Real Talk on Rates with Mortgage News Daily’s Matt Graham

Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market video series with the top of Mind podcast. We seek to add context to the discussion about what's happening in the market from leaders in the industry each week. Of course, Altos tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. So if you need to communicate about the real estate market, you need your buyers and sellers to understand what's happening. You should join us at Altos Research. Go to Altos book, a free consult with our team.

(01:04)
We can review local markets, every market in the country and teach you how to use market data in your business. Okay, let's get to the show. So today we're talking with Matt Graham from MBS Live and Mortgage News Daily, a former loan originator. Matt is one of the foremost technology innovators and market commentators in the mortgage industry. He built MBS live and into the leading source of streaming bond prices, mortgage data and analysis. It's stuff we use every day. Matt is one of the foremost experts on mortgages. And so let's go to school today. Matt, welcome to the show.

I don't know who wrote that bio, but he sounds pretty smart.

Sure. Smarter than me.

Anyway,

So thanks for joining. I'd like to start with a little background. Tell us about you. Tell us about the company's MBS Live Mortgage News Daily. Give me a little bit about your journey, how we got here.

Yeah, those who can't do teach, and it was 2007 ish and I wasn't loving originating at the time and I was loving writing commentary on mortgage-backed securities and various other articles for Mortgage News Daily. And I had the opportunity to pivot into that as a primary job and did that. And one thing led to another with the creation of MBS Live. The community took on a life of its own and yeah, 20 years later haven't taken a day off from that. And then in addition to MBS live stuff, I still write the daily rate article for mortgage news daily, edit articles on there, follow housing data to the best of my ability. Nothing like you guys do, but yeah, loving every minute of it.

Great. Okay, so yeah, we started about the same time and diving into the information side of the industry. And so at MBS Live, you're watching bond markets, you're watching what else is going into what you're paying attention to every day.

The more that you decide to be a mortgage rate guy gal, the more you are really just a macro economist or a macro market watcher with a lot of focus on the Fed and really US treasuries because while mortgages are based on mortgage-backed securities in general, the Directional Movement Day-to-Day is going to follow treasuries of a comparable duration. So really you're a government bond trader, not that you're trading, but you're watching what government bond traders would watch for cues on directional movement and just insight as to what events on the calendar might be relevant, might cause volatility, mortgage-backed securities pricing, real time intraday, treasuries, news, especially fed speeches, economic data, and those would be the key areas of focus for NPS Live.

Great, okay. So that's really useful to me. It's funny, I'm not a mortgage market guy, so I'm going to ask you a lot of beginner questions today as I can dive into really helping me understand the dynamics of the market and what we can expect in the future. One of the things I have kind of opinions I've formed over the years is that I'm not convinced that anybody can predict mortgage rates.

That's a key talking point. Yeah.

Can you predict mortgage rates? Do you believe you have an ability to see where they're going?

No. The better you get at this, the more you realize you can't do that. I think when I was in my twenties, I thought I probably could to some extent, but no, that that's an illusion and it's a talking point I'll probably use to answer several questions today because there's billions of dollars trading hands every minute trying to get ahead of what the market's going to do in the future. The bond market is not an exception to that. So for somebody to think that they could predict the future of rates, that would mean they should really be putting their money where their mouth is and trading that just like other traders are doing. And even then, the fact that other traders are doing it means it's already priced to perfection. It's priced for whatever the collective unconscious and conscious of market participants can know. So unless you know more than all of them, you're unequal footing.

Okay. So thank you. I'm glad that we are on the same orientation there. So that being said, let's talk about the mortgage markets right now. So it's the end of may. Rates are still in the sevens. We didn't think that was going to happen when we started the year. So tell me about the mortgage markets right now. What should we be paying attention to? What should I be? Tell me what I should know right now.

Yeah, so you're right. Most, the average outlook didn't see 7% rates still, but we knew that rates had been a size 8% and that we felt they were probably going to come down in 2024. That's arguably true, although most of 2024 so far seen rates move gradually higher because we got most of that drop at the end of 2023. So the current story of rates really is one that starts sort of middle of last year when economic data began to get a little bit more disconcerting for fans of low rates around August, September timeframe. And that resulted in a couple of things, but mainly in the fed's dot plot on September 20th. Yeah, 20th, 20th, conveying another 50 basis points higher in the Fed funds rate by the end of 2024, which was a little bit of a surprise to the market and kicked off a little bit of a panic that was further fueled by additional economic data.

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And that really didn't stop until late October when the Fed was visibly concerned. Several fed speakers came out and said, the economy's going to start to soften our contacts or saying that things are getting bad. They clearly didn't expect rates to move higher as quickly as they did in the market. And then November 1st and the first week of November, there were several events including the treasury's refunding announcement, which we can talk about in more detail if you want, but just affects the supply outlook for the treasury market. And thus one of the two key inputs for interest rate momentum. So there was a somewhat favorable supply announcement from treasury, there was slightly weaker economic data. And then later in November, a very friendly CPI report that sent rates much lower and that all came to a head December 13th when the fed's next dot plot came out that completely priced out that additional 50 basis points of fed funds rate that was in the last dot plot.

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And by the way, we should say dot plot. What the hell is that? Right? So dot plot refers to a page in the fed's summary of economic projections, which is something they release four out of their eight meetings a year where they detail their projections, not predictions, projections for where certain metrics will be in the future. One of those is the Fed funds rate itself, and each fed member gets a dot. that.is then represented on a chart. So you have all these dots showing where the Fed thinks the Fed funds rate's going to be. And even though fed chair Powell likes to tell people don't pay attention to it, the market loves to pay attention to it a lot. So the dot plot sort of waxed and waned came and went and that added fuel to the fire and rates moved lower by some measures of record pace at the end of 2023.

(09:20)
It was really only made possible by the fact that they got really, really high. Wouldn't have been a record pace otherwise, but not the point. The point is there was a lot of optimism and a lot of expectation for October, 2023 to have been the turning point in the rear view mirror. And so much of the progress back in the other direction happened over the next two months that we're currently seeing, not only for that reason, but it's one of the reasons we're currently seeing things sort of pull back and level off. And it certainly hasn't helped that in the first three months of 2024, the inflation data has been quite unfriendly, unexpectedly high stubborn, whatever you want to call it, higher than the market expected. And when it was just January's data, some people were keen to sort of explain that away, but then it was February's and then it was marches.

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And it wasn't until this most recent report last week that we saw better signs of things probably stabilizing, leveling off. So it's just been a series of punting and waiting for this CPI report consumer price index, the first big ticket inflation index that we get on any given month to show that moment where inflation has gone from, oh man, that's still really high, to, oh, hey, that looks like it might be starting to calm down. So now we have one month like that. We've had one month like that before and it hasn't panned out. So fed speakers are out and they will be keen to remind people we're going to need a few more of those types of reports consecutively in order to get back to a conversation about cutting rates. So really that's where the mortgage rate market is. We're in a holding pattern. We're waiting. We have actually waiting in a nice waiting room now better than where we were a couple months ago, over the past three months, but still very much waiting for news on not whether we're going to survive, but what the outlook is going to be for the rest of 2024

Because we've had a trend of one nice inflation news, little nicer inflation news, at least we're waiting in a room where, so rates are inching downward now over the last few weeks basically because of that. That's the biggest news that's being digested currently.

Yeah, retail sales was also quite weak too, and that was a little bit fresh in the market's memory. Retail sales is typically not on par with CPI, the consumer price index, but in most recent example, last month's retail sales really added injury to insult or whatever, insult to injury. And so this time around it was sort of the opposite where it was much weaker than expected and helped this little rate recovery probably get bigger than it otherwise might've been.

Right. Okay. So you mentioned treasury refunding. Tell me about what that means.

Yeah, so the government spends money, they get money from taxes, they spend more than they get in taxes generally. And that shortfall simplifying here is made up for by borrowing. Borrowing takes place via the issuance of treasury debt. It's a consistent thing and happens all the time on a regular schedule. And every quarter the treasury updates its estimates and official auction amounts to say, here's how much we're going to borrow. Before it does that, it comes out and says, here's how much we think we're going to borrow on a Monday. And then it makes that official for several auctions that following Wednesday. And these quarterly refunding announcements are sort of the big reveal for that. And the market can sort of come up with some sort of idea of how auction amounts are going to change. So then we know they were going to get bigger for shorter term durations.

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And there's no published forecast for that. Different companies are going to have different forecasts, but you'll know when reality is lower or higher than those forecasts by the way the market reacts. So when the market's moving quickly lower at 3:00 PM on that Wednesday afternoon or 8:30 AM on that Monday morning, you'll know that those auction amounts are lower. And why that matters is simple supply and demand. So the lower the supply of something relative to expectations, the higher the price. And in the bond market, higher prices are good for rates, higher prices make rates go lower.

And so the expectation now on the next quarterly refunding announcement is that we're thinking that that is likely to be lower.

Yeah, I don't know if it's going to be lower yet, but if it's not going higher as fast as it was, that's good. And the longer term auctions didn't go any higher. I think the seven year bucket was the highest duration that got an increase, and everything 10 through 30 years did not get an increase this time around. And generally speaking, when the longer duration treasuries aren't getting more issuance, that's usually better for mortgage rates. Although one could make a case right now that the tenure treasury is not quite the best spokesperson for the mortgage rates when it comes to making comparisons based on duration, which is everything in the bond market. There's more expectation recently that your average mortgage isn't going to last 10 years because whenever rates move lower by a percent or more, everybody with the mortgage is going to refinance.

So that's a big deal with the

Mortgage in the last few years.

Yeah, that's a big deal right now. So

Yeah, you've been talking about that on X for a while and yeah, talking about what it does to supply and people being locked into their homes

Understated and is also leading to the spread between the 10 year and the 30 year mortgage fixed mortgage. Is that one of the assumptions that's keeping the spread wider?

Yeah, I think you could say that buyers of that mortgage debt don't really want to pay a premium for these rates if they're just going to refinance soon. So a premium just means that the buyer or the investor is giving the mortgage borrower or even the mortgage lender to give the mortgage borrower more money than the actual loan amount in not so many words. So if you were going to borrow a hundred grand, if I was an investor, I might give you 104 but at a higher rate, and I would want to make that four grand up over time. So in an environment where you might refinance really quickly, I don't want to do that. And that's something that can contribute to that higher spread,

To that higher spread. And it's interesting, I understand that the folks who were buying the mortgages, or at least the servicing rights two years ago as rates started to jump, were expecting very fast refinance and suddenly it's two years on and they haven't had that refinance. We haven't had things drop, and therefore the folks that have bought those servicing rights at that time actually have gotten a really good deal on it. Really

Good deal. Yeah, I mean it was a bit of a gamble. So if you were an econo bearer or just thought inflation was going to stay around a lot longer, there were definitely deals to be had.

Interesting. And so you could now express a view on further inflation by doing that trade right now and

Yes. Yeah, and you hope that your secret sauce is good there because you could be looking at a situation where suddenly the prophecy is fulfilled and the core inflation drops to 0.1, 0.2 month over month and all of a sudden now the fed funds rate of 5.375 is looking like it's going to be three and a half by the end of next year, and things would move incredibly quickly depending on how inflation metrics did and how the economy was performing.

So oh, got it. Right. So it could turn very quickly and suddenly everybody refinances out of all the loans that were done in the last two years and takes a big breather, what does that dynamic or that risk, what does that do to the market right now? Are things slowing down? Is it restricted? Does it have implications because that risk is kind of hanging over us?

No, I think the main implication is just for where rates are and the premiums that are associated with those rates. So when we talk about premium on the mortgage side, it's just this extra income that's associated with any given rate. So in the past, if you had a loan scenario with maybe a lower credit score or a non-owner occupied occupancy, there would be extra costs associated with those things. There always have been, always will be. And you could opt for a higher rate and at higher rate carried a premium from the investor that would allow you to offset those costs. And while it's not as much of a problem now as it was last year or even the year before, there's not as much ability to raise the rate and increase the premium. And that can make things more challenging On the origination side, it can also make for a much higher prevalence of points, discount points, there's inconsistent application of those points depending on the company and the channel. So some people are very strict in their use of the word discount points and what line item they put that on. Others treat it interchangeably with the concept of an origination fee. So either way it's upfront cost that was able to be covered by premium from the investor now not as easily covered.

So right now, is it true that there are fees and points are higher also for borrowers who are going into the markets now? Is that true?

Some fees are higher due to third party providers like credit report have gone up, other upfront fees may have gone up? I don't keep a ton of track of that, but it's not true that there's this sudden conspiracy among the origination community to decide to start charging points one day. The CFPB put out a little something, article bulletin, I don't know what you'd call it, talking about the increased prevalence of points and everybody on the mortgage side of the industry is like, well no shit. That's what we've had to do to compete and to make deals work because that's the nature of how loans are pricing right now. So consumers just really need to understand there's upfront cost and a cost over time, and you want to make sure that you're looking at all of that upfront cost and all of the cost over time, whether it is cash you're paying out of pocket or seller paid closing costs, there's always an upfront bottom line and overtime bottom line. And that's the way that you look at two quotes equally.

Okay. Alright. So that's a nice view of that. So when we look at the rest of 20, 24 rates and spreads and fees and volume and all those things, what should I keep my eyes out for? What should consumers be looking for the rest of the year?

It depends what the consumer needs. If you need to refinance, not urgently, but just want to lower your rate and payment. You are in the same boat as most of the rest of us and we're just watching inflation reports come in and other economic data watching for signs that the economy may be softening, not necessarily tipping into a recession, but that things are slowing down, but especially that inflation is slowing down. And if you were going to look one place for that, the biggest report on any given month, as we've mentioned a few times, is CPI. The consumer price index comes out at 8:30 AM Eastern Time, just right around between the 10th and 15th of any given month. I think maybe the ninth in the earliest cases anyway, there's a schedule, you can find it easily online. And so that is one of the reports that traders watch to assess how close the Fed is to their 2% inflation goal and getting to that goal or getting well on our way to that goal is everything for rates right now.

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And so in order to get 2%, we're talking about core inflation by the way, which excludes food and energy prices. You'd need about 0.17% month over month to equal that 2% target and it is only released in 10th of a point increments. So we're looking for that thing to show us a couple point ones. If we see a couple point ones in CPI, you're also going to look out your window and see rates falling and those consumers will be able to refinance consumers that need to buy or refinance. If you have one of those two point a half percent first mortgage rates, then they will be looking probably at home equity lines of credit or second mortgages if you don't have one of those, if your rate is already high, it's just like anybody else who needs to refinance. And if you're buying a home, you're buying a home.

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And I've never told anybody that they should wait to buy a home for a market condition if it's their primary residence and they're going to be paying a monthly payment to live somewhere anyway. There are a few times in history where that wouldn't have been a good idea, but almost every other time it would be a good idea depending on the particulars and what home you're choosing, making sure it's affordable for you and that you really need it and that's what you want to do. But rates are rates for that, and I think that the chances of them being lower in the next year or two are better than the chances of them being higher.

Okay. That's a useful prediction there. Chances of them being lower are better than chances of being higher. I say the same thing when people ask me about the should I wait, is the market about to crash? Those kind of things. Where do I need to get in now? And my advice is always, if you like the house and you can afford the house, buy the house. If you can't afford it or you don't like it, don't buy it to. Yeah. We're not talking about

Second homes or investment properties too. We're talking about your primary residence where you're going to live,

So okay, that's terrific. And watching for the core CPI, the 0.1% number will be really fascinating to see when those flags turn green for us and how quickly the market reacts. And so when you say that over the next year or two, it seems more likely that rates will be lower than they are now versus higher, you're essentially doing a projection of your expectation

Of a prediction as you'll ever get out of me. I'm not going to say here's what I think they'll be, but yeah, it would be less surprising to see. It's

Really a reflection of what you think is going to happen with inflation.

Not only that, but it's also a look back to October, 2023 and just sort of getting a sense from that. Those rates represented a bit of a defensive panic best I can tell. And that this time around, even as the inflation reports were arguably more alarming in Q1, 2024, rates didn't go as high. And I think one reason for that is that the market senses that the roller coaster of perpetually higher inflation, well inflation may indeed remain elevated for longer than people expect. Traders aren't expecting it to resurge to levels that would necessitate 10 year treasury yields well over 5% or mortgage rates over 8%. Could those things happen? Yes, they could. I don't think that is even close to being the prevailing sentiment right now. I think that that 5%, 10 year and 8% mortgage rate are sort of seen as the defacto ceiling until proven otherwise by some unexpected turn of events in the data

For sure. Okay.

And we're close enough to those ceilings right now to say it's more likely rates will be lower than higher

Then higher. Okay. I think that's a fair, clear enough view. Have you observed a threshold where activities starts to happen, like consumer activity starts to happen, folks are, I hear folks throw out different numbers, five and a half or six and a half, whatever the number is. Have you observed any threshold like that?

I'm not looking for the specific threshold, but in general, even in late 2023, we definitely saw the numbers respond to that move lower in rates and it was a pretty good move in rates. I mean, some lenders were quoting high fives at the time, they weren't at

The end of December.

They weren't like the median lender, but they were out there. And that's a pretty big move in rates, call it at least a 2% move from the peak that got things moving. And I do think that the number that I've heard thrown around among my community is that five and a half number generally speaking, and that's where things really start to feel less threatening from a paradigm standpoint. But even then, the 7% really right now is a whole lot less threatening than it was on the way up. So it seems like there's a lot more acceptance of that and a lot more understanding that that's where rates are right now.

Yeah, I feel like that there isn't a specific threshold, but that the way I like to say it is that consumers are more sensitive to changes in rates than to the absolute level very well. Yeah. So that seven, if I'm shopping at seven, I know I'm shopping at seven, suddenly seven and a half is a pain. Right?

Yep.

Cool. Okay, that's great to hear it. So do you spend any time teaching realtors to communicate about the mortgage markets? What do you wish that we would be teaching people or do you have some good rules of thumb that I can, that I should know that I could stick into my quiver?

I don't spend time doing it directly. I think maybe the content that I write indirectly goes out to a lot of realtors. Some of them might not understand it. I try to make it tangible. But I think it goes back to this predicting the future thing. And gosh, I heard so much hullabaloo at the end of 2023 about realtors, social media posts and things like that. Not promising, but telling everybody rates are going lower and the fed's going to cut six times in 2024, which is something that the financial market briefly did actually price in. But I think that's the number one thing I would teach, not just realtors, but anybody paying attention to mortgage rates is that we don't know the future. And especially in the short term, we might be able to put generalities on it and say things like rates are 7% now at some point in the next five years they'll be in the fives. And we could also give hypothetical ifs and thens and say, if inflation numbers hit the point, ones in core inflation month over month, then we'll see rates in the fives by the end of this year if that started to happen right now. But those are big ifs and big thens, and you don't know which way things are going to go until you're looking at it in the rear view.

Yeah. We've been talking about inflation as really the big driver here. Are there other things like recession or employment or things like that that we should be thinking about?

Totally. And those other things have been strong enough that it's allowed the Fed to say, well, we don't need to be in a hurry to cut rates because look at how decent the rest of the economy is. And that's a little bit of a departure from sentiment surveys, which are sort of in the toilet, but they're in the toilet due to inflation mainly. So if we were to see unemployment start to spike or job creation tank, then those are the sorts of things where the Fed says, okay, given that that stuff is happening in the economy, we really don't see the demand side of the economy continuing to support higher and higher prices. So we can probably err on the side of cutting rates sooner than later. And whether you want to look at that as a chicken or an egg, the market is going to start the price in lower rates, whether it be because they expect the feds going to or whether they just know that the economy is at a greater risk of recession.

Okay, that makes a lot of sense to me. Let's switch to the industry as a whole growth in the industry and where things are. And we were at the HousingWire Gathering Conference earlier in April and listening to mortgage lenders talk about the shifting profitability of lending and how there are some companies that are really just trying to, hang on. Tell me what you know about that side of the industry, not necessarily the bonds, but tell me what I should know about mortgage news.

I don't know a lot about the stuff that NBA covers in terms of lender profitability. I do know that at times like this, anytime that volume is low, that margins get smaller and profitability gets tougher. And that sounds like that's reflected in comments. I know for my community, it's definitely been tougher times than the financial crisis in many ways. It's not as crazy and unexpected and you don't have the same sort of fear for the end of the world that you had in 2008 because there was a real crazy fear associated with that timeframe. But the hit to volume has been bigger and more sustained this time around, and that's been a huge paradigm shift and a huge shock for many originators that have never seen things get this low. And even myself. And it's important to stay humble from an analytical standpoint, I did not see rates going to 8% back when they were at 4%, maybe heading to five. I didn't think we'd get this high. And I didn't think that the refinance index that NBA puts out was going to get quite as low as it did. I thought that the past several decades floor was going to remain the floor, but it's gone well below that.

So tougher than the financial crisis is a big statement. And I wonder if people recognize that people outside of those do it. Mortgages every day recognize that in many ways the conditions of the last couple of years are tougher than the financial crisis,

And it's important to qualify. It's a different kind of tough, it's not the same kind of tough that's going to make you jump out of a window. And you look around at the economy, people have jobs and home values are holding up great. Of course. So its' not the same kind of panic, it's just sort of like, well, I might need to get a different job.

Right, right, right. Do you have data in the MBS live product that is unique or offers unique insights that about the world?

Well, there's a couple of ways to answer that sort of an MBS live, but technically Mortgage News Daily's rate index is unique and pretty awesome. And we've been doing it since 2009 just because, and then over the past four or five years, it's really gained a lot of traction as something that was more timely than the Freddie Max Weekly survey and more accurate in some ways. And so that's our proprietary data. I would say if I had to point to one thing, that's been pretty cool. So

That's just, yeah. Okay. So the rate index, yeah, it gets lots of attention. It just very rapidly, and it basically is in some ways becoming a defacto standard for what are mortgage rates today,

Which is always tough because there is no one mortgage rate because different lenders are going to be as much as a half a percent apart from one another, simply based on how hard they compete and what their overhead is. And then from there, people don't necessarily always understand that depending on their scenario or what state they're in even or whether that's a refi or purchase, the rate could be wildly different. So yeah, it's just, if I could tell everybody one way to use that thing, it would not be for the rate itself, but it would be for the day over day change. That's where it's really super accurate. And I wouldn't qualify anything about that if you're watching the day over day change other than to say rates move in eighth point increments typically, and the index doesn't because it has to adjust for days where rates don't move in entire eighth of a point. So you'll see movement in between that.

Okay. That's interesting. But I love that how to read the mortgage rate index is really not about the absolute level, it's about the day-to-day change.

Correct. The absolute level will tell you sort of a midpoint between competitive lenders and laggards for not the best case scenario, but pretty close to a best case scenario in terms of hits or the sort of things that would normally make a rate higher are not included in the index. So we can get a clean look at the movement without it being distorted by scenario based specifics.

Okay. So tell me a little bit about that. Can you tell me a little bit about the methodology? Are you serving? What goes into that index?

Yeah, I can't tell you everything about the methodology, some secret sauce, but we're basically looking at multiple lenders, actual rates, and then I'm applying a methodology as if I were an AI originator that was quoting a mortgage rate based on every lender's rate that I had available. And I'm pretending that I am not at the middle of the pack, but maybe just a little bit more competitive than the middle of the pack. And that my compensation as a loan officer is fair but not excessive and also not bargain basement and just trying to capture the raw real rate sheet movement without any distortions from things that are specific to individual people or companies.

And I think that's what you've done very well is by orienting that towards, if I'm a loan officer, what am I quoting today in order to get the deal done and get paid like that? By capturing that, you've really captured a real world experience that a consumer is going to have if he's calling around trying to get a loan done.

And think about it this way, sometimes loan officers don't even realize this when they go to price out a loan because they're entering something into a pricing system and they have maybe a certain minimum that they're trying to hit, and the software will spit out a rate that hits their minimum. But there have been times in the past two years where if the consumer were just to bring just a little bit of extra money to the table, it drops the rate by half a percent. And that has to do with the underlying MBS market and the fact that MBS coupons are offered in half point buckets. So it's 5.0, 5.5 6.0, and when you move down to the next bucket, maybe that bucket has a lot more activity in it. Maybe the 6.0 MBS coupon is infinitely more liquid and more competitively priced than the 6.5.

(38:33)
And so when you get to that first rate, the highest possible rate that can go into that 6.0 coupon, that might actually be a better, that rate might pay you more as a loan officer than the lowest possible rate that goes into the next higher coupon. These sorts of things are things you can look for on lender rate offerings at rates that end in 0.125 and 0.625. So those are the rates that go into the next lowest MBS coupon. And for a nuts and bolts scenario, because I am sure what I just said probably is going to confuse a lot of people, here's a real world example. There have been many times in the past few years where you'd be looking at a rate of 7.25% and it would actually be a better deal for the lender. For the lender, not for you as a client to give you a rate of 7.125. The lender would actually make more money by giving you the lower rate.

Fascinating, fascinating dynamics there. I appreciate that very much. And using that kind of knowledge is what you've built into the experience of that rate index and why it's becoming so effective and so widely used. So is there insight that that index is telling us right now? Is it something we should pay attention to?

No, that's the big secret of things like that is it really just follows the bond market. Mortgage rates might be a little bit wider or tighter to treasuries, but if bond yields are going up, mortgage rates are going up, generally speaking.

Great. Okay. And we obviously watch that at some point in my adult life now, I look at the 10 year every morning, the first thing, look at my aura ring in the 10 year like that. Okay. So yeah, that's really great. I appreciate that. Giving a little insight into the secret sauce there. That's really cool. So we've talked a little bit about things that we should be paying attention to and also a little bit about some of the stuff that the realtors maybe said that made your skin crawl in the past couple of years. Is there messages, is there information in the zeitgeist now in the media or in coverage or in wherever that you hear on Twitter or any of the places that is like you feel like people are getting wrong?

Yeah, I try not to pay too much attention to the herd in that sense. What do you think the zeitgeist is saying? What are a few zeitgeist talking points? The Fed is stupid. The Fed doesn't know what they're doing. I think that's probably wrong. I think the fed's doing the best they can and that if most of us were put in that position, we do the best we can and we might be wrong or, and people would judge us for it harshly if we were wrong and cheer us if we were right. But it's much easier to criticize that than it is to say, Hey, they're doing a great job. But

There's a lot. I share that with you for sure. The folks who for some reason think they have a better insight or a better opinion about what the feds should be doing, it really surprises me.

And I'm one of them sometimes, but I'm one of them from the standpoint of, Hey, I'm not faulting them for that decision making process. I'm just throwing my 2 cents in there. And my 2 cents might be wrong too. They got a hard job. They got a hard job.

So one of the things I like to ask my a guest is about, well, we talked about a little bit about how difficult it is to predict, and we talked a little bit about the macro conditions, but what's your model? And not just about what do you think things are going, but also do you have a framework for understanding where things are going to go macro in the next year or so?

No, I don't. I think that there have been so many moving pieces to the post covid economic tailwinds between several different forms of stimulus, not just overt outright stimulus, but even things like indirect effects from extra cashflow that's freed up from low mortgage rates, things like that. It's I'm watching in awe as those things transpire. I definitely don't have a framework other than to let the thing roll and watch how far it rolls. But yeah.

Yeah, and I think that's, as we talk about things that are maybe undercovered or misc, we have the extra cash flow from everybody. Having ultra low mortgage rates, like thousands of dollars a month in many cases

Can be a lot.

And then on the other side, extra cash flow from the bank accounts that pay 5% suddenly. And we have both of those things going on

And forbearances, a lot of people did forbearances and banked their mortgage payment or put their mortgage payment towards something else. And the stock market obviously has been doing really good. I don't know how much the a PY savings in the stock market speak to the average or the median. I would be really curious to know that because I've heard that argument in places. But then at the same time, I see these articles that say the average or 55%, 60% of people couldn't cover a $500 emergency medical bill. So it's like those people definitely aren't getting much benefit from a 4% a PY in their savings account. So I don't know. I know it's benefiting some people that are saving a lot and those people look at that income and think, Hey, I can afford to spend some more money because of that. I know because I feel that way sometimes, but I don't know how representative that is of the masses. Do you have any data on that? Have you seen anything on that?

I don't have data on that other than vibes I've got the last time

Vibes are important indicator.

Yes, they are. The last time there was interest rates, I didn't have any money, so I never earned interest before. And I think my bank accounts were all net negative interest rate after fees for the first 30 years I had bank accounts. So suddenly those are different. Now that actually brings up a scenario. Is there a world where, because I have my low fixed mortgage rate and I'm earning interest on savings accounts and bonds in the portfolio, is there a world where higher the fed keeping rates higher is actually inflationary?

So that's an interesting question and it does come up and I've actually seen some intelligent people making a strong case for that. I don't know if I agree with it just because I think that high interest rates eventually crimp demand of purchases that reverberate throughout the economy and if they're crimping demand for houses, and it really hasn't been as much as you'd expect on the purchase side clearly, but it is to some extent. And refinances also are things that help facilitate more spending when you can refi to a lower rate cars. There's a lot that are tied to that. I think that eventually that starts to take a bite out of things. But I am skeptical in general of the power of the Fed funds rate to be a great tool for managing inflation. I think it was maybe at the right place at the right time at that points in the past decade. And just for the record, I don't fancy myself being smart enough to really say these things with a high level of conviction. I don't have a fancy economics degree and I haven't studied these things. But at the same time, I don't think it makes a lot of sense to study things from before the internet age and compare those to the modern day economy just because it's changed the dynamic so much.

(47:36)
Yeah,

I think about that when we talk about recessions and the inverted yield curve. And the inverted yield curve has always predicted a recession. We've only had six.

What's always predicted a recession without fail is having no recession.

Right, exactly. That's the one time it's coming. Terrific. So I like to ask my guests about longer term trends, US housing market, mortgage markets, things that could be interesting, technology things or markets changes or anything that you should plant seeds that you should plant. In my mind,

So here's my big talking point, it won't be popular with everybody and several of my friends and clients, it's not popular with, but I know some of them happen to agree, and I don't know what it's going to take to change, and I don't know if it ever will change, but one thing that would really help the housing market and would help society in general would be if we could find a way to share the wealth more in terms of the housing stock and not be a nation of, a certain percentage of us are landlords with a bunch of rentals and a certain percentage of us are perpetual renters. If we could find a way to, nobody likes regulation, but if we could find a way to maybe have that be a little bit more even keeled on owning single family rentals, I think that would be really good for home supply and probably prosperity in general.

I like that thinking. It's essentially an affordability discussion. How do we continue, how do we get homes back into an affordable, affordable for more Americans, whether they're owning or owning investments

In inventory, yin yang, chicken, egg inventory, affordability. But yeah, I don't know how to fix it. I just know that I often think about the greater good and the depolarization of wealth. And while I enjoy being above the water line in that regard, I wish that everybody was on equal footing to whatever it should be a meritocracy. You shouldn't be able to do nothing and get the same as someone else, but opportunities should be as balanced as they can be, not just in life, but for housing. And from there you depends on how much money you make and how hard you work and how well you pay your bills and all that. But it does seem that once you build a little bit of momentum in a certain direction, it's sort self-sustaining wealth begets wealth and whatnot.

And certainly the policy, all of the policy, all of the laws, all of the every housing thing that we do in this country is essentially geared towards helping the people who already own, stay in the home,

Deduct, do taxes. I mean, definitely that exists. I mean, you would want to just at least acknowledge that there are certainly people that are trying to make first time home buyer programs and initiatives like that that help people afford homes. It's just not all parts of the policy are working in unison on that regard.

Right, right, right. Well, even those seem to me oriented mostly at stimulating demand, which is not actually the problem. I mean, it's helpful. It's nice to have cash for somebody who needs cash to make that first purchase.

Nobody wants to take away what people already have. That's a tougher prospect, a

Tough one. That's exactly right. And it's like, do we do a decade or two of very low home price appreciation? Meanwhile, incomes and other things appreciate to get us back into an affordable scenario for more people to buy homes.

Oh yeah, that's a tough one too. Getting homes to not appreciate faster than inflation, which they have for quite a while now. I think there's that old saying they're not making any more of it, and I think people realize that.

Yeah. Terrific. Matt Graham, thank you so much for your insights. This is exactly what I wanted to learn today. I appreciate that. And I also really appreciate the work you do with MBS Live and Mortgage News Daily. So people should obviously check that out. You are on Twitter on X, you're MBS Live, right is the

Net

MBS live.net, and any other place that people should pay attention to mortgage

News Daily, those are the place, I mean, yeah, MD MBS live and X just fine with me.

Terrific. Well, I appreciate your contributions to the industry and absolutely help me understand the markets more. And so thank you for taking the time with us today, everybody. It's the top of mind podcast. If you enjoyed our conversations like this with Matt, please leave us a review. Like those stars help other people find us. So I appreciate that very much and we will be back again next week in another episode. Thanks everybody.