Housing and Mortgage Backed-Securities - A Mid-Year Review

This discussion focuses on the current state of the U.S. housing market and what it means for mortgage-backed securities (MBS). Garrison Point Capital's Garrett Smith and Brian Loo chime in.

Key takeaways:

• Mortgage rates remain elevated around 6.6%, near the top of their 52-week range, continuing to pressure affordability.

• Housing is highly regional. Some previously hot markets (e.g., parts of Florida and Boise) are seeing price declines and weaker demand, while supply-constrained markets remain relatively resilient.

• The "lock-in effect" is easing. Homeowners with 3% mortgages have delayed moving, but inventories are gradually increasing as life events force transactions.

• Demand has softened. Higher rates have priced many first-time buyers out of the market despite favorable demographics.

• New homes are outperforming existing homes. Builders are using mortgage rate buydowns and incentives to attract buyers, while existing homes face greater pricing pressure.

• For MBS investors, diversification matters. Geographic diversification and seasoned collateral with low loan-to-value ratios help support portfolio resilience even as certain housing markets weaken.