Will rising oil prices bring us into a recession?

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 Motor Showme to talk again about how oil prices are affecting mortgage rates. We'll also talk about purchase apps. Before we get started, I want to thank our sponsor Total Expert for making this episode possible. Logan, welcome back to the podcast. It is wonderful to be here. Wow. What a speech last night. Or maybe not a speech. I don't know what that was, but if the White House was trying to keep WTI oil prices below 100 to get that out of the headline, talking about bombing and sending back to the stone ages. We got two or

1:01three weeks left. Probably won't cut it. It's Thursday morning. Now, very interesting market morning. Oil prices both crude and WTI went above 110 together. Then a headline started to come out that Iran is making a deal with Oman. The 10-year yield started to go much lower, peaked out at 438. It's now 429. A lot is going on, but it's almost let the bond market be your guide on this. But it's just, man, there's just too much talking sometimes. Before that speech, oil was below 100. The 10-year yield was low. Maybe whatever you want to do the next two or three weeks, telling people you're just going to bomb things out of eternity. It's not necessarily going to work as easy. This is not a tariff you're doing. I thought it was really interesting to see the oil market charts to see that go vertical during the speech and after the speech. That was not a good chart. Yeah, oil went up and the 10-year yield went up. This morning, it even accelerated higher,

2:01but the 10-year yield peaked at 438. It's jobs Friday today. It hasn't been that bad of a week of economic data. ADP, BD estimates, job openings were just the usual. Retail sales did BD estimates. It wasn't a bad week. Jobless claims was very low again. But this war's headlines are just driving. I think Japan is down to six weeks left of oil. Things need to start getting in motion before you get into even a bigger global disruption and pain being felt out there. I think one of the things I know you did this for April Fools. We talked about the last time that we were on air and you read, published on your blog, the April Fools thing you ever like recession is near. But like as a consumer out here seeing all this stuff, it's like, aren't we headed into a recession? Tell us why we're not headed into a recession right now. So after 2010, whatever oil prices are here, we've been able to handle it. We were able to handle it in 2011 to 2015 when the labor market was weaker. The balance sheets were less impressive.

3:04We spend less as a percentage of disposable income on gas now than we did in other decades. So this itself won't do it. You need credit markets breaking, credit getting tight. There's all these things. But it's never positive when you get a tax shock like this. So it's not the best news. But in a sense, it's not recessionary because we've tested this. Now in previous decades, you know, when we're dealing with a lot of stuff, you know, the Gulf War, you know, the credit markets were actually breaking back then and then the, you know, oil prices went up. 2008 credit markets were breaking and we had a recession in oil prices spiked up back then. But after 2010, we've been able to handle oil prices even for elevated years in the last decade. So this in itself isn't, but it's not, it's a tax, right? It's just a tax on the consumer because they're spending more on something. And again, the whole trinity impact was that oil prices stayed low, not oil prices, you know, get above $100. Are you, you know, considering where oil prices are, as you

4:04just said, I mean, the 10 year yield went up. But it seems to, what is it around 430 right now, as we're speaking? 430 right now. And it's, again, it's, it's diverging, right? Oil prices are above 100, both crude and WTI, but the 10 year yield has fallen. So we're, we're getting to the point to where they can bond market is just not convinced that this, let me put it this way. Trump says I'm going to blow everything up, okay? Ron says, go ahead, we'll blow everything up as well. And it becomes a global disruption, Mad Max beyond Thunderdome kind of event. I don't think the bond market is fully convinced that that's going to happen. So he talks a lot. And when he talks, oil prices go up because it doesn't sound like there's going to be a deal. But to me, there has to be some kind of backroom talk because the 10 year yield is trading very, you know, mild, in a sense, versus what oil is doing lately. And this has happened since last Friday, the news with a rod or no bond or something like that. But again, it's just chaos. It's just, you know, we're always dealing with this, these headlines and they're, it's very volatile. We had such a calm start of the year,

5:10right? You know, mortgage rates were moving anywhere. They were near 6% and everything. And now you're adding this chaotic factor. But our job is to, you know, analyze this. And again, I think the bond market switched from oil last Friday. And today we'll see how it reacts to jobs Friday out there. I know the Dallas Fed came out with a paper saying that we could have negative 3,000 jobs every report for like two years. And the unemployment rate shouldn't go up because our labor force growth is so low. It's the first published report from the Fed that negative jobs report will be acceptable in terms of keeping the unemployment rate lower. That's just crazy. That is crazy. When I saw that report, I immediately texted you. I was like, what, what is about this? I think it's just crazy that we're now seeing like, listen, if we lose jobs every month for two years, that's okay. You know, I'm very sympathetic to the population growth thing because it's been a big part of my work. It's one of the reasons why I had lower job estimates than a lot of people. But this is taking it to another level. And you know, when we run into the AI questions, a lot of people say, AI is going to take all the jobs. And I said, I'm worried about not

6:13having enough labor to do all the jobs because of death, right? Population growth slowing down, immigration slows down, we don't have enough people. This is what the Dallas Fed is basically saying. We don't have enough people. So it's very hard to get the unemployment rate to go up higher in that context. So I'm not a fan of doing run rates negative and unemployment rates that being hit just because we have sectors of the economy that are clearly have been in a decline for some time. Even Laurie Logan, who's the head of the Dallas Fed, said, you know, the jobs numbers is uncomfortable. So whatever that report is saying, Dallas Fed is not like 100% backing it in terms of, well, we could lose jobs every month and it's still be okay, you know, because the population growth and labor force growth slow down. The whole population thing is so interesting, but because by the time that there's only so much you can do to address it, you can't make people have more children. And by the time it gets to be a problem, it's already too late. You know, we always use Japan as an example. I mean, Japan's 40% of the population will be dead by the end of the century. They sell more adult diapers and baby diapers. Their demographics are terrible. So bad

7:18that, you know, for the first time in their country's history, they're welcoming immigration for a country that's never welcomed immigration. We're not there yet, you know, in that category, but it is interesting that now the dialogue is going to be for the next 10, 20, 30 years. Is this it? Is that the end of the American jobs boom? Because we just don't have enough people. I mean, think about the irony of that statement where people are saying, AI is going to take all the jobs and we're going to have a higher unemployment. What I've always said is I'm worried about the labor force growth and not having enough labor to do all the jobs because so much of the jobs still need manual people to work. So an interesting point in our history where population growth is slowing down and demographics catch up to everyone. But we have 162 million people still working. We have five generations of demographics out there. Of course, the baby boomers are widening their careers out. There's more Gen Z workers than baby boomer workers now. So with Gen Z Gen X and millennials, that's the chunk of our labor force growth. But as the baby boomers leave,

8:19you know, they need to be replaced, right? Their workers need to be replaced and do we have enough labor to replace that? Dallas Fed says no. So interesting. Hi, I'm Clayton Collins, the CEO at Housing Wire and I'm joining you today to talk about the gathering. So the gathering is where the industry's most impactful leaders show up when it matters. It's where the leaders from Rocket, Mr. Cooper and Redfin first shared the stage post-acquisition. Where the CEO of Keller Williams first talked openly after stepping into his new role as CEO and where this year, leaders of Penny Mac and Cross Country are talking openly about what's next, including M&A and organic growth levers. This is the most powerful room in housing and you are invited. So if you're able to join us in Austin, April 27th through 30th, go to HousingWire at the Gathering.com and use the code podcast for 20% off. I know we're going to be on as soon as the jobs report comes out tomorrow. We're of course recording this on Thursday. So we'll be back

9:21on on Friday once those numbers are out. But when you look at what is the for the housing market, what do you want to see jobs doing to make sure we have a healthy housing market? Majority of people in America are working, right? Home buyers, home sellers that'll be buyers, they're always employed. But one of the reasons why rates went lower last year and this year is that the labor market was softer. Now I thought rates could go up higher if the economy started to outperform, but that wasn't the case early in the year. With jobs, it is interesting to see how does the Fed deal if the labor market is eating estimates? Because their whole thing is that, they're fighting two mandates right now, the labor market softer and we have rising inflation. Well, you have a war aspect now, but if the labor data gets better, is it backward looking because now you're going to get a tax on everyone and we're like putting tariffs on still this morning. So there's a lot of uncertainty, stairweeler. Uncertainty is for business owners and business, you know, trying to make decisions, it's chaos, but a softer labor market who was always better for

10:25housing because the tenure yield went lower. A stronger labor market, like we've saw in 2022, or those they just, they kept rates elevated. So it's one of these sectors that, you know, the labor market being soft is more beneficial. And that's why if you look at the history of existing home sales, you know, whenever there's a recession, home sales don't crash, right? They tend to bottom out and then they grow for years because rates go down another like lower to kind of boost the economy. So I'm not more curious of how the bond market will react to the data for because there's so many headlines this week. You couldn't really take the ADP and jobless claims and job opening seriously with this conflict going on, but maybe jobs Friday will get kind of a kick in yield either up or down. How did you feel about the purchase apps this week? I actually thought we would have a negative year over year print this week. We didn't get it, but it's down to 1% growth, you know. So it's April now and pretty much every single week this year has had positive year over year growth. Now we went from like 12% all the way down to 1%. So the growth rate is slowing down as rates go elevated. And I always thought that, you know, the housing market,

11:28the dynamics really shifts when rates are below six and a quarter and you have stability. We had that, right? Our pending sales data still bumping yet you had the snow impact for a few weeks. But after that positive data, everything is positive. So we'll see how this works out going out of the future. Rates never got above 6.64 or head towards 7%. So it's a new dynamic year to see how does the housing market react with all this drama, but rates never breaking above 6.64. So far, we have that and we'll see in the month of April, if that's the case out there. So far, even with oil prices getting to 109, the 10 year yield never got to 4.46 to test that level out there. It's a very fascinating year on that front. I want to see how the housing market reacts because right now, if you didn't know all the crazy stuff out there, be like housings slowly growing. Nothing really too exciting out there. Inventory growth is slow down, but still positive. Price cut percentage is only down slightly year over year. So nothing too dramatic is just that all between the snowstorm, the AI disruptions, private credit, the war, oil prices, everything.

12:29There's so much chaos. It's like the show 24. And then housings kind of like boring eddy going to a library, you know, just reading books, but it'll be interesting because to me, it's whatever rates move, at least half a percent of growth rate has to get hit. And we've seen that, but we haven't had any negative year over year data outside of the few weeks that we had a snowstorm. I still feel like that purchase app's chart is sad because it was going up. It was going up. We had that great climb and then it was like, it fell down pretty hard. So there's a week to week flow with purchase application data all year round. So you want to see more positive week to week. We have always said you need about 12 to 14 weeks of positive week to week data. If you get that with positive year over year data, you got something going. So we had that again, the snow data impacted those snow states. Of course, you adjusted the holidays, which people didn't do again, which is like year 17 of people just not realizing what happens during Christmas of New Year's. But I thought it was, it was a start of the year was good. And I think a lot of people were expecting a bigger decline in housing

13:30data. So we'll see how the tracker data looks this weekend. But clearly the growth rate has slowed down the last two weeks as rates went from 5.98% up to 6.6 more. So that is a big move in a very short amount of time. So we'll see how the tracker looks. But I was kind of looking for a slight negative. So it's just barely up 1% year over year. You know, reminder to our listeners, you can find the tracker on the housing market homepage under news. It's right there housing market tracker. And it's a great Saturday update. Logan goes through all of the charts and the data from the week, which is fresh data. But especially the last, you know, this whole year and the last four weeks, super up to date information that we need to see what's coming. And you always have that section at the end, which is the week ahead, what to look for. Always remember, with our tracker, it's forward looking, right? And our pending sales data is usually 30 to 60 days out before it hits the sales report. So we're months ahead of NAR or the case shell index. We don't want to wait for old stale data, but we incorporate 10 year year old channels, spreads, economics, like the real

14:32nerdy stuff that I don't think a lot of people want to do on a day to day basis, which is all I do all the time. So it is trying to find that rate curve that can make it work. And to me, it was always since late 2022, no matter what was going on, you just get down towards six, right? We don't need three. We don't need four. We don't need five. We just get down to six and we get no volatility. You can do it. And we had it. We had it pre-war. And even with rates moving up, the growth rates slow down, but it's still still positive, you know? So that's, to me, that's, that's a big deal. That even something like this, you know, you don't have home sales crashing or anything like that. But again, if it does, I don't think it, I don't think it will, but if rates go above 6.64 and head above 7%, we've seen what it does to the data the last few years. But so far, even with all the crazy drama that has not occurred, but definitely we've saw hit in the housing data the last two weeks. It's just the growth rate slowing down rather than like any big declines. Well, before we sign off, I did want to note today is a year on from the Liberation Day tariffs

15:33that we saw last year that were such a, what do you call Godzilla tariffs, right? Yeah, Godzilla tariff was crazy, you know? It's just, Trump's a, Trump's a big kid at a candy store, you know? You know, it's like a boosted Willy Wonka. You know, he's just, there's no discipline or no nothing. He just kind of runs around and plays New York bully ball. And I saw this in the first trade war. Trump was a little bit more disciplined back then where he waited until the tax cuts happened and then he did, and then the trade war was somewhat contained. We're just kind of all over the place and it's just hard for businesses to operate in this environment if you don't know what the rules are. And, you know, the job growth slowing down is one thing, but Godzilla tariffs, if it stayed as is, you know, would have been an issue. But, you know, when the 10 year yield got to 415, 460, that said came to White House. I said, oh, guys, no, no, no, no, we can't have this happen. We can't have stocks go down and the 10 year yield go up and, you know, we almost had a bear market. I think the stocks drew down about 18%. But that didn't really push them as much

16:34as the 10 year yield getting to 415, 460. That made them blink. So we, I thought we would get there with the war, but we only got up to 448. So we quite didn't get to the 454, 60 level. And today's the last I check was 429, 430. So a lot of drama, you know, our job is just kind of makes sense of it all, but if you just again, the housing data still looks fine, you know, I wasn't expecting too much growth, but we clearly lost that six and a quarter handle and we clearly lost the no volatility. But we'll take it every single weekend and then run it off of that. And, you know, hopefully we get some news and get this over with, man. I don't know, like, you know, talking about blowing up people to the stone ages, man. That's like Fred Flintstone was, you know, riding his stone cars with his feet, you know. So I mean, it's just we have a we have a global economy out here and people's oil supplies are dwindling down and it's just you can play bully ball with tariffs, but it's hard to say that when a country has like missiles that they can just take their neighbors out. So I'm hopeful that I'm reading the bond market. The bond market

17:37to me is still saying there's going to be a deal done. I know oil prices have been done that. So we've had a clear divergence in the oil bond trade out there that we've been talking about all the time on these live updates on Instagram. But very interesting. Well, I'm really excited to see how the 10 year yield reacts to the jobs reported. Who knows what headlines will happen between now and tomorrow and over the weekend. And, you know, it's good Friday tomorrow too. So we got we got everything going on. We really do. Logan, thanks for keeping us up to date. Appreciate you and we will talk again soon. Great. Bye. Thanks for listening to Housingwide Daily. If you haven't already, we'd love for you to take a minute to rate the show or leave a comment. We'll see you back here on Monday for more news and insight.