How rising oil prices affect mortgage rates

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Welcome everyone.

My guest today is lead analyst Logan Modashami to talk about the escalation in oil prices

and why that has not so far affected the 10-year yield or mortgage rates.

Very interesting conversation.

But for we dive in, I want to say thank you to our sponsor, Tristan Will, for making this

episode possible.

Logan, welcome back to the podcast on this very eventful Monday morning.

You know, you know, I need to do the duggy on stage.

That's what I, you know, that's what we need to do.

Come on stage together and do the duggy.

So I did not get any sleep last night.

I'm sitting there looking at the 10-year yield and oil prices.

Oil price is getting to almost 120 and how the 10-year yield reacts.

And we are sitting here Monday morning.

When the first bombing started to happen, we all said, I need the 10-year yield to close

above 450 and to get followed through solid.

If I think the bond market really thinks this is going to impact something.

We are sitting here Monday morning.

It's like going into its third week.

And as I'm talking to you right now, the 10-year yield is at 4.13.

And it's the John Ham dancing meme, you know, mortgage rates in the bond market are

just like, whatever you all need to do with each other, go ahead.

We're just going to stay down here because we're not committed either way.

And we wrote an article like trying to explain like mortgage rates and oil prices because,

you know, there's some historical things where people think, well, oil shoots up.

There's a recession.

You saw that in 2008.

You saw that in the early 1990s.

But we had an oil shock in the 70s.

You know, we had a 74 recession and then the recession in the early 1980s.

But the labor force growth was booming back then.

Sales were booming, home prices were booming in the late 70s.

So it's not a 100% correlation.

So I understand people are like, what's the bond market trying to tell us?

Is the economic expansion fine?

And it's just sitting here, not wanting to commit.

I should have had a name.

I should have had a name for this 4.50.

I mean, this 4.50 is like doing this reverse Gandalf for thing right here.

Man, it's just not being able to close above that 4.50.

And of course, if the jobs data beat estimates,

if we had 92,000 jobs created instead of negative 92,

I think the whole picture would be different.

But it's a wait and see in the craziest year so far

in terms of all the external events around the world in our economy.

Mortgage rates into 10 year yields has just been chill.

It's shocking to me.

So all weekend long, you and I were talking about like what you thought would happen.

Of course, you wrote the tracker with the latest data on Saturday.

But I just, I don't understand because like from a very basic level,

it's like this kind of war, this kind of escalation should make things go up, right?

So there's two ways to think about this because this was kind of the conversation.

Number one, the 10 year yield has to go up.

The Fed should talk about hiking rates because inflation is going to go up

because it's not just gas prices.

Diesel prices go up, food costs go up, airline fuel goes up, airline prices go up.

The longer this goes, every single day you have countries reducing production of oil

because they can't store it.

So this is an escalation factor and like $120 oil, it can get worse.

The other side says there's no way the US consumer can take higher oil prices, higher food prices.

15% tariffs.

There's way too many things happening right now.

There was always this concern about affordability going into 2026 and we just made it worse.

So it is recessionary that this happens and not expansionary inflationary.

And there's the divide here and the 10 year yields like we're not picking sites.

We're just going to sit here until things clear up.

And to me, it's just, there's just still an understanding that this probably can't go on

for a very long time.

I'd be shocked if we're still doing this after March 21st and we've already seen an attempt

to maybe get more oil out there from the G7s and Trump is talking about the Jones act

and trying to do whatever they can to mitigate the damage.

But eventually if this doesn't get resolved, things aren't going to work.

And the question is, is it going to be so inflationary that it impacts the man?

And we haven't created jobs.

Like if you take liberation there are Godzilla tariffs.

April 2nd, right?

Yeah, if you take Godzilla tariffs, we haven't created any jobs at all during this period of time.

The first trade war tap dance, which was a very small version of this, you know,

the business investment went down.

There's things don't work when the government is this big and trying to make all these things happen.

So I think it's just a standoff right now because we have a lot of rate cuts in the system

and mortgage spreads are almost back to normal.

So I get it if people are confused, but if you think of it as a standoff between

expansionary plus inflation or this inflation, the consumer can't hit it.

This will be disinflationary in terms of demand, gain, hit, and companies need to lay off people.

This is why you have the bond market not picking size right now.

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So I've seen the word stagflation thrown around quite a bit over the weekend.

That's a turmoil. I always think of 70s.

Stagf, no. The problem with this is the 1970s, the dual-access char crimes of history.

The economy was booming because labor force growth was booming.

Home sales were booming. Home prices were booming.

We had a much different economy than the 1970s to have double-digit inflation and double-digit

unemployment rates. So if you want to make a stagflation light,

but wage growth is still up, the unemployment rate is still sub 5%.

You know, I think that's just a shiny object for right now.

Because of course, if things all of a sudden change two or three days from now,

then we move on from this.

But a lot of people are saying, hey, guess what?

These dual-access char crimes, things that we do.

Here it goes.

It is 2026, the stagflation 1970s argument was supposed to start in 2024.

Right? And we have tariffs now.

Right? We have the highest percentage of revenue collecting tariffs we've had in decades.

So hypothetically speaking, let's just say all-hell breaks loose.

Oil goes to 250 to 300 and tariffs.

And then that just pushes up the cost of living.

And the White House just says, hey, tough, we really want to do this.

We'll cross that bridge if we get there.

But for right now, the 10-year yield is not thinking anything like this.

So I'd rather focus on the current data, what we have in front of us.

And the bond market not picking aside at this point is very telling.

Boy, the oil market's just as soon as we crossed over 82, all hell was.

You have the potential of this breaking out.

And until you get closure and told everyone could agree that we could let ships go

without worrying about getting bombed and stuff like that,

then we're just going to deal with this on a day-to-day basis.

But man, I don't know how much longer the 10-year yield could just hang out here.

So you mentioned that 415 level.

What you talked about last week or actually the week before you like,

this is kind of the level that you think like if it can just stay there.

Why 415?

Do you think it'll go a little bit higher?

That's just the technical level that we had to break under to get the 10-year yield lower.

So once that broke, I mean, I was talking about that level coming down.

You know, so I'm going to talk about that level going up as well.

So this is like week three now.

We've talked about this 415 and like literally before I got on the show is 412.

The bond market will eventually have to pick aside.

Is the economy still expanding and inflation will keep up?

Because there'll be no disinflation factors with demand being hit?

Or is the 10-year yield coming from 421 to 412 saying that there's no way we can take an oil shock,

airline shock, diesel shock, food price shock, 15% tariffs,

not even at neutral policy yet.

And that'll be recessionary because the labor market's not creating any jobs,

any kind of shock to get layoffs and there you go.

Right now it's no man's land, but I just imagine we can't probably stay here forever,

but we have for this crazy amount of period of time.

And again, this is something that can resolve itself quickly or it can just escalate.

But every day it goes on, it's going to get harder to get things going again.

And you know, the whole Trinity impact that we talked about on November 7th, 2024,

said this can only work if energy prices are lower, mortgage rates are lower,

and the dollars are lower.

Well, you just lost the energy one.

So you don't have the Trinity with you anymore.

And you had people complaining about affordability going into this year

and the midterms are coming up.

And now you're doing 15% tariffs.

And now you got a bunch of variables that if this doesn't resolve itself in time,

we'll infiltrate itself.

And then all of a sudden people go, oh, my airline costs are up.

My gas prices are up.

Diesel.

Food prices.

Yeah, you know, the transportation of food.

I mean, we've had some really, really epic moves.

So it's a high velocity event because now you're obviously seeing countries

and the White House trying to calm this down.

But we'll see.

It's 24, Sarah.

It's the show 24.

Someone asked me today, they were like, what do you mean 24?

Not the year 24, the show 24, where you are Jack Bauer.

And then you want me to be Chloe.

I'm like, I'm not being Chloe.

But I will be Madame President.

I'll be like a President Palmer.

Not that evil one who was President Logan.

President Logan was gnarly, though.

You know, the best part is when Jack Bauer had that mask on.

And he was going after President Logan in the limousine.

Like, he knew death was coming in like Jack Bauer,

even with a protected limousine.

He's like, it's Jack Bauer, it's Jack Bauer.

Like, you know, it's nutty.

And outside of that, the tracker, we had another good weekend with housing data.

This is my next question.

Before this all happened, we're like, this is a very positive start to spring.

It might still be, but there's a lot of uncertainty out there, right?

But in the tracker, what you saw was, uh, tell us what we saw on inventory

and on pending sales.

So I'm not a big fan of people saying, well, people aren't making choices

because they're uncertain, the world events.

I know because mortgage rates are low.

History has shown us when mortgage rates are lower and the majority of the work

force is working, people make decisions.

Why do we know this?

Because COVID was the mother of all uncertainty moments in history.

You had 30 million unemployed people.

You had five million in forbearance.

You had people talking about depression.

It's six, seven weeks.

The housing market made the sharpest recovery in the history of planet Earth

because mortgage rates were three percent.

And, you know, people are like, oh, I'm, I'm living.

I'm buying homes.

So what's happened in this crazy year starting from January, 2026,

purchase application data has been positive year over year every single week.

Five of those weeks have been double digit year over year gains.

We had the snow effect.

We'll talk about the existing home sales report.

That's going to come out today a little bit later.

But once now the snow effect went away, the weekly pending sales positive year over

year, three weeks in a row, the growth rate of an inventory fell, which is

shocked me a little bit, but we should be getting the seasonal high

increase. But if you look at the slope, Sarah, the slope of the curve.

Oh, you love the slope of the curve.

Oh, my God.

So beautiful.

The growth rate of inventories now got from 33% now down to 6.91%.

And if that slope just stays because the year over year cops are difficult,

we're going to have some negative think about this.

Who had that on their bingo card?

We might have negative year over year inventory.

Uh, it's fine.

This year, it wasn't fine in 2023, right?

We have plenty of inventory.

There's no shortage.

There's no nothing.

There's enough and affordability is still stretched to where we're not

going to have multiple bits.

The housing market is perfectly fine and healthier now than it was.

2023 was a problem, though, because inventory wasn't high enough yet.

And the seasonal bottom didn't happen until April, which is terrible.

And because of that, the slope of the curve was so slow,

even though mortgage rates end up going up to 8% that we were going to have

some negative year over year inventory, this is a little bit different

in the case where demand just picked up a little bit.

And because the cops are really hard from last year,

we might have some negative year over year inventory.

The price cut percentages are down like one and a quarter percent from year.

It's still a fine normal.

It's just crazy to think that with all that's going on.

But that's the case because mortgage rates are near six percent.

We have not gone over six and a quarter one time this year

till you mortgage news daily.

Stable housing market inventories.

Uh, price growth is cooling down.

Wages are up.

More choices rates are lower.

This is the healthiest spring backdrop.

And it's just like, oh my god, how many AI videos have I made of myself

in the middle of an oil field getting bombed with an oil chart looking at me?

You know, so it's nutty.

I get it.

It's nutty.

But eventually something has to break one way or another.

We can't really sit here.

So I'm kind of like March 21st.

Like if this is not done by March 21st,

and you're going to have three weeks of higher energy costs,

higher diesel costs, airline, and then all of a sudden,

consumers get to then really feel it.

And then you got midterms coming up.

So we'll see.

That's kind of my threshold because, you know,

it's always gas prices that really

might think of gas prices are up 52 cents in a short amount of time.

So obviously all the announcements we saw today,

they're trying to calm this down as much as possible.

But it's crazy.

And then the tracker was just like,

if you didn't know what was happening around the world,

they're, hey, it's a pretty normal week to man's up.

You know, rates are low and then nothing,

but it's the backdrop of that.

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forward slash HW.

I think my favorite line from the track

or this week was you were talking about,

okay, here's the economic data to look at coming up.

And you're like, let me be clear,

none of the economic data matters

as much as whatever's happening with the Iran War

because that's going to drive things.

We can talk about, you know,

existing home sales,

we can get all these different things,

but it's like, that's the backdrop.

Yeah, that's backwards looking.

These data lines, it's forward looking.

And, you know, inflation expectations,

it's stuff like that is what the Fed really tracks.

We had a lot of hawkish Fed people last week say,

hey, listen, I don't know if there's any more rate cuts,

you know, maybe we should hike rate, you know,

so it's crazy to think this,

but this is just the case we are in

until the situation results.

Because clearly, what oil going from like $56 to $118,

you know, it's like that scene from Ghostbusters,

you know, that's a big twiggy, you know,

that's a big move, man.

That's not, that's not anything so.

So we could feel bad for Kevin Warsh at this moment.

You can imagine he's like, I'm going to be

the Fed chairman right now.

That seems interesting.

Kevin Warsh Trump's boy.

Now, old Kevin Warsh would come on TV right now.

We need to raise rates.

We have commodity inflation and that's intolerable.

We have to raise rates.

We have to reduce the balance sheets.

Stocks have to come down, you know,

old Kevin Warsh should be saying that,

but this Kevin Warsh Trump's going to whip him into shape.

He's going to say what he wants him to say.

So I imagine if Kevin Warsh they asked him,

he said, well, we think this is oil.

God, Kevin Warsh, I could totally see him saying this.

This is very transitory.

And I'm not going to look into this.

So yeah, it's crazy out there.

It is what it is, but this is what we're dealing with.

But we have existing home sales.

Yes, one last question.

Let's talk about existing home sales.

Okay, so hopefully now after all the data

that everyone has for reading, right?

What did we say going up toward the end of last year?

We said that the last two weeks of the year,

in the first week, we're going to have Christmas and New Year's.

I'm not going to write the tracker because it's going to look terrible.

We had a nine month high in existing home sales.

And the holidays are going to mess everything up.

It's like a mini COVID, right?

You have to have everything at full throttle.

I'll keep that sales going.

So we had this big month of month of client, everyone overread it.

And they thought inventories, skyrocketing prices were on.

People don't read.

When you don't read it, you burn books.

Instead of reading them, this is what happens.

Now we had a very aggressive rebound from the holidays.

But then the snow thing happened.

So this is the last existing home sales report.

So we wrote in the tracker, get your popcorn out

and get ready for some real terrible housing takes.

Just like the last one.

So you can see who the rookie ball people are.

Who just embarrassed themselves in the last report.

And the most likely you'll embarrass themselves again.

If you really had home sales crashing in inventory,

inventory growth would be accelerating.

The price cut percentage would be accelerating.

Not inventory growth slowing down.

Keep it simple.

When mortgage rates are just near 6%, demand picks up a little bit.

I don't even have a lot of home sales forecasted for this year.

It's 237,000 more from last year.

In fact, the December monthly print

is actually higher than what my yearly forecast would be.

But it's not like the sexiest story in the world.

But it's a very stable, boring housing market.

And I don't know how many people can react

to like something normal.

You know, you can't grift off of this.

You can't do important off of this.

You can't make these big macro themes

where you want all these government policies.

It's just normal housing market.

I mean, normal, but set against this crazy backdrop.

So yeah, it is.

And again, COVID was the mother of crazy backdrops.

People were talking about depression.

And it was right.

30 million.

Remember when we did the COVID-19 recovery model?

And people said, Logan, we're going to buy the houses.

We have 25 to 30 million people unemployed.

I said, homie, we have 5 million and 4 barons.

Dude, that's 35 million people off the grids.

What do we always tell people?

My army's bigger than yours.

I got 133 million people still working,

getting paid, 3% mortgage rates.

As soon as they stop hoarding toilet paper.

And why?

The perfect combination.

They go back to living lower.

And that's what happened.

Yeah, just like it was a V-shape recovery.

It wasn't even V-shape,

but it's a thing that just went vertical.

So right now, very normal spring.

Very kind of boring, normal spring.

Not much is happening with prices.

Not much is happening with inventory.

Demand's picking up just a little.

I don't know how many people can talk about housing in that light.

But that's why we have the tracker.

That's why we have housing wire intelligence now.

For those who are subscribers, housing wire intelligence,

you could go in there and look at your own area.

Very positive tracker now with all the craziness.

But the 10 year yield probably has to pick a side at some point.

We can't be fighting this 415.

I said the same thing about Gandalf.

And if we like eight times,

we tested the Gandalf line.

I'm like, my God, what's going on here?

Homey is not Balrog.

This is not getting through, man.

You are not passing.

But eventually, this floor,

if it does go past March 21st,

then something probably didn't go right.

And something has to break on that front.

Unless there are some kind of organized unity movement

to keep oil prices in check.

But it's hard.

It's hard with these kind of variables.

But at least last night, I was able to see

that oil getting up to about near 120

did take the 10 year yield up to 421.

But before 21, a lot of people are like,

it should be much higher than you have another group

who says it should be much lower.

This will create a recession.

So you have a good conflicting fight here.

And then the 10 year yield is like,

ah, whatever.

We're just hanging around here.

So that probably can't last forever

or neither can this conflict.

So we'll just take it one day at a time.

We will be taking it one day at a time.

Logan, thank you so much for all your work on this.

Appreciate you.

Pleasure, you're going to do the Duggy with me

when we go on stage in Austin.

No, I do not dance on it.

No, I'm not.

You don't want to do the slow dance.

Now you don't want to do the Duggy.

I know one wants to see me do the Duggy.

Yes, yes, they do.

Everyone tells it's right to Sarah Wheeler.

Absolutely not.

You want to see Sarah Wheeler and Logan

do the Duggy on stage in Austin

for the gatherings event,

which is going to be the event

because we're going to have the top executives

and real estate and mortgage everyone together

by that time, April 20th.

Well, boy, it's going to be amazing.

Why some things are going to have to be answered.

But yeah, get Sarah to do the Duggy with me.

No, but just come to the gathering

for other amazing things that are happening, not that.

All right, Logan, thank you.

Thanks for listening to Housing Wire Daily.

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