Logan Mohtashami on the jobs report and mortgage rates
Last week’s jobs report missed estimates, but the overall picture is still very positive, with total unemployment at 3.9%. In this episode of HousingWire Daily, Lead Analyst Logan Mohtashami joins Editor in Chief Sarah Wheeler to discuss the jobs report and the significance of having both the unemployment rate and the mortgage interest rate under 4%.
Here’s a small preview of the interview, which has been lightly edited for length and clarity:
Sarah Wheeler: You had a great article on Friday about the jobs report. For a lot of media companies, the headline was that the report missed expectations. So tell us why in your opinion that’s not such a big deal.
Logan Mohtashami: The internals of the labor market are the best I’ve ever seen. Job openings are over 10 million. The jobless claims data is at levels last seen in 1969. The headline jobs data has missed. A lot of people in America have been calling in sick, right? This is our sixth or seventh wave right now of COVID. But the internals are good. And as long as the internals are this good, the labor market is fine. We’re gonna have a time in our history, hopefully soon, where we’re gonna have five to six months where we don’t have to worry about cases rising or anything in that regard. And the labor market is there.
And here’s a good example: after 2008, job openings were a little bit over 2 million. Job growth was really slow at that point. Here in the last few months, just because of what COVID has done to the economic data line, it’s been so fast, especially the employment-to-population ratio. The prime age, labor force — ages 25 to 54 — has shot up at the fastest pace ever recorded in history. So, the labor market is good even though the headline can miss. I still believe what I wrote last year in 2021, that I believe we should be able to get all the jobs back that we lost to COVID, but that would be by September of 2022. This was before Delta ,this is before Omicron. Omicron cases are what a tsunami looks like. But these things shall fade in time. And the labor market is still there, because the economy is still running very hot right now.
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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. I’m Sarah Wheeler, Editor in Chief at HousingWire here with the latest episode of the “HousingWire Daily” podcast. On Mondays, my guest is always HousingWire lead analyst, Logan Mohtashami, where we cover the latest economic news. Logan, welcome back to HousingWire Daily.
Logan Mohtashami: It’s great to be here. Happy Monday.
Sarah Wheeler: Happy Monday. We have so much to talk about. I feel like I say that every week. But economic, macroeconomic factors, things that affect housing are going on all the time.
Logan Mohtashami: Yes it is. And it was a very interesting jobs report. It’s been a very interesting job market. I think for the first time in recent modern-day history, we’re seeing what a really hot labor market looks like. And even though the headline estimates missed the internals of the jobs report are very good and the revisions are positive. And I do believe we’ll see more positive revisions over time on the jobs data. But this is a very interesting time in economic history, just because economic growth has been the best in decades, inflationary data has been the hottest in decades. And yet, today, still, the tenure yield is at 1.80% [crosstalk 00:01:11].
Sarah Wheeler: One point…we are definitely going to be talking about the 10-year yield for sure. But let’s talk about that jobs. You had a great article on Friday about the jobs report. A lot of media companies, you know, sort of the headline was it misses expectations, it missed estimates. So, tell us why in your opinion, that’s not such a big deal.
Logan Mohtashami: Well, again, the internals of the labor market are the best I’ve ever seen. Job openings are over 10 million, the jobless claims data is we’re at levels last seen in 1969. The headline jobs data has missed a lot of people in America, have been calling in sick, right? This is our sixth or seventh wave right now of COVID. But the internals are good. And as long as the internals are this good, the labor market is fine. We’re gonna have a time in our history, hopefully soon, where we’re gonna have five to six months where we don’t have to worry about cases rising or anything to that regard. And the labor market is there. And here’s a good example, after 2008 job openings were a little bit over two million, a job growth was really slow at that point. Here, the last few months just because of what COVID has done to the economic data line, it’s been so fast, especially the employment to population ratio of prime-age, labor force ages, 25 to 54 have shot up in the fastest pace ever recorded in history. So, the labor market is good, even though the headline can miss. I still believe what I wrote last year in 2021, that I believe we should be able to get all the jobs back that we lost to COVID, but that would be September of 2022. This was before Delta. This is before Omicron. Omicron cases are, what a tsunami looks like. But these things shall fade in time. And the labor market is still there because the economy is still running very hot right now.
Sarah Wheeler: So, you know, let’s talk about that. Why did you pick September of this year that you think everything will be backed by?
Logan Mohtashami: You know, even though I wrote the “America Is Back” recovery model, on April 7th, the one data line that I knew, and that I’ve talked about a lot would lag is the jobs data. And unlike other people, I’ve never believed in this mass labor force of American sitting at home since 1945 not working. It has been a core root of my economic work for a very long time. I was a big job openings first since in the previous expansion. So, when I was tweeting, jobs 10 million, you know, it was not because I thought, “Well, hey, guess what? All of a sudden, everybody’s gonna come back to work when the disaster relief is done.” The trend has been your friend for a very long time. Job openings have been rising, job growth data in a traditional cycle has not been booming, like that would be very normal with population growth slowing. So, there are parts of the United States of America that do not have a very fast-growing labor force in terms of young people, but you’re still dealing with COVID, right? So, until we could get a clearance like, you know, let our economy run normally, it’s gonna take a while. So, I tagged September of 2022, this was at the beginning of 2021. So, I always give updates on how many jobs we need past the revisions to get us there. And, again, this was before Delta, this is before Omicron, or whatever is coming in next. But we’re heading toward that way. And that looks pretty normal to me. But, again, there’s parts of the United States of America that have a lot of older people, and they don’t have enough younger people coming in, and it’s harder for them to find labor. A lot of people thought “Well, once the disaster relief is over, everyone will get back to work.” That wasn’t the case either. So, what’s going on currently is consistent with my work in the previous expansion, and currently right now.
Sarah Wheeler: You know, one of the things that you mentioned and that you bring up in your latest article is education and employment, and how that affects who it is that still doesn’t have a job, and the labor force and what’s out there, and that has a direct effect on housing. So, kind of walk us through who is it that is still looking for jobs? Where are we still seeing the employment lag?
Logan Mohtashami: So, traditionally, the people that have not finished high school have the highest unemployment rates, regardless of where we are in the economic expansion or even recession. Currently, right…you know, it’s not the biggest portion of our labor force, you know, it’s under at 9%. That unemployment rate has been collapsing very fast lately. So, there’s not enough workers currently to get these really big job numbers. We have enough to…The civilian labor force is like 162 million, we have near a little bit over really 150 million if you count self-employed, people working. So, there isn’t this massive labor force. But, again, this crisis was the service sector. And what had happened was it wasn’t housing homeowners, right? Homeowners, traditionally, have $100,000 income. A lot of the jobs would that were paying 60,000 or more, we’re back really by October of 2020. So, again, forbearance, one of the reasons why people got forbearance, a lot of those people got their jobs back, but service sector workers that tend to get lower base pay, that have the fastest wage growth right now, that are quitting their jobs at the fastest rate because they could get a better pay. That is more for the rental side. But during this crisis, we plugged the holes with disaster relief. So, it wasn’t gonna be a homeowner crisis. This is why I was very adamant that for the forbearance crash bros would fail in a tragic manner. So, you look at that, you look at the unemployment rates of those that never finished high school, or just have a high school education and no college and their unemployment rates are falling down in a fast fashion. So, we’re getting there to where we have a very tight labor market, unlike the previous expansion, job openings, even though they’re rising they weren’t at levels here and then we weren’t at levels in the jobless claims data. And if you add demographics to everything, the service sector workers, the rental market, wage growth is going to pick up there, rents are going to pick up. This is why I talked about, you know, rent inflation so much last year, that’s the sector of housing that this data line impacts. So, rent inflation will be a story even though the rate of growth should slow down, and there’s a lot of different measurements of rent. That was the housing, so not so much of homeowners during this crisis.
Sarah Wheeler: You know, it’s really striking when you did a breakdown of the unemployment rate, you know, versus how much education people had. Even for those who have less than a high school diploma, the unemployment rate is 5.2%.
Logan Mohtashami: Yes.
Sarah Wheeler: That’s crazy good. I mean, you go down, then you get all the way down to people who have bachelor’s degree and higher, it’s 2.1%. I don’t even know how you get better than that.
Logan Mohtashami: You traditionally don’t want…you don’t want unemployment rates really under 3% or 2.5% because that really means that you have a lack of labor, like Nebraska has, like 1% unemployment rate. You know, that’s great, that’s a first of all problem, but it also shows that you don’t have enough labor. Now, there’s a lot of jobs in America that you don’t need a college education. So, I always say, you know, we wanna have college-educated unemployment rates for everyone but, you know, the steep drop in the unemployment rate for those that didn’t finish high school is showing you how tight the labor market is. And for people that are looking for labor, they have to fight for wages now or fight for labor now. So, one of the things I’ve talked about, always I do this hashtag on Twitter for some time, a tighter labor market is a good thing, right? People always complain about wages on the bottom and what here it is, this is what’s happening, people are quitting their jobs, they’re getting better pay. And this is what you want to see because those with a college education are always fine. You know, this is why I always say the student loan debt crisis, especially for those who finished college really come on. Unemployment rates are low, these people get paid the most. They have the largest financial assets. It’s those that didn’t have the most education are now actually the labor market that has their kind of pricing power, right? So, it’s the fight for labor. And I think this is a good thing for America because the wage growth coming in from the bottom end is a positive for labor. I know it’s a stress for people that own businesses and have to fight for it. But this is, again, a first-of-all problem.
Sarah Wheeler: Love it. And, you know, it goes with your whole thesis that, you know, there isn’t going to be a crash because people have this long-term fixed debt and the wages are rising. What in that calculation means housing crash?
Logan Mohtashami: Yeah, you know, again, I think what’s interesting about this new expansion or just the past five or six years, what the housing bulls missed from 2002 to 2005 goes that was a credit boom. You can see adjusting to inflation. Debt expansion was massive from 2002 to 2005. And also the debt structures were very unhealthy, right? You can break down the debt structures and show that there was a lot of recast rate issues, you know, once those loans finally get the recast. But in 2005, that was the peak of housing in terms of sales. Sales were declining in 2005, 2006, and 2007, and then 2008. Delinquencies, bankruptcies, and foreclosures were rising in 2005, ’06, ’07, ’08. And then on top of that, the job loss recession happened. So, it’s much different now. Now, people, Americans, homeowners have, again, fixed low debt costs versus rising wages, versus nested equity, boring vanilla debt structures, they’re in their house, they stay in their house long as they’re in, homeowners have never looked this good on paper ever. And that’s a total positive for the housing market in that sense. And we can see it right now because forbearance has literally collapsed from near $5 million to under $882,000. That number is still coming down because a lot of Americans got their jobs back and there were legit homeowners before the crisis happened.
Sarah Wheeler: Really incredible. You know, our headline for this article is unemployment rates and mortgage rates both under 4%. Because you really wanted to, you know, highlight both of those things happening at the same time. So, tell us what unemployment rates and mortgage rate…I mean, why is that important, and why is that so interesting?
Logan Mohtashami: You know, I’m very sympathetic to those people that say, “Hey, listen, we have unbelievable hot economic growth, the labor market is hot.” Inflation has never been this hot in a very long time, but the 10-year yield is below 2%.” Yeah, that’s kind of how this works, the trend is your friend, right? The bond market works differently than what people assume it to be, they believe because inflation is hot on a very short-term basis, that mortgage rates shouldn’t be, in theory, right now, if you believe that mortgage rates should be 7%, 8%, right? Our inflation to mortgage rate spread is very long. But in that article, I put a chart with inflation rate of growth and the bond yield. And if you go back to 2009 and 2010, we had a collapse and inflation, that’s when oil prices crashed. The 10-year yield went down but not so much, right, to go with the rate of growth inflation. Here, we have the opposite effect, we have very hot inflation. And remember, off of every rebound, the base effects of where inflation is you’re gonna see hot data. Here, because core inflation is really pushed by housing, rent inflation is going to pick up. And I remember talking to “The Washington Post” or early in last year talking about, we’re gonna get to 2% core inflation faster and stay there longer just because of shelter inflation. But the bond market doesn’t run with that one-to-one. And in that chart that I put in that article, hopefully, it gives some people some perspective on how bond yields have been going in a downtrend for many years. And, yeah, you know, 180, in the previous expansion, people will be going, “Hey, [inaudible 00:13:04] the bond market saying the economy is weak?” Here, we have the hottest economy, but yet, the 10 year yields at 1.84%. Even though we haven’t tested that peak range yet of 1.94% that I’ve talked about since 2020, we’re getting close there. So, it’s really exciting. So, this is a very exciting week for people who track the bond market to see, does the bond market still sell-off or there’ll be a bond rally just because the sell-off recently has been so intense?
Sarah Wheeler: Okay. Well, you know, for those of us who are not up on the bond market, say I’m a mortgage lender, you know, whether I work at a big lender, a small lender, what is the bond market have to do with my daily life? Like, how does that affect the rates? How does that affect things?
Logan Mohtashami: Everything. And if you’re a mortgage person and you’re not tracking the bond market every single day, shame on you, right? Because that has been the number one thing you should have followed. Not so much on the MBS, the downtrend in the bond market. And if mortgage people still haven’t figured this out, okay, that’s a lack of education because that is the most important thing. And one of the things I’ve written about in the summer of 2020, is that if you want rates to go higher, the 10-year yield has to crack over 1.94%. Okay, it just can’t. So, what the bond market does is primarily the driver, right? I know a lot of people are mortgage-backed securities, okay, that’s fine, but you can’t get higher rates or lower rates in a big fashion until the 10-year yield goes with you. We had some dislocation in pricing early in the crisis. It took some time to work itself out, but we’re kind of back to normal to a degree. So, follow that 10-year yield. Whoever is a technical analyst friend of yours or anything, or on HousingWire, that 10-year yield is your oxygen. It is your food, it is your water. That’s what mortgage rates go by. This is why I talk about the bond market first rather than mortgage rates. Mortgage rates to me are a secondary factor. The 10-year yield has always been the most important issue. This goes back to a lot of… you know, I think about in 2018, where 50 economists were talking about, hey, guess what? Mortgage rates are going higher, everything’s going higher. Nobody was a technical analyst. But if you were a technical analyst in 2018, it would have shown you that you’re at the peak levels of that downtrend because the 10-year yield matters more. And that’s why mortgage people should follow people that have some encompass of somebody that talks about the bond market religiously because that’s really important. And history, in the past four decades has shown that.
Sarah Wheeler: Well, and Logan that’s one of the reasons you’re our lead analyst is because we feel like the way that you’re tracking these things is so applicable to our audience who really needs to know how does this affect my business, how does this affect the overall economy, what’s going on in housing and that’s why we love having you on. So, let’s talk about what you’re looking for this week. Do you think it’s gonna be an exciting week? We don’t have a lot of reports coming out this week, what are you looking for?
Logan Mohtashami: Well, one of the things that is common with my work during this recovery phase is that I keep on using the term, “the most unhealthiest housing market post-2010” because, again, the days on market are just simply too low. And when you have days on market too low, guess what happens? Americans push prices, right? The builders push cost inflation, sellers want to sell at the highest price. This is why I deem this to be the unhealthiest housing market first-of-all problem because demand is stable. So, one of the things I’m gonna go over at some point this week, is to talk about, you know, how can we get from an unhealthy housing market to a positive housing market? How can we get balanced? And going back to the summer of 2020 and talk about need the 10-year yield to break above 1.94%, and you need duration higher to cool things down? Okay, we’re not there yet, but I’m talking to that. However, I’m gonna also explain why does the Fannie Mae survey or the Michigan survey of homebuyer sentiment. You know, a lot of bearish people in America last year in housing, use that sentiment to say Americans didn’t want to buy homes, literally from the point that they were pushing that premise of purchase obligation data, mortgage demand picked up toward the end of the year. This is one of the reasons why pending home sales and existing home sales are trending above my peak sales range is that this isn’t because people don’t wanna buy homes, this is because there’s too much competition, inventory is too low. Inventory levels are at all-time lows, so guess what? If you’re a homebuyer, yeah, it sucks. It sucks that you have to compete with other people. That’s what the sentiment surveys were telling you. It wasn’t that that said Americans aren’t gonna buy homes, they wanna buy homes, they just don’t have enough supply and they don’t like competing. This is why I say the healthy housing market, [inauidble 00:17:40] markets actually 30 days or more. It gives people choices, it gives sellers choices on what to do after they sell the homes. Currently, we don’t have that now. So, I will go into that a little bit more details.
Sarah Wheeler: One of the things that, you know, you always talk about is, hey, you should follow people who have economic models, not people who just throw up like, “Oh, mortgage rates are gonna get this much.” And it’s just kind of like throwing them up against the wall and seeing what sticks, right? And so you have the “America Is Back” recovery model, which you wrote in 2020, which was very predictive and amazingly correct. But it’s not the only model you have, you have a recession model. So, you’re tracking where we are in this expansion. And what are you looking for right now? I think you talk about the red flags for a recession, what do those look like?
Logan Mohtashami: So, you know, just like I have a recovery model or expansion model, I have a recession model. So, there’s a few things I call the red flag, they all have to kind of rise up together unless you have an exogenous shock, like COVID. You know, for HousingWire in February of 2020 I said, “Hey, that chaos theory, the butterfly effect.” If this happens, if COVID hits our shores, we’re gonna be in a recession, the bond market is gonna hit, stocks are gonna hit but don’t overreact because the economy was fine. Here, we have one of the risks recession red flags are already up. The two-year yield is above 56 basic points, which means the Feds are gonna start raising rates. The unemployment rate got to 4.2%. Red flag number one is already raised. This is a progression of the economic expansion. This is real tedious, boring work, but it actually works if you’re on a historical basis. Then, when the Federal Reserve starts its rate hike, that’s recession red flag. Right now we’re looking at March as the first time the Fed raises rates. There’s a progression of each economic expansion going back decades. There are points during that expansion where you have to have a recession watch. Leading economic index usually falls four to six. That’s another one I’ve talked about. The inverted yield curve is something that I’m looking for right now to see if it happens. Okay. So, there are middle to late-stage economic cycle data lines that we’ve seen. And it’s crazy because it happened so fast. And that’s how fast this recovery is. So, always remember, you want to follow people that have economic models, expansionary and recessionary because that’s how it works. Models and economic cycles don’t sleep. They don’t stop on a calendar date or anything. It’s an ongoing process. So, you always have to have a live variable model going with it. And that’s my job as an analyst is to progress people within an expansion, a recession, and expansion because economics doesn’t sleep ever, right? And it doesn’t go on your calendar dates or it doesn’t care it’s a Friday or Monday. It’s an ongoing moving variable, and you have to move with it.
Sarah Wheeler: Well, and that’s why we love having you on. Okay, just real quick. So, what are you expecting for mortgage rates when you look at all these things?
Logan Mohtashami: Well, the peak range for 2022, 3.75 to 3.65 going with a 10-year yield. The high level was 1.94%. I do make a case for getting up to 2.42%. We’re not there, we’re not even going to engage that discussion until we get close over 1.94%. So, right now we’ve had a major sell-off in the bond market. Rates are picking up right now, but they’re in that kind of the higher-end range. All follow that 1.94%. We could close about there, and we could get follow-through bond selling. For me, what I want is balanced. That’s the one thing I can create balance in the housing market, but we’re not there just yet. So, we’re working our way. So, it’s a very exciting week for anybody in the mortgage industry. I know some people might not like it, but still, for bond market people like myself, it’s a lot of fun.
Sarah Wheeler: Your enthusiasm is contagious and anybody who wants to really dig into what you’re talking about on a more granular level, you know, they need to subscribe to HW Plus. They can get all of your stuff there and you really have just an incredible library of articles that really walk us through where we are, where we’re going. So, I would encourage anyone to do that. But, Logan, thank you so much for being on “HousingWire Daily” again.
Logan Mohtashami: It is my pleasure as always.