Yesterday we celebrated peace and reparations for historical plundering. Today we see more violence in Gaza. MBS pricing is rebounding higher this morning, currently up 50bps from Friday’s close, resulting from the escalated conflict.
I don’t expect the move to gain any traction for several reasons. The first is that the conflict will cause a further spike in the price of oil, which is inflationary. And as we have seen over the last 19 months, inflation drives interest rates higher. The second is that despite the runup in price this morning, the Fed’s auction of three year T-bills was received very, very poorly and was given an “F” rating. When nobody has an appetite for debt, rates go higher until demand meets supply in the middle. Sorry.
Even worse, in the housing market, Fannie Mae’s Housing Sentiment Index shows that only 16% of prospective buyers believe that now is a good time to buy a home. That ties the all-time-low outlook hit just last year. And it’s not just that the unhoused are ambivalent, the full 84% said that it’s actually “a bad time to buy”. Only 17% of consumers said that they expect interest rates to go down in the next 12 months. It’s also not a matter of ignorance, 42% expect prices to be higher this time next year. 35% believe that prices will stay the same, and 23% hope home prices will drop over the next 12 months.
