Navigating the 2023 US Housing Market: Impact on Residential Mortgage-Backed Securities

Abstract

This article discusses the outlook for the US housing market and its expected impact on the trading dynamics of residential mortgage-backed securities (RMBS) in 2023. Despite the current reduced affordability of housing due to higher mortgage rates and surging home values, single family home prices are unlikely to experience a sharp decline, with growth expected in the second half of the year. The limited housing supply will lead to increased upward pressure on home prices and stronger performance in RMBS. Non-Qualified Mortgage (non-QM) products may face a challenging year in 2023, with delinquencies and losses expected to rise. Credit performance will be critical, and demand for affordability products is likely to increase. Overall, the outlook for the RMBS market remains challenging due to rising interest rates, tightening monetary policy, and the expected increase in the supply of MBS. However, the high level of home equity in the US housing market will create skin in the game for borrowers as well as higher collateral values to protect against credit deterioration.