Logan Mohtashami with the jobs Friday preview

0:00Change is constant and so is MGIC. For nearly 70 years, MGIC has been the original choice for mortgage insurance. With tools, resources, and expertise to help you close more loans and manage risk, market-tested, industry-trusted, authentically MGIC. Visit MGIC.com Welcome, everyone. I'm joined today by lead analyst Logan Mota-Shami to give a Jobs Friday preview. Before we dive in, here are the top five trending stories on housingwire.com. First, we have FHF-FACE as Fannie and Freddie will use one LLPA grid for FICO and Vanish score, followed by our 9% mortgage rates possible. Then we have the choice market arrives as sellers face growing price pressure, and new homes still cost less than existing homes in many U.S. markets. Finally, we have Rocket Mortgage, who will make Vanish score 4.0 its default credit model. We've got lots to talk about Logan. Let's dive in. Yes, well, it's Jobs Week. It's Wednesday, so this is day three of Freddie Krueger's crazy neighborhood.

1:06With how the bond market is, I was thinking that how is the market really pricing in the next rate-high cycle? To me, it looks like the Fed Fund's rate is going to get to 5% by September of 2027, which takes us almost back to the cycle highs. That is something that when the Fed rate-high cycle started, a lot of that is because the labor data got better first before the conflict even started. But what you just want to see is them taking the insurance rate cuts from last year back. That means the trade war doesn't get worse and the conflict is over. But getting more than that is what the market is looking out. A lot of this is labor first. Last year, the labor market was deteriorating enough that if it wasn't for the healthcare industry and social services, we would have lost 834,000 jobs. That would have been the reason why the unemployment rate had gone up. My premise is that the trade war, government shutdowns, all these things,

2:08the economy doesn't perform well because companies just don't know what to do at that point. But this year is different in the sense that we've got the tax cuts, we've got the expense gains, we still have deficits spending, the trade war, you don't have that shock. So the labor market has rebounded. But for me personally, my break-evens, break-evens are the number of jobs you need to create. You can keep the unemployment rate stable. It's around 78,000 and the last three months have been 82,000. So we've seen a pickup to where it would be normal job growth. And I think for a lot of people, they see these low numbers and they've been constantly told that this means we're going into recession because if we follow this cycle, here, this cycle, here, this cycle, here, the recession started in 2023, four, five, that's not how it works. And I was stressed to people. You guys need to listen to people who track this stuff without a bias. So jobs week is really critical in terms of thinking where we are in the labor cycle because the Fed is saying, hey, listen, the job market stable were good. Even all the hawks always emphasize that the job market stable, stable.

3:12I can't, you know, our dual mandate is being met, we can focus on inflation more than the labor market. So what goes through those numbers again because they have changed dramatically, right? Over the last 18 months where what we used to consider good job growth, what the Fed's break even is. I mean, it does seem really low, but we know you've said before, like if it's over some, what is it, 30,000 that they'd be fine? I think the Federal Reserve, this is how I just interpret their talk. If jobs are creating 33,000 jobs per month, then the unemployment rate should be stable. That seems extremely low to me just because of the diffusion factor of labor. You know, people get fired every single week. We always say one and a half to two million people lose their jobs every month, right? That happens. It's just how the shift of economic growth and the need for labor. But the last three months before this report coming up, it's the three month average is 82. That's fine. And, you know, the unemployment rate is 4.1%, but the jobless claims data has ticked down again to under 200,000. I cannot stress to you.

4:13You and I were laughing because I was watching a video of Facebook memory of myself from 10 years ago. And I'm in a gym talking about, well, jobless claims are 245,000. I was fighting the tumors people back then. I was like, 245,000, we'd be like, what is happening, right? But, I mean, but even 240,000 is historically low, and we're under 200,000 here. And, you know, I was telling people, it's such a unique time in US economic history, that if it wasn't for COVID, we'd still have the longest economic and job expansion ever recorded in history. It would have been 16 years now, such a dynamic time in economics for multiple reasons. But, you know, jobless claims is what they, what they track, and it's gone lower. Now, we had the job openings report yesterday, and it's the same kind of store. Job openings are still above 7 million. That's, you know, where we were pre-COVID. That was historically an all-time high before the shoot up in COVID. So I think the Fed is okay with job openings being there because wage growth is heading lower.

5:14Two towns, 10 minutes apart, can behave nothing alike. One's moving, one's stalled, and the average of the two tells your client nothing. Altos tracks every zip code on its own, what's listed, what's selling, how long it's taking. So the number you quote is the one that applies to their street. Start your free trial at altos.re. Okay, so let's get down to it. If the report comes out on Friday, and it's like, jobs, beat expectations, what does that mean for mortgage rates? I think to me, it's the labor market being stable, you know, whether it's 40,000 or 140,000. I think the market is just, you know, the labor market is fine now. I think the big story for now, for everybody in the real estate and mortgage industry, is wage growth. Now, there's two ways to think about this. People say, well, the labor market is hot. Well, if the labor market is hot, wage growth should be picking up. Okay. And then the other group could say, well, wage growth is on the verge of breaking under 3%. And you can't necessarily have a hot labor market and have wage growth falling

6:19with the unemployment rate falling too. Okay, so to me, it's a very stable marketplace. But because inflation has embedded itself longer, longer, wage growth has to start picking up because the cost of living has picked up. And, you know, not a lot of people talk about it this way, but I'm a big believer that the Federal Reserve is really enjoying the fact that they're seeing wage growth decelerate to under 3% because they're running off of their own models. That if wage growth is under 3% and productivity is at 1%, that's how you target 2% inflation. But everything that's happened in the last, I would say, nine months, wage growth has to start picking up soon because the cost of living has started to pick up, right? It's headline inflation, core inflation, everything. So the last thing rates need is wage growth start accelerating higher. And then all of a sudden, the unemployment rate, you know, gets to 4% or starting to go under. Because then you start the Federal Reserve going, okay, the labor market is now accelerating.

7:19Even if the jobs reports were like 40 or 50,000, if wage growth starts to accelerate higher, that's what the Federal Reserve doesn't want to say why Sarah? Because if people make more money, they're going to buy more stuff and how can you balance it economy? And I always go back to the Neil Cushgari 2023, February of 2023 when he said, we can't have mortgage rates at 6%. How can we balance it economy if people are buying homes, right? So it's a very dynamic situation with the Federal Reserve because, you know, they're restarting a rate hike cycle mostly because of two events that they've categorized as not healthy. Number one, the trade war, but they were going to let that go. Number two, the conflict, so they talked about the conflict a lot. And even when oil prices were heading lower, they chose not to say anything about it. But the third variable is now AI is inflationary. And just six, seven months ago, people were talking about, oh my god, we're going to use millions of

8:20jobs to AI. AI is going to unemployment rate is, and what's my line? I'm more worried about not having enough workers, you know, then all of a sudden, you know, a technology displacing 47 to 52 million Americans in a very short amount of time. And that angle has worked, right? Because guess what? Labor force growth is so low that we could have 33,000 jobs per month and we'd be perfectly fine. So the AI story, and I say this because Lisa Cook, Lisa Cook, who was one of the doves, who was one of the productivity doves, she came out and said, well, AI right now is inflationary. So pretty much the Federal Reserve has flipped the switch or flipped the playbook from AI being a disinflationary factor to an inflationary factor because of all the money that's being spent and, you know, the jobs that are needed to keep things going. And we say that because of data centers and construction and employment is being boosted by that. So it's really such a fascinating year that, I mean, I've followed the markets for a very long time. This is probably the most sophisticated Fed year that I could remember

9:24because we went from two to three rate cuts with all these negative variables to now. We're now five or six rate hikes talking about in a very short amount of time due to multiple events, but also kind of the misread of AI being disinflationary and the jobs being taken in private credit. Remember everyone talked about private credit was going to, you know, the economy was on a verge of a private, you know, none of these things happened in terms of the negative side, but on the positive side. But for the Fed, they're looking at hateless and if wage growth starts taking off, you know, we might need to be more hawkish. The housing wire homebuilder summit brings together home building executives and leaders in Dallas on October 19th through the 21st real strategies, real conversations, real operators tackling what shaping home building today when the industry is changing the right room matters. Register for the homebuilder summit October 19th through the 21st at the Adolphus in Dallas at housingwire.com.

10:27So you know, you wrote, you wrote an article, are we more likely to, you know, what would it take to get to down to 6% again? What would it take to get to 8% and then of course, our 9% mortgage rates possible? How do jobs fit into that whole conversation about how high things could go? Well, to me, it's if the job market is is re-accelerating in wage growth is re-accelerating, then in the future, the Federal Reserve probably is going to say we need to attack the labor supply. I know it's crazy to say that, but they inherently do not like a tight labor market because their old school model say, and this is Beth Hammock. Beth Hammock is running the old Federal Reserve playbook that 5% unemployment rate is really full employment and it might be a little bit lower for her, but in a full employment, you know, what happens is wage growth starts to take off. So I'm more about wage growth than the actual jobs created right now because when you have such low labor force growth, you can have four to five reports a year be negative, right? And still have the unemployment rate low. I mean, we've had two reports so far this year that have been negative and the unemployment

11:31rate has low and jobless claim is low. And I think that concept is very hard for people to understand, but if you look at Japan, right, what do we always say? Japan's 40% of their population will be dead by the end of the century and they sell more adult diapers and baby diapers. So they are an aging population. They are dying out and Japan has never been big on immigration for thousands of years, but now they're like, hey, anybody come on in, help us. And you never want your country to have population starting dying off. It's never a good thing. So you either replace it with robots or you replace it with more humans replacing the people that are leaving the workforce and dying off. So wage growth to me is important now. On the negative side for the labor market, if the labor force is growing, right, we have more people working or looking for work, then the unemployment rate has the potential to pick up a little bit, but ice is the rest that a lot of people lately. So part of the thing, I'm not sure if the White House thought this was part of their game plan, but when you reduce the labor force with less immigration and kicking people out, that labor

12:36force growth can keep the unemployment rate low. And I don't know if that's just part of the thinking, but you can make a case that maybe some people in the White House thought, well, if we take these people off, they need to hire more, right? And then nothing really changes because we're just taking one group out and then replacing with another. That really hasn't worked out yet. So there is a potential for the labor market to get better, but on the right side of the equation to answer, yours, it's me, it's just a wage growth because the wage growth has been falling. We're almost under 3%. So I want to keep an eye on that, not only for this report, but for the next 12 months, because technically wage growth should start to pick up now, right? Because inflation is picking up, the unemployment rate is low. So companies have to offset, you know, the cost of living by raising wages. So we're at that stage. I get another flip in this year from wage growth to celebrating to now, everyone is expecting wage growth to pick up. I think it's such a confusing time. When you think about the fact that people feel the inflation, they feel like, oh, things are more expensive,

13:36that's bad for me. But when the economy is outperforming, that's where you get inflation, right? So I think that it can feel like, you know, if you're a consumer out there, you're like, I'm seeing all these doom headlines, consumer confidence very low right now because they're paying more at the pump, at the grocery store, whatever it's like. So how can that be that we're in such great shape with the economy? So the consumer confidence index, if I had a piece of paper, I know, I know, what you think about it, and throw it away. If anyone actually like made an economic model based on the consumer confidence index, you would be the ultimate doom or of all time. I mean, the consumer confidence index is lower than the 2008 financial crisis and the lows of COVID, when the unemployment rate was 18% or something. Well, for excuse me, I was 15% on a unemployment rate, but here's a thing, the history of inflation for 2000 years. This is what, you know, human men, human beings, especially men, do not learn, they believe they are the ones that can survive an inflation surge. And what history has shown us is that no politician ever

14:38survives an inflation surge. You know, so the White House's game plan, right? The Trinity, the day after Trump won, I said, this can only work if oil prices are lower and mortgage rates are lower and the dollar is lower. If he's got all three of those, this could work in a two-year political cycle. So that was all here, even with the trade war boosting inflation up higher, as long as energy and rates were low, then the conflict threw everything into straight, you know. This is why I just, I think to myself, like why? But then I always say, this had to be planned years ago. There's no way you would roll the dice in mid-term year, but when we went into Iran, the 10-year yield was under 4% or around there and oil prices were low. So that's when you wanted to go in. If you thought it was a four to six-week thing. So of course, nobody likes inflation. So all the consumer confidence index are just the worst ever, but you look at nominal growth, you look at investment, corporate profits are up, and how I try to explain it is, corporate profits are up, inflation is up, wage growth is lower, so it's not costing people in productivity. It is a little bit better than normal here, so that could help profits grow.

15:43So as long as nominal growth, investment and consumption, you could extend an economy for another 10 years and not have it, but the confidence index is, what do everyone see? Everyone sees gas prices every day. What do everyone see? They see mortgage rates, you know. I mean, the majority of the people aren't buying homes. You're looking at only near 5 million total home sales, but when gas prices are low and mortgage rates are low, people feel better. Those two things have going into the election are elevated levels compared to where they were at the end of February. So naturally, the confidence index is not good, and with diesel prices elevated and diesel, you harvest, then you transport food and everything. So it's, we made it a little bit more complicated than it needed to be this year, but I tell you this, this is a very, very complicated, sophisticated year in terms of how the Fed is going to work this and how the economic data is, like if you didn't know anything and you're watching all these headlines, you're, I mean, it'd be very confusing, but nominal growth is very good, and if you look at the history of the 10-year

16:45yield, the 10-year yield and nominal growth typically trend together, and Fed share Kevin Worsh talked about nominal growth targeting, I thought that was a big change, but you know, for rates, unemployment rate and wage growth, forget the headline number, whether it's 25,000 jobs gain or 150,000 or negative 40,000, if the unemployment rate stays low and wage growth is not going lower anymore and jobless claims are low, that's not good for the rate side of the story, and that's the thing that changed this year is that the unemployment rate went lower, jobless claims went lower, and wage growth, even though it's been slowing down, is still above 3%. So all those three things, the Federal Reserve is like, that's stable, we're good, we're just going to focus on the other part of the dual mandate, and that's single targeting inflation more than anything else. I appreciate you listing out those things for us to be paying attention to on Friday when that report comes out. Of course, you'll be writing about it, we will be doing a podcast about it, but Logan, thank you so much and I'm going to see you in person because you're coming into town

17:46for our mortgage banking summit. What a week, what a week to do this, what a week, and I've had to change all my presentations from where we were, and it's been so fascinating watching this year and how things really flipped the switch for multiple reasons. It isn't just oil prices, and I've talked about oil was $112 in April 7th, and the 10-year yield was at 430, so the highest levels of oil, the 10-year yield was almost 1% lower, but there are other things that are in play, and I think the breadth of talking about it all is complicated, but that's what we're here for. We're here to try to explain the madness. I love it. Well, thank you so much, safe flight into Dallas, and we'll talk soon. Pleasure, see you soon, Sarah. Thanks for listening to Housing Wire Daily. If you haven't already, we'd love for you to take a minute to rate the show and leave a comment, and make sure to tune in tomorrow for more news and insight. Housing Wire Intelligence gives you the Housing Market data behind the headlines. From

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