Fannie Mae's chief economist unpacks divergent views on housing

A big part of Fannie Mae Chief Economist Doug Duncan's job is to sort out current housing market trends. That's not easy at the moment because they're particularly convoluted. Pandemic migration has reshaped the housing market, but there are questions about whether or not a partial return to the office may reverse it. At the same time, homebuyers are pessimistic about affordability , particularly if they're entry-level purchasers, yet they're so active the share of first timers in the market is particularly high today. And while loan performance looks relatively strong, it's increasingly tough to forecast because of unprecedented policy intervention. In the wide-ranging conversation that follows, Duncan unpacks all of these contradictions and others. His remarks have been edited for length and clarity.

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Rate shifts renew the need to mind the curve, hedges

As interest rates have become more unpredictable , the shifts in financing expenses have had a number of ripple effects, causing mortgage lenders to seek out strategies for controlling the associated costs. In one example of the effect of the shift, the inversion in the Treasury yield curve that has persisted for over a year - with long-term interest rates dropping below short-term rates - has limited the supply of certain loans. As a result, many lenders are trying to mitigate the impact of funding for mortgage pipelines, in some cases by hedging against rate-related losses. Various players in the market offered perspectives on how rate swings are affecting them and offered their advice for combating the headwinds.?

Rate 'lock-in' effect is hurting housing and mortgage markets, Powell says

Federal Reserve Chair Jerome Powell acknowledged that the so-called "lock-in" effect has contributed to stagnation in the mortgage lending market and the nation's broader housing woes , but he said he doesn't regret the central bank's monetary policy moves that played a major role in the problem. By some estimates , more than 90% of homeowners have locked in mortgage rates below 6%, with many paying less than 4% on loans made while the Fed held interest rates near zero. The disparity between those rates and current market rates, currently north of 7% , is discouraging some homeowners from selling their properties out of a fear of taking on a more expensive mortgage to purchase their next home.?

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Outstanding commercial and multifamily debt is on the rise

Commercial and multifamily mortgage debt outstanding increased on a quarter-to-quarter basis even as new originations have tanked from a year ago , the Mortgage Bankers Association reported. Holders of these loans — banks and thrifts; life insurance companies; government agencies; and securities investors — reported their portfolios grew by $37.7 billion or 0.8% for the three months ended June 30. "Commercial and multifamily mortgage originations are down by more than half from a year ago, and this lack of new demand means that fewer loans are being paid off," said Jamie Woodwell, head of commercial real estate research, in a press release. "This in turn is helping to maintain, and in some cases even grow, the amount of credit outstanding."

FDIC chairman calls for more nonbank reporting

Federal Deposit Insurance Corp. Chairman Martin Gruenberg said Wednesday he would like to see the Financial Stability Oversight Council consider applying tailored enhanced prudential standards and enhanced reporting requirements to particular nonbanks like open-ended mutual funds, hedge funds and nonbank lenders. In a speech delivered to the Exchequer Club, Gruenberg also noted that such firms — not well understood by regulators — would need to report more information so the agencies could better understand the role they play and the risks they pose.?

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