The Pipeline

With rates across the entire curve falling, mortgage rates have followed, with primary rates reaching a 15-month low at 6.2%. In our first article, I look at the potential impacts of falling rates across the coupon stack as well as on house price dynamics.

In this article, we examine the recent drop and the potential for a further drop in mortgage rates going into 2025. After looking at single-family (SF) and multi-family (MF) construction trends, we discuss potential impacts on refinancing, reduction of the rate lock-in effect, and home prices.

We revisit Andrew Davidson & Co., Inc.’s (AD&Co) HPI3 (Home Price Index, 3rd generation) model, last updated in 2015. We revise the model not only to include more recent data in the calibration, but also to see if the reaction to the economic driver should be faster and if the Home Price Appreciation (HPA) surprises should be filtered more strongly. We find that the inclusion of the new data does in fact lead to a faster economic process.

The risk-return characteristics of residential loan backed mortgage investments have been dramatically transformed by the interest rate increases of the last several years to significantly improve their fit as investments for insurance companies. In recent months, there’s been increasing market chatter about life insurance companies having increased their residential mortgage exposure over the last several years that specifically mentions whole loans.