What’s it going to be? Mortgage rate increases or balance sheet (MBS) reductions?
Since the Covid outbreak in early 2020, The Fed went wild with rate cuts and massive and unpredented balance sheet expansion.
Let’s look at The Fed’s puchase of agency MBS and mortgage rates. From 2020 2022, The Fed continued to buy agency MBS. But in 2022, all hell broke loose as The Fed went crazy RAISING rates, but slowly began unwinding their balance sheet. The result? Mortgage rates began to climb. In fact, the US conforming mortgage rate for 30 years has risen 102% since early 2022. The Fed is only slowing unwinding their MBS holdings.
Despite the struggles in the residential housing market, the COMMERCIAL mortgage market is a trainwreck.
What will The Fed do?? After all, nothing from nothing beats nothing.