For housing, look at bonds over MBS or federal debt

This is the first time I am writing about mortgage backed securities (MBS) because I hardly ever consider this aspect of the housing ecosystem in my work. But since now even Federal Reserve members are discussing the pros and cons of MBS, this is a good time to give you my take.

The 10-year yield has been in a downtrend since 1981, and so have mortgage rates, so the MBS market hasn’t eve been a focus of mine. Recently though, I have been reading a lot of speculation that when quantitative easing ends, the U.S. housing market will be in trouble because mortgage rates will skyrocket and cause a crash in sales and prices that would amount to the second coming of the housing bubble.

It is an easy argument to make that during the pandemic, the purchase of MBS by the Federal Reserve was needed to bolster the economy. Today, however, when inflation seems a larger negative talking point than economic sluggishness, it makes less sense that the Federal Reserve is still buying MBS.

However, why hasn’t the bond market blown up higher with solid economic growth, a whisper of when tapering will happen, and hotter than normal trend inflation.