PIMCO’s Scott Simon on mortgage rates and housing
Normally I’m not a huge PIMCO follower. In case you don’t know PIMCO is the world’s largest bond investment money manager and home to many top name economists and analysts. The comments made by PIMCO officials often get headlines almost like an official of the Fed. And although I don’t “goon” for PIMCO like many do I came across this blog post this morning and found Scott Simon’s comments interesting. So, I guess I’ll jump on the band wagon and publicize them too:
-On mortgage rates:
We are unlikely to see a significant market disruption in the Agency market stemming from the Fed’s retreat. … if and when we see mortgages cheapen, we expect to see private institutions stepping in to buy. Even a 15 basis point move could spark a flurry of buying. Therefore, we don’t expect a major widening of mortgage spreads …
Translation: He doesn’t expect to see mortgage rates move sharply higher following the Fed’s expiration of the TALF program which helped subsidize mortgage rates over the past year.
-Will the Fed reenter the MBS market and buy rates down again?
Probably not. Barring a major double dip in the economy or housing, private balance sheets have plenty of room to add Agency MBS (unlike in late 2008, when the Fed program began).
We continue to believe that lower-priced homes bottomed last year. Higher-priced homes should bottom later this year. If one labels recovery as prices rising dramatically, we do not foresee that anytime soon.