MBS taper won’t widen mortgage spreads

The announcement that the Fed will start to taper its purchases of MBS this month is not set to widen mortgage spreads. The cut in demand will be gradual and offset by a moderation in the supply of MBS as home sales decline. With the cost of the prepayment option set to remain low, we expect the spread between the 30-year mortgage rate and 10-year Treasury yield to stay close to its current level of 170bps over the next few years.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

New Home Sales (Dec.)

New home sales had a strong end to the year, as the record low number of existing homes on the market drove the sale of homes which were still under construction. That lack of existing supply will continue to support new home sales even as overall demand cools on the back of rising mortgage interest rates. From 811,000 annualised at the end of 2021, we expect a rise in sales to around 840,000 by end-2022.

26 January 2022

US Housing Market Data Response

Case-Shiller/FHFA House Prices (Nov.)

Case-Shiller reported annual house price growth falling for the third consecutive month in November. And with rising mortgage rates set to stretch affordability to its worst since 2008, we expect annual house price growth to slow from 19% to around 3% by end-2022.

25 January 2022

US Housing Market Data Response

Existing Home Sales (Dec.)

Despite a 6% m/m fall in existing home sales in December, 2021 marked an impressive year for existing home sales, with sales 11% higher compared to 2020. But looking ahead, a backdrop of rising mortgage rates and a record-low inventory means that sales will drop back and average around 5.88m annualised this year, less than most other forecasters expect.

20 January 2022

More from Matthew Pointon

US Housing Market Data Response

Housing Starts (Oct.)

Single-family starts dropped for the fourth consecutive month in October to a 15-month low. But we expect starts will soon turn the corner. New home demand is strong, lumber prices have eased back and homebuilder confidence has recovered to a six-month high. Indeed, single-family permits saw their largest gain since March. That said, other material and labour shortages remain, and the improvement in starts will be slow. We expect a rise from 1.04m annualised today to around 1.15m by end-2022.

17 November 2021

US Housing Market Update

Outlook good for mortgage delinquencies

Low mortgage rates, strong earnings growth, plenty of cash savings and a surge in home equity have pushed the early mortgage delinquency rate to a record low this year. Most of those factors will continue to support borrowers over the next couple of years, keeping early delinquency rates low. However, the serious delinquency rate is still elevated, and that points to a small bump in foreclosures next year as lenders work through the backlog built up during the foreclosure ban.

15 November 2021

US Housing Market Chart Book

House price growth cools as rents take off

The homeowner and rental markets are starting to swap places, with home sales and prices cooling as rental demand and rents take off. Rising mortgage rates have started to bring housing demand down, and we expect they will rise further over the next couple of years. Higher interest rates will also help cool rampant house price inflation, with month-on-month gains now starting to ease. However, we don’t think house prices will see outright falls and coupled with tight credit conditions that has shut out first-time buyers and pushed them to the rental market. Net apartment absorption saw a large rise in Q3, and multifamily rental vacancy rates are at 38-year lows on some measures. Alongside strong earnings growth that has led to a rapid recovery in rental growth. In turn that has driven strong investor interest in apartments and boosted total returns.

10 November 2021
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