Logan Mohtashami on Housing Market Data Improving Near 6% Mortgage Rates

Housing Market Recovery Signals

• 📊 New home sales in August showed a stronger-than-expected increase of over 20% month-over-month, driven by declining mortgage rates and robust demand.
• 🔑 The key indicator for housing data improvement appears to be mortgage rates dipping near 6%.
• 📈 Purchase application data has seen its best eight weeks of the year when rates are in this lower range.

Mortgage Rate Duration and Fed Policy

• ⏳ The crucial factor for sustained housing market improvement is how long mortgage rates can remain near 6%.
• ⚠️ If rates rise above 7%, the positive momentum in housing data is expected to end, leading to a repeat of previous cycles.
• 🏦 There's a belief that the Federal Reserve may be hesitant about a full housing market recovery due to its impact on economic activity and consumption.
• 📉 The Fed might adopt a more hawkish stance when yields and mortgage rates are low, potentially to balance the economy.

Builder Activity and Supply Dynamics

• 🏗️ Sustained low rates near 6% are needed for housing permits and starts to grow again, but it's still very early to confirm this trend.
• 📉 Residential construction jobs and specialty contracted jobs have been declining, indicating a slowdown in building activity.
• 🏠 Publicly traded builders have more financial flexibility, but smaller builders are at higher risk.
• 📦 Builders are acting as efficient sellers, making deals to move completed units, which are at levels not seen in decades, prompting a pullback in construction.

Labor Market and Housing Data Correlation

• ⚠️ The recent softening in labor data is a primary reason for mortgage rates being near 6%.
• 🛠️ If housing permits can grow, it would alleviate concerns about the single-family labor market.
• 📉 The housing market is starting from very low levels, meaning even small movements can significantly impact the needle.
• 🤝 Mortgage spreads have been favorable, contributing to the current lower mortgage rate environment.