Mortgage Backed Securities in simple terms are pools of mortgages (generally rated) that the banks sell off to private investors (like bonds), others move via the Fed.
These are the people who provide you with liquidity to buy your home. The banks from whom you receive your loan, turn around and sell (not all the time) these pools of mortgages to the secondary market (this includes Mortgage Backed Securities) . Why do banks do this? Because these investors buy your mortgage (pooled) and that money allows the bank to turn around and loan more money out, increasing their profits.
MBS investors get paid via interest from the monthly payments you make on your mortgage (some are annual). It's a very profitable way to earn income.
They provide liquidity to the market.
USMRI (US Mortgage Refinancing Index) covers mortgage refinancing and gives us a picture of refinancing in general.
USMRI is dumping as less and less people can afford to refinance as rates move up. Those who own variable rates are more than likely getting hammered right now, especially as the cost of living rises due to inflation and supply issues. It's a double whammy.
Investors in MBS will want to begin selling off as inflation roars ahead and it gets harder and harder for you to pay your mortgage. This is the risk MBS investors face. If you can't pay, they don't get paid.
Now I can't remember if these are insured or not by the feds but regardless.
Both USMRI and MBS are now below 2008 levels which is very interesting.
Keep in mind, margin debt (borrowed money in the markets) is now twice the amount it was in 2008 and that I believe in adjusted for inflation. So it's pretty wild what's happening out there.
Keep a very close eye on your wealth.
So, pop goes the bubble?
Normally in a market that slows (like their little closures during covid) what would happen is demand would slow as well. The FED should have began Quantitative Tightening (removing money from the market). This would have increased the value of each dollar allowing consumers to stretch out their budgets.
Instead they printed something like 80% of all existing dollars in 2 years and that caused spending and drove demand higher. But because the government restricted movement of goods, it also caused prices to rocket.
Now that inflation is digging it's teeth in (and right now they are baby teeth), all that printed money is causing prices to rise while supply remains low due to a number of factors. One of them being lots of people do not wanna go back to work (labor shortage).
So ya, the bubble is rearing it's ass to burst lol
It's a very different world than it was in 2008. There should be almost zero adjustable-rate mortgages and those will only exist among the wealthy. All of the mortgage-backed securities will be less than 80% loan to value or they will be insured to below 80% LTV.
This time everybody actually had to qualify for their loan unlike the housing crash.
Qualifying for a loan doesn't dismiss the cost of everything rocketing. In 2008 dogs were getting loans. This time around, it's "qualified buyers" however when buyers can't afford $8 gas and inflation on everything else under the sun combined with record consumer debt and ATH prices on housing, it's just different fire.
And what do you think is gonna happen to all the qualified buyers who own small businesses with dumping revenue because Mr. and Mrs. America have to tighten their belts and can't eat at restaurants or buy random non-essential shit? Layoffs first. What happens all the people who were qualified buyers who got laid off? and on and on.
My comparison to 2008 was only numerical in nature. Yes, it's a different beast but far worse.
Fortunately, this time around people have actual equity in their homes with no shortage of buyers. Housing prices have just now gotten back to pre 2008 values. Historically since records were first kept on housing values in the 50's home prices appreciate 4% per year.
The vast majority of homeowners who get in trouble with payments will be able to sell quickly and come out of it with a profit.
Housing prices have surpassed the pre2008 values. The market is reaching unsustainable levels due to the increase in interest rates. There is still substantial pressure in the red states as people sell their high priced homes in blue states and seek refuge in lower prices markets in red states. This will continue as the Commie governments in those blue states continue destroying the economies of those states and continue to take away freedoms. Of course the high taxes in the commie run states is also driving people and businesses away. Like me!
Sell to whom? lmao
Other than very depressed areas homes are selling in matter of days if not hours.
So the average consumer buys a home at ATH, sits on it and like most other people, it becomes their main equity hold. The majority of their net worth will be the home.
The economy is teetering, inflation is rising and the FED can do NOTHING about it, refinancing has dropped like a stone and mortgage rates are going up.
WHO do these people who JUST bought sell to? And what happens when a panic sell occurs later on when people realize there are no buyers and their money is locked up in the home with no where to go?
You do understand that first time applications for mortgages have tanked? You also understand that what you currently see is not indicative of what is going to be in say 3-5 years from now. Right? You do understand this? Correct?
What does retail always do?
Kinda figured the pop was coming soon. Just nice to have some confirmation.
So is buying a home right now a terrible idea?
Depends on each individual or groups finances. If you can afford to buy a home and have security in your employment, can lock a great interest rate or better yet, buy cash, then ya, it is,
Soon, this will turn to a renters market. People won't be able to buy so they'll rent. We're talking people who were qualified just last year but won't be now or simply can't afford the increased rates.
On the other hand, the housing bubble could burst and prices could tank. You also have to take into consideration the cost of living increase.
It really depends on your finances, job, health etc.
I have a buddy who is a garbage man. He is secure in his job. Bought a second house he rents out and is nearly done his mortgage on the first home, less than a year away. He's in a very nice situation regardless of where this economy goes.
Lots of people think the collapse is like world ending but financially if you play your cards right you can remove yourself from poverty/middle class and create generational wealth.
Buying now is a good deal. Mortgage rates are still crazy low historically. There is massive pent-up demand since there are Millennials and Gen Z have waited so long to buy.
If you are considering the South or other free states keep in mind that the Baby Boomers are retiring in massive numbers for the next 10 years so prices will not be going down. The longer you wait the more prices will get run up.
All you think about is mortgage rates. That's not the problem. The problem is inflation and the cost of living rising. Getting a rate at ATH prices while the purchasing power gets eaten alive is ridiculous.
People who buy at ATH will have a difficult time selling later. This is a bubble, chief. You don't buy in a bubble plus ATH plus inflation. Just wow.
This is the garbage schpeel shitty mortgage brokers give naive consumers. Either that or you're a real estate agent and understand markets and finance like one.