Deconstructing the Housing Market: Why Opendoor's Rally is a Mirage and Mortgage Spreads are the Real Story

The parabolic surge in Opendoor's stock has nothing to do with the fundamental health of the U.S. housing market and is merely a speculative sideshow. The real, under-the-radar story that will dictate housing affordability and activity is the significant and ongoing improvement in mortgage rate spreads, a powerful force that could bring rates down even without a major drop in Treasury yields.

Key Insights

Opendoor's Parabolic Rise: A Speculative Mirage, Not a Market Signal

"This has nothing to do with the housing market whatsoever... Don't think any, anything about the housing market." - Logan Mohtashami

Logan Mohtashami forcefully dismisses the narrative that Opendoor's (OPEN) skyrocketing stock price is a bullish indicator for the housing sector. He attributes the vertical move to a classic speculative feedback loop: a Wall Street firm took a large position in the beaten-down stock, which was then amplified by media commentary and piled into by retail traders on platforms like Reddit. This created a momentum-driven frenzy detached from the company's or the market's underlying fundamentals.

Instead of a signal of a recovering iBuying model or a healthy housing market, Mohtashami frames this event as a mechanism for "exit liquidity." The surge of new money allows the institutional players who got in at the bottom to unload their positions at a significant profit. He draws a sharp contrast between Opendoor's speculative action and the performance of homebuilder stocks, which have a more tangible, albeit forward-looking, connection to interest rate dynamics. For investors, the takeaway is clear: treat the Opendoor rally as a case study in market momentum and speculative behavior, not as a valid data point for a housing market thesis.

The Great Disconnect: Builder Stocks vs. On-the-Ground Reality

"I think the, the builder's confidence rising into the start of the year was a head fake and it quickly reversed." - Logan Mohtashami

While homebuilder stocks have shown strength since May, this performance reflects a significant disconnect between Wall Street's forward-looking bets and the grim reality on the ground. Mohtashami explains that traders are attempting to front-run a potential drop in mortgage rates. They understand that if the 10-year Treasury yield falls and mortgage spreads continue to improve, mortgage rates could approach the crucial 6% level. Historically, this environment boosts builder confidence, traffic, and ultimately, single-family housing permits.

However, the current fundamental data tells a starkly different story. Housing permits and starts are languishing at levels last seen during the COVID-19 recession. Builder confidence, after a brief and misleading rally at the start of the year, has reversed and remains near its pandemic lows. Mohtashami argues that the market is caught in a delicate balance. The optimism priced into builder stocks is entirely dependent on rates falling. Until that happens and translates into rising permits and construction activity, the underlying business conditions for builders—especially smaller, private ones—remain challenging.

The Most Important Variable You're Not Watching: Mortgage Spreads

"If mortgage rates were priced on the 2023 spreads, which were really bad, you're 81 basis points higher today... We are finally in a spot where you don't need the 10 year yield to get below 4% to get near 6% rates." - Logan Mohtashami

The single most important and overlooked factor in the housing market today is the normalization of mortgage spreads—the difference between the 30-year mortgage rate and the 10-year Treasury yield. Mohtashami describes the relationship between the two as an "intense, passionate, close slow dancing." Historically, this spread averages between 1.6% and 1.8%. In 2023, market stress caused this spread to blow out, making mortgages far more expensive than the 10-year yield alone would suggest.

This year, that trend has reversed. Mohtashami notes that we are "past the halfway point" of these spreads returning to normal. This improvement acts as a powerful buffer; without it, current mortgage rates would be near 8%. This dynamic fundamentally changes the calculus for housing affordability. It means the market no longer needs a dramatic crash in Treasury yields to see meaningful relief. A modest decline in the 10-year yield combined with continued spread compression could bring mortgage rates down to the low 6% range, a level that would significantly stimulate housing activity. This makes tracking the spread itself a critical task for any serious housing market observer.

A "Savagely Unhealthy" Market on the Mend

"We need higher rates to put home builders, home sellers and investors on their ass. And the reason I use that language is that they had too much power." - Logan Mohtashami

The U.S. is currently in the third consecutive calendar year of the lowest existing home sales volume in history, when adjusted for the workforce. Mohtashami describes the post-2020 market, which saw active inventory plummet to a "savagely unhealthy" low of just 240,000 homes in March 2022, as fundamentally broken. In that environment, the only mechanism to restore balance was significantly higher mortgage rates. He controversially advocated for this, arguing it was necessary to break the fever of rampant price growth and give inventory a chance to rebuild.

That painful but necessary process is now bearing fruit. While sales volume remains historically low, the higher-rate environment has allowed active inventory to grow, shifting power away from sellers and toward buyers. Mohtashami is highly optimistic about the housing market in 2025, predicting it will function more like a normal, balanced market where supply and demand can operate effectively. The current low sales figures are not a sign of an impending crash, but rather a symptom of a market slowly healing from an extreme supply shortage. He contrasts this with the 2008 bubble, when active inventory was 1.5 million units higher amid a credit-fueled sales boom.

The Politicization of the Fed: "Bully Ball" Enters Monetary Policy

"You do not give... that monster a cookie because it's going to ask for a glass of milk, then a milkshake and then a cake and then ice cream and it's not healthy." - Logan Mohtashami

The discussion highlights a growing and dangerous trend: the intense politicization of the Federal Reserve. With threats of perjury charges being leveled against Chair Jerome Powell, Mohtashami warns that the situation is escalating into "New York bully ball." He argues that capitulating to this pressure by, for example, having Powell resign for the "sanctity of the Fed," would be a grave mistake. It would only embolden critics and set a dangerous precedent, leading to further demands and attacks on other regional Fed presidents.

Mohtashami questions the motivation behind the political pressure, asking why some are demanding "emergency rate cuts" when the economic data does not justify such drastic action. He suggests this pressure creates a new, unpredictable source of market volatility. His proposed, albeit unlikely, solution is for Powell to confront his critics directly in a public forum, forcing them to defend their economic rationale. For investors, this political drama is no longer background noise; it represents a tangible risk to the stability and independence of U.S. monetary policy.

Insightful Quotes

"We need higher rates to put home builders, home sellers and investors on their ass. And the reason I use that language is that they had too much power. And everyone was happy when. Oh my God, multiple bids, high five... Nobody cares about the sustainability because everyone was making money and the only mechanism we had was high rates." - Logan Mohtashami

"The spreads between the 10 year yield and 30 year mortgage rates... Just a passionate, lovely, we love intense, passionate, close slow dancing." - Logan Mohtashami

"Imagine yourself as a man telling your [partner]... 'I listened to some fake account. He said I shouldn't buy a house until 2008.' And if that lady stays with you, I'm telling you man, she is in love because people would be like, 'ah, no, you, you just can't pull the trigger. You're just not that guy.'" - Logan Mohtashami

Market Implications

The analysis from Logan Mohtashami provides a clear framework for navigating the current housing and macroeconomic landscape.

• Investment Strategy: Investors should disregard speculative, narrative-driven rallies in stocks like Opendoor as indicators of market health. The focus should remain on fundamental drivers. The key metric to monitor is not just the 10-year Treasury yield, but the spread between the 10-year yield and 30-year mortgage rates. Its continued normalization is the most potent tailwind for the housing market.

• Sector Outlook: While homebuilder stocks are pricing in future rate cuts, their current fundamentals remain weak. A sustained move to mortgage rates near 6% would be the true catalyst for a fundamental recovery in construction. Until then, the sector remains in a precarious balance, vulnerable to any data that pushes back on the rate-cut narrative.

• Long-Term Housing View: The market is undergoing a necessary, albeit painful, rebalancing. The prolonged period of low sales volume is allowing inventory to recover from historic lows. This sets the stage for a much healthier and more balanced market in 2025, where buyers will have more leverage and transaction activity can normalize. This is a constructive long-term outlook, born from the short-term pain of high rates.

• Macro Risk: The escalating political attacks on the Federal Reserve represent a significant and underappreciated risk. This "bully ball" approach to monetary policy could introduce a new wave of market volatility and uncertainty, regardless of the underlying economic data.