On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about how mass firings at the federal level could lower mortgage rates.
Related to this episode:
Massive FHA cuts would create dysfunction for mortgage industry, homeowners: ex-official | HousingWire
https://www.housingwire.com/articles/massive-fha-cuts-would-create-dysfunction-for-mortgage-industry-homeowners-ex-official/
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:
Massive FHA cuts would create dysfunction for mortgage industry, homeowners: ex-official | HousingWire
https://www.housingwire.com/articles/massive-fha-cuts-would-create-dysfunction-for-mortgage-industry-homeowners-ex-official/
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.
00:06My guest today is lead analyst Logan Motoshami to talk about the link between the federal
00:11firing spree we're seeing and the national housing market, specifically mortgage rates.
00:16Logan, welcome back to the podcast.
00:18It is wonderful to be here.
00:21Wonderful to be talking to you.
00:22I know you've been under the weather, so we'll keep this one a little bit short so you don't
00:26have to stress your voice.
00:27I know you're also going on stage today doing a big presentation.
00:30Yeah, I'm going to be on stage in two hours, but, hey, duty calls, you got to go through
00:35with it.
00:36Duty calls.
00:37Well, our subject today is really interesting, and that is when you look at all the firings
00:41that are going on in D.C., we've got at HUD, we just found out FHA is going to take a pretty
00:48big hit as part of that HUD firing.
00:51We've got, of course, CFPB.
00:52A lot of things are not certain because you also have lawsuits, but from your perspective,
00:57what is all that firing going to do to the economy?
01:01Well, if we're talking about what it does for housing, maybe the turn times of getting
01:09stuff done, things take a lot longer.
01:13If you need to get information from HUD or if you have to get certain paperwork, when
01:23you do a sharp firing on a big scale, it's not like you have robots coming in or productivity
01:32to really kick in right away.
01:34I think there's going to be a learning curve on how to adjust to a lower workforce.
01:43Things can take a little bit longer to get things done on the housing side.
01:48In a general economy, what we've always said is that the federal firings itself isn't going
01:56to be big enough to tilt the economy one way or another when you have over 162 million
02:02people working, but the withdrawal of money and the second or third effects of contracts
02:11done for this, this state had this contract from the government, stuff like that, when
02:17you put them all together, they can be material in that sense.
02:22We went, was it five or six weeks ago, we said, what if it's, hey, the plan to lower
02:29mortgage rates is to create higher unemployment, weaker demand, and then Kevin Hassett, the
02:37White House counsel, comes after two, three weeks after that podcast and says, hey, listen,
02:42we want to create higher labor supply and lower aggregate demand.
02:46So I always hate even bringing this up, but what if that was right?
02:53What if the whole thing was, let's just create higher unemployment, it's government workers
03:00or contracts tied to government money, so we don't really count that as anything against
03:05the economy.
03:06So I could see this happening, maybe the unemployment rate rise up, they have one unemployment rate
03:12chart.
03:13I don't know if this is what it is now, but if we take the federal government dollars
03:18out of the equation, the unemployment rates here, whatever it is, the fact that Treasury
03:25Secretary Bassett said they wanted the 10-year yield lower, the White House counsel said
03:31that they want to create lower demand and higher labor, it's happening, right?
03:38And we won't know the full effects until you see the money being taken out of the system
03:44and then all the second or third variables.
03:49So it's interesting in that aspect on the economic side.
03:53On the housing side, it's just things are going to take a lot longer to get done.
03:59There's no work being done on the CFPB at this point.
04:05And we'll see if that just a few transactions take a little bit longer to close down.
04:13So it's interesting that you talk about second and third effects.
04:16So I have family in D.C. who are tied to the federal government or contracts with the federal
04:21government.
04:22So that's really, of course, you'd expect them to be affected by this.
04:26But I also have family and friends in three other cities, not anywhere near D.C., who
04:31are either being laid off or probably going to be laid off because the money for the contracts
04:37are going to dry up.
04:38And so that's where I think it does take longer to see what happens six weeks from now.
04:45What does it look like two months from now in those various places?
04:49If you want to reduce demand, you withdraw money from the economy.
04:57Now one way to do that is raise taxes.
04:59That's obviously not going to happen.
05:01They're at a point trying to get rid of the IRS.
05:05But withdrawing money out of the economy does have a second or third impact.
05:11So I think that's something we'll see down the line.
05:14Now again, we are a very unique domestic GDP consumption economy.
05:18So we'll see what the final tally is.
05:23But I think the federal workers are just one aspect.
05:26It's the second or third labor jobs that will come in a little bit later.
05:30But all that does is it'll take the unemployment rate higher.
05:34And if the Fed's unemployment rate target is 4.3 percent, and if it goes above that,
05:41what do they do?
05:42I mean, this is going to be a very, very interesting discussion with the Fed, that if the unemployment
05:49rate rises because of what the government does, how does the Fed view that?
05:54Or is that something the Fed's going to go, hey, listen, you know, if we really wanted
06:00to get inflation toward 2 percent, this helps us as well.
06:05But then they got their dual mandate on the labor market.
06:07So it becomes even more fascinating with the Fed now, because it's been a while since we
06:14openly targeted American citizens to get them unemployed and then get money out of the system
06:21this way.
06:23I'm really curious to think, to like figure out what the Fed is thinking on this, because
06:29this goes to the heart of their dual mandate.
06:32So, you know, we just did a reporting yesterday that Mark Calabria has been he's back at OMB
06:39or he's at OMB and he's going to, as part of that, have a role at CFPB.
06:43It's not exactly clear what that role is because they have an interim director and they have
06:49a permanent director who still needs to be confirmed.
06:53But he's he's over there.
06:54And then the reporting that we saw, we, you know, these days things come out on Twitter.
07:00There's not really a press release sometimes.
07:02But what we saw was that he has been tasked with being the one who oversees like bringing
07:07these independent agencies, what have been formerly independent agencies, all sort of
07:13under the OMB umbrella so that the president has more direct control of them.
07:17So we talked about that as far as with the Fed.
07:21You know, I've talked about that.
07:22But from your perspective, they've carved out the monetary policy of the Fed.
07:26Is that correct?
07:27Yeah, they can't control what the Fed on monetary side, but how they regulate, you know,
07:34banks or kind of their stewardship of looking at all the regulation around the banking
07:41system. They really want to get more control to the White House on all aspects.
07:48But the monetary policy, they can't really touch.
07:50Now, we're going to go through a lot of courts and hearings on a lot of stuff.
07:55So who knows what the final tally is six months from now?
08:00But you see, this is really taking as many government institutions and bringing it into
08:07kind of one umbrella.
08:09So the White House has a little bit more control over everything.
08:13Does that give you pause at all?
08:14Are you like, oh, it's fine.
08:15That's what that's what I really have to see what can legitimately be done via the
08:22courts or what the final thing is.
08:24There's a lot of things that are just moving around right now that it's easy to get the
08:31headline on it, you know, but what can legally hold water or not is really the the
08:39monetary policy is the one that, you know, I know President Trump probably wants that,
08:43but that's the one thing he can't have yet.
08:47So and again, I just think this this is a very, very interesting new variable for all
08:56of us. I think all of us that have tracked economic cycles for decades here, this is
09:01the first time where we have the government seeking higher unemployment, where we have
09:06the White House counsel say we want higher, we want the labor supply.
09:10And that goes directly to the Fed's dual mandate.
09:15So it's it is actually, you know, Treasury Secretary Bassett came out this morning and
09:21said, well, you know, the supply of long bonds, you know, to issue debt, we're not going
09:26to really touch that now.
09:27You know, he criticized Janet Yellen for doing that.
09:30But you can really see that the 10 year yield is really on their mind out there.
09:36And I and we've talked about this.
09:39If somehow mortgage rates go lower and people are buying homes again, and it's even
09:46though the unemployment rate rises and it's really on the government side.
09:51To me, I think Trump believes that's a win win for him, right, because then everyone
09:57gets to see, well, rates are down.
10:01Right. And this is one thing where I think the Fed doesn't read the room.
10:06You know, and reading the room is like people just are people.
10:10It's not so much just inflation, it's the cost, the cost of living, the cost of getting
10:14a mortgage, the cost of getting a car loan.
10:16All these things are elevated to a degree.
10:19If somehow he gets to bring that down, even if it's at the cost of employment.
10:25Trump wins on this, I think.
10:27I think they will spin this off as, hey, listen, we did this.
10:30It was us. We withdrew the money.
10:32And now, you know, we could get some consumption going.
10:36And it's something actually that the builders need.
10:41When I went on CNBC and talked about, you know, the builders contraction in their
10:48confidence is really picking up steam.
10:51And we're at the stage right now where you don't have too much wiggle room left for
10:58employment. So it's one thing to fire government workers.
11:01But residential construction workers, you put that all together, that's that you push
11:06that unemployment rate higher, you get less GDP for residential construction.
11:13Then you got you got more of an issue.
11:15But if rates go lower, solves that issue.
11:20So it's there. There's just a lot of moving parts here.
11:22And it's just fascinating because it's been a not a while.
11:26It's the first time that I've seen where the White House is openly wanting higher labor
11:31supply. So I know a lot of people thought that was going to be a pure recession.
11:35But we're trying to figure this out.
11:37It really means that they want the 10 year yield lower.
11:41And I think everyone starts to feel a little bit better if that happens.
11:46It's it's an interesting game plan, but we joked about it five or six weeks ago.
11:51But here we are. And it was it looks like this is this is going to be a full blown game
11:58plan on this. I think, you know, I think it's interesting what you say about the Fed
12:03reading in the room. You've been somebody who's called that out where you're like where
12:06they're like, oh, you know, the housing is doing fine.
12:09And you're like, how is housing doing fine when it's been a recession since 2022?
12:16But I do think that the tightrope that the White House is walking is like there's a
12:22tipping point where those layoffs hit enough households, you know, or the second, third
12:27order effects where that lower interest rate, that lower mortgage rate is one thing.
12:32But then you have, you know, how how far do those layoffs go?
12:35If it's just Washington, D.C., then then the people in the rest of the country might be
12:40like, you know, government workers.
12:42Yeah. Waste, fraud.
12:43If it gets into farther, that's where he might run into trouble.
12:49This goes into another talking point that let's let's let's say hypothetically the
12:56unemployment rate goes up one percent.
12:59OK, so we're four to five.
13:01Ninety five percent of the country is still working.
13:05And mortgage rates are lower.
13:08Trump wins on this.
13:10Whether you agree or not agree, he is going to highlight this as look what I did.
13:16I took all this action and majority of the country is still working.
13:21Right. So in that context.
13:25It looks like that's the game plan.
13:28I mean, look at Florida talking about banning property taxes.
13:33This is a housing play here.
13:35This is all a housing play.
13:37You don't talk about the 10 year yield going down.
13:40You don't talk about banning property taxes, you know, all this stuff.
13:44If there isn't a housing component in here and.
13:48I what what we just said, when you have the fourth calendar year of the lowest home
13:54sales ever. Yeah.
13:56OK. This is not like a mild decline or anything like that.
14:01This is the fourth calendar year.
14:02This is why we always say that staffers stop telling the people or writing in the
14:08president's speeches that housing is rebounding.
14:12You only have a rebound when credit demand grows, purchase application data grows.
14:16And it's the fourth calendar year.
14:20President Trump is reading the room differently than the Fed is.
14:24And this is going to be a conflict battle.
14:26Right. I'm I'm invigorated because I want to see how the Fed operates in this
14:31environment. But if you look at it in that light, one percent unemployment rate
14:35increase. Ninety five percent of the country is still working.
14:39Five percent unemployment rate historically still very low.
14:42But mortgage rates go lower.
14:44The 10 year yield lower. And this is not something we're bringing up.
14:48The Treasury secretary talked about it.
14:50The White House Economic Council is talking about it.
14:53So it is it is fascinating how this all of a sudden became a housing story.
14:58So I'm just assuming hypothetically, just assuming that whatever internal readings
15:03they're seeing out there or whatever surveys there, the housing store is a little bit
15:08bigger than what I think people are or didn't give it enough credit on how big it is
15:15for them. So, well, again, take it one day at a time.
15:19But it looks like that's the game plan.
15:22It does. Well, I can only say that our timing again for our economic summit next
15:27week where you're going to be our kickoff headline speaker.
15:31We've got amazing economists could not come at a better time because there's a lot
15:34going on. We need we need the insights and analysis of this entire group of people
15:39we're bringing together. You know, because of everything that's happened, that
15:43presentation of mine is going to be more different than any presentation I've ever
15:46done. It's it's really going to be about the state of the economy currently and what
15:51it is, because because, you know, the the bingo card was that, you know, were they
15:57really going to front load the 10 year yield in 2025 as as as an agenda?
16:03And now we have multiple sources from the government saying this is this is part of
16:08the game plan. And how do you do that?
16:11Lower aggregate demand, higher labor supply.
16:15So, yeah, it's very unique.
16:18It's our first time that we are we're dealing with this, but we're going to have to
16:24be on top of everything more than more than ever.
16:27Absolutely. Logan, thank you so much for being on.
16:30Appreciate you. Hope you have a great presentation in Denver.
16:34I know you will. And we'll see you soon and we'll see you next week in person.
16:38Yes.