|10 year government bond yield||1.24%|
|30 year fixed rate mortgage||3.05%|
Stocks are flattish this morning on no real news. Bonds and MBS are flat.
United Wholesale is accepting cryptocurrency for mortgage loans. “We’ve evaluated the feasibility, and we’re looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments,” CEO Mat Ishbia said in the company’s second quarter earnings call on Monday. “That’s something that we’ve been working on, and we’re excited that hopefully, in Q3, we can actually execute on that before anyone in the country because we are a leader in technology and innovation.” I am not sure what this buys UWM or a borrower for that matter, but there it is.
Rent prices have soared past pre-pandemic levels, according to Zillow. Rents grew 9.2% YOY in July, the fastest recorded pace since Zillow started tracking these numbers in 2015. When the eviction moratorium ends, many renters are going to face sticker shock when they try and find a new place. Zillow also predicted that home price appreciation will begin to cool off, however keep in mind that almost every index has been predicting that for the past year, and prices keep rising.
The increase in home price appreciation is a concern at the Fed as well, and that is one big reason for scaling back MBS purchases. The Fed probably isn’t worried about a bubble (they just don’t happen that often), but they are worried about affordability, and the impact that its MBS purchases are having on it. The real bubble is in global sovereign debt, not real estate. As they say, generals always fight the last war.
What will MBS tapering do to mortgage rates? Well, during the taper tantrum of 2013, MBS spreads widened to 150 basis points or so. MBS spreads are (very roughly) the difference in yield between a mortgage backed security and its corresponding maturity Treasury. If spreads widen, it could mean that mortgage rates increase even if Treasuries go nowhere.
Note that in 2013, most of the widening took place before the Fed actually started tapering. The spread actually peaked in late summer of 2013, well before the Fed started reducing purchases at the December 2013 FOMC meeting. As they often say in markets, buy the rumor, sell the fact.
My personal view is that the economy is not going to strengthen the way the media and the government is hoping, and Treasury rates will probably work lower. The inflation data will also begin to moderate as commodity shortages abate. This will probably keep a floor on mortgage rates, as I suspect they will probably stay around here even if rates work lower.