We know that Central Banks are lifting rates, and seem willing to wear a fall in stock markets and bond prices. But what about the property market? Are they willing to see that correct too?
Well, so far as the US is concerned, Friday was an important day in the history of finance, because of the strong CPI figures which we discussed in our post yesterday. Both the headline and core CPI readings were higher than markets were expecting. Neither stocks nor bonds enjoyed the news.
It changed the bond market’s view of Fed trajectory, higher and quicker, but it also broke the Mortgage-Backed Securities market, in the US, in bond jargon, MBS went “no-bid.” No buyers for MBS. Then came just a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. Overnight the retail consequence has been a leap from roughly 5.50% to 6.00% for low-fee 30-fixed loans.
This signals a potential full-stop to housing finance, and so a big dent ahead in the housing market. Sure stocks were down 2-3% on the day, but this event is more mega. Stocks would be down way more if a potential freeze in housing growth is factored in.
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