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By: Gustian Farrow, Head of StoneX TV • Content Channels
Matthew Johannes, Head of Agency MBS Trading at StoneX, probes how weakening sentiment and volatile yields are reshaping the US housing landscape.
“We're going to take more time than just a couple of weeks to absorb some of the data changes”. Johannes links the fifth straight monthly drop in confidence to a White House that “operates in real time” on tariff news. He expects clarity only later in the year as businesses and households parse policy shifts and their pay packets.
A further negative GDP print would mark “a technical recession”, yet he cautions against equating slower growth with systemic weakness.
CPI and PPI are “moving lower,” a classic precursor to lower policy rates. Paradoxically, “the market currently is completely irrational” with the 10-year note nearing 4.5% and long bonds approaching 5%. University of Michigan long-term inflation expectations, at highs unseen since 1995, underscore the divide between survey fears and headline data.
Johannes argues that absent Fed action, elevated yields pose a greater long-run threat to credit and housing than a short-run dip in GDP.
Comparisons with 2008 miss a crucial point: today’s mortgage books carry low, fixed coupons—“the actual rate that most of our borrowers have … are very low, very manageable”. Little floating-rate exposure limits forced sales. Instead, high rates freeze mobility as homeowners resist swapping a 4% loan for one near 7%.
Regions that saw heavy Covid-era inflows—Florida, Texas, parts of California—face the steepest price corrections, while the “upper Northeast” contends with rising prices amid tight supply.
Weighted-average coupons of roughly 4% for Fannie and Freddie pools give agency MBS investors a cushion against mass refi waves. Turnover rather than credit stress becomes the focal risk, potentially lengthening durations and widening spreads if yields remain elevated. “You can't make a sweeping statement about the housing market”, Johannes concludes, urging investors to segment risk by geography and collateral vintage.
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---- Written by Gus Farrow
---- Expert: Matthew Johannes, StoneX Head of Agency MBS Trading
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