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.
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?
I understand the points you are making but in places where people want to live there are zero homes available for sale. The drop in mortgage applications is because there is no inventory and everybody who wanted to refinance did before rates went above the rate they already had.
The number of unfilled jobs in this country is insane. There are also massive numbers of those in their 20's and 30's still living with parents which has never been the case. In the 70's and early 80's we endured crazy inflation and mortgage interest rates reached 22% so people just stayed put in their homes until things changed.
Inventory has been in low supply for over two years. The rates drop right after FED raise. In fact, it's dropped over 50% since last year alone. So that's a talking point that doesn't make sense at all. Unless you are suggesting drops in applications and rate increases somehow diverged right at the exact time supply became an issue so deep, it dropped YOY. Nonsense.
The number of unfilled jobs is one of the problems we're dealing with. Just one of the issues that are causing consumer goods and services to increase in cost.
Inflation due to QE is another. In fact, there is an exodus in many blue states heading for red states because the cost of living is impossible to manage. Professionals. The lower class is not moving. That will and has already increased costs in Red states.
Just buying a house cause there's nothing available doesn't mean it's a good decision lol.
Once you "own" said house you still have to take into consideration how you're going to pay for it. And unfilled jobs does not equate to being able to afford the cost. Wages are up 3% while inflation is up "8%" which we all know is bullshit it's far more. So people are not only losing wages but the rate at which wages are increasing is not keeping up with inflation.
The way they used to calculate inflation in the 70's is not the same as they do now. They make the claim it's 8% now but real inflation is close to 17% once you factor the actual increase in consumer goods.
And we are only at the start of this nonsense. There has never been a time like this in American history. Commodities are rising simultaneously with the dollar. Never happened before. This is a new era, fren. You're using old think to decipher it.