we have now the fifth wave of COVID and a new variant. So, you know, how does that play into what you’re looking at for the economy?
Logan Mohtashami: Well, what we’ve learned after the second surge in 2020 that the United States of America, as crazy as this sounds, we have learned to consume goods and services with an active virus infecting and killing us. Not only learned to consume, retail sales is off the charts. Like, it is deviated from a historical trend that I’ve never seen. And I’m the guy who’s always said years 2020 to 2021 household consumption, spending housing will be different than the previous expansion. And it’s just unbelievable how much we consume. A lot of it is on the good side. So the service sector’s probably gonna get picked up. So this is the fifth wave, you know, cases are rising, hospitalization’s rising, the Omnicom variant, two things working together. Does this really change the parameters that we’re gonna go back to March and April of 2020? I don’t think so. We’ve gone past that stage.
So is this gonna be something where the economy is gonna slow down just a little bit until everything gets… Maybe that’ll be the case because we saw that with Delta. But again, we are in expansion mode, right? Because why? Majority of people are working. When majority of people are working and wages are up, that means they have income. They spend. That’s the big thing. The U.S. is a consumption-based economy. As long as people are spending, rates are low, you know, housing will be fine. You could see this in retail sales, even with how hot inflation is, wages are up and people are spending a lot of money. Now the Disaster Relief, a lot of the excess income and savings have been winded down, but the baseline, we have more people working and wages are up.
So we have legs to move this. Now we are in a more mature stage of the economy. So one thing I did on Friday is I raised my first recession red flag, right? So I kind of have these multiple recession red flags early in expansion when I wait for the unemployment rate to get to a certain level. For me, it was Friday at 4.2%. If you actually take people ages 20 and over, it’s 4%. The two-year yield is already above a critical level. So we’re kind of in that stage. The next recession red flag is when the Fed actually raises rates. And what I wanna do is show the progression of the expansion into a recession, into the recovery phase over and over again. It’s a moving variable. It doesn’t end. I’m not one of these forecasters, “Oh, the recession’s happening on X day.” That’s not how you do economics, right? It’s a progression. We connect the dots. We want to be the detective, we don’t wanna be the troll. And I just wanna say to all my housing crash-trolling friends of 2021 who whiffed in 2020, you still have time to move your 2021 worthless housing crash to next year like you guys always do for 10 years, now what I call the lost decade.
Sarah Wheeler: The lost decade. Always a pleasure on that one. Okay. Well, let’s talk about that a little bit. So when you say you raise a recession red flag, it’s not that you’re saying we’re about to go on a recession. You’re just looking at the variables. For you, it’s like all of these things would have to line up.
Logan Mohtashami: Absolutely. I need about six things before I go on recession watch. Now, what happened is in the previous expansion, only three of my recession red flags were up. The economic data was actually getting better toward the end of 2019 and 2020, like January and February economic data was really good. Housing authentically broke out the first time in 15 years in February. We got that data in March and that’s when COVID hit us. But if you just remembered that, you know, it’s a pause and then the V-shape recovery, and then we moved on because the underlying economics were there. So we literally had 10 years, the longest economic and job expansion ever in recorded history with no real recessionary data. It was a global pandemic. It was a very quick recession. It was a fast recovery. We’re in another stage. At some point, all my recession flags will be up similar to what we saw in 2006 right before the Great Recession. And then we could go into a different discussion. But number one is raised, when the Fed raises the…when they start the Fed rate hike, that’s number two. And there’s four more after that. We’ll cross that bridge when we get there. But again, my job is to show progression, right, connect the dots, be the detective, not the troll.
Sarah Wheeler: And even though you said the words 2006, I know that you would say this is not 2008 all over again. People should not be expecting some sort of giant crash.
Logan Mohtashami: Unfortunately, we have a lot of bearish Americans that, you know, if housing doesn’t crash, their kind of life is meaningless, right? This is why they spend every single day for 10 years, “Housing’s gonna crash, housing’s gonna crash.” These are not economic people. They’re not data people. You can see by how they talk or how they use charts. They don’t have the training. So naturally being wrong from 2012 to 2019, COVID, they thought was their savior. And it wasn’t, right? It was the greatest head fake. And you can actually see who’s not trained about talking about housing and those who are trained, and there was no discussion about credit profiles, demographics, mortgage rates. And in 2020, they went all in. And what they always do, they move the gold posts out of the stadium. And now it’s 2020… It failed almost worse in 2021 than 2020.
So every economic cycle is unique. And you have to look at the variables within that cycle. Where’s the overheating sector, where’s the overinvestment? We have such hot economic data that I think it’s the first time that people have ever seen a hot economy. So data’s gonna cool. Be careful. Like we did earlier this year, housing data was gonna moderate, don’t overread it? And they did. We literally wrote this and said they’re gonna overread the purchase application data showing negative year over year. They’re not gonna do COVID adjustments. They’re gonna say, “Oh, it’s negative, housing is crashing.” What happened? It reversed right in front of their eyes. So everyone in America can be proud that mother demographics, the American people utterly destroyed the housing crash fanatics for 10 years, especially in 2020 and 2021 because you can’t live in the past. You have to let it go.
Sarah Wheeler: I know that’s…this is your mission, Logan. You are helping people let it go one at a time. So last…
Logan Mohtashami: You can’t let trolls and orcs run around in the wilderness without being contested.
Sarah Wheeler: So last week you wrote for us…you looked at pending home sales and wrote a great article for that last week. What are you looking at this week? What are you going to be reporting on?
Logan Mohtashami: So what I’m gonna write is the big concern is always for me. And one of the reasons why…it’s funny, I always talk about how this is the most unhealthiest housing market post-2010, but it’s for different reasons. It’s the days on market and inventory, where we had plenty of inventory to keep sales growing in 2008 to 2019, right? The days on market created a functioning housing market. Here is inventory crashed in 2020, crashed in 2021, it increased, we had the seasonal increase and what I wanna see for now is for inventory not to break to all-time lows in the spring of 2022, right? You know, so one of the reasons why I wanted to highlight the forbearance crash bros so much is that they thought inventory would escalate, right? Kind of like how the velocity of a stock almost, that inventory would skyrocket. That’s not how it works.
So what we’re seeing right now is the seasonality of inventory. We wanna focus on that this week and what levels we don’t wanna see. We don’t wanna see inventory break to all-time lows. And hopefully, what I think is gonna happen is that we’re probably gonna be a little bit higher going into the spring of 2022 than we had in the spring of 2021. And that will be bullish because we want more days on market so people have choices. You see less bidding war. Because think about we would have so much headway with prices in years 2020 to 2024. But again, the fear is when inventory breaks is demand picks up. You have such a low inventory that it creates bidding wars. We want that to end. We want a B&B marketplace, boring and balanced, right? We don’t want this kind of hot housing market anymore. So that’s the focus of this week in the article, right? I’m gonna write key levels to look at, and when I could finally say it’s not an unhealthy housing market anymore because I’m really getting tired of saying that, but it is what it is. Demand works in miraculous ways. Inventory goes down as demand picks up. It’s funny and strange how that works.
Sarah Wheeler: Well, you know what? Everyone can look at your jobs coverage from Friday, really great there, and look for your next article tomorrow on Tuesday looking at inventory. So can’t wait to read it. Thank you so much, Logan, for giving us a rundown.
Logan Mohtashami: It’s my pleasure. And I can’t wait to do this every Monday for a very long time.
Sarah Wheeler: Sounds great. Talk to you later.