SAN DIEGO, Calif, March 1, 2019 – Mortgage Capital Trading, Inc. (MCT), a leading mortgage hedge advisory and secondary marketing software firm, announced that it released a white paper entitled the “Economic and Mortgage Backed Security (MBS) Market Outlook 2019.” Authored by industry expert Bill Berliner, Director of Analytics at MCT, the paper explores the current events and trends that have the greatest power to impact the market in 2019.
The white paper provides illustrative charts to explain the impact of moderating economic growth on interest rates, the mobility of lending volumes, and trends that may influence the mortgage and housing markets.
Mr. Berliner’s research reveals that the general consensus is for slower U.S. economic growth in 2019, although few observers are predicting a recession this year. At the beginning of 2019, U.S. Treasury yields were roughly in line with their prevailing levels from January 2018, but remain high relative to sovereign debt from other developed countries. This suggests that the Fed has plenty of “ammunition” to fight a future slowdown in economic activity.
As for the outlook on lending volumes, the recent drop in rates has created expectations for an uptick in volume. This is because refi applications appear to have an inflection point around a 4.0% mortgage rate. When rates are above 4%, the refi index is fairly insensitive to rate shifts, but when rates decline below 4% the slope of the trend line is much steeper. With the survey rate currently around 4.40% we expect that refi volumes won’t pick up without a further decline in rates.
The paper further states that MCT does not expect the Treasury yield curve (2-10s) to invert unless the Fed moves aggressively to raise funding rates this year. Given the Fed’s stated “data-driven” approach to policy, the Fed won’t raise rates in 2019 short of a noticeable acceleration in economic activity, MCT stated. If economic growth stalls the curve could steepen as markets begin to anticipate an easing cycle.
Moving forward, without a decline in mortgage rates to around the 4% level (or below), the paper indicated that lending volumes should remain tepid, keeping pressure on lenders’ profit margins. It was noted that financial markets may continue to exhibit bouts of instability and volatility, reflecting the growth of algorithmic trading, trade tensions, and lack of Fed asset purchases.
Interested parties can download the Economic and MBS Outlook 2019 white paper to learn more about the current events, trends, lending activity, and potential market changes in 2019.
About The Author – Bill Berliner
Mr. Berliner has more than 30 years of experience in the mortgage and MBS markets as an analyst and trader. He has extensive working knowledge of mortgage and MBS trading, hedging, structuring, valuation, and operations. Prior to joining MCT, he worked in risk management and systems development with Thomson Reuters, Kinecta Federal Credit Union, and Manhattan Capital Markets, and also owned his own consulting practice. He served as the head of Trade Strategies for Countrywide Securities until 2008, and also held senior positions with Nikko Securities and Bear Stearns. He has written extensively on the markets, co-authoring two editions of a textbook on MBS with Frank Fabozzi and Anand Bhattacharya, and has co-authored almost 20 book chapters and published articles.
Mr. Berliner holds BA and MBA degrees from Rutgers University. He is an active member of the CFA Society of Los Angeles, and is the society’s resident expert on MBS.