With interest rates on the rise, the once red-hot US housing market is finally showing signs of cooling.
Credit risk-transfer securities (CRTs) have made the US mortgage market safer by shifting default risk from taxpayers to private investors. The latest attempt to overhaul the housing finance system isn’t likely to change that.
The median price of a US single-family home has risen just over 40% since the last housing-market crash. While newspaper headlines may put readers on edge, our analysis indicates a gradual slowdown, not a bursting bubble—in most regions.
Congress may finally be inching toward an overhaul of the US housing finance system. That’s good. But getting reform right is more important than getting it done. To us, that means ensuring the government retains a clearly defined role in the mortgage market.
Investors seeking floating interest-rate exposure and high yields are increasingly turning to credit risk–transfer securities (CRTs), a fairly new type of mortgage-backed bond. But could US tax-code changes hurt the housing market and, by extension, CRTs? We don’t think so.
For some investors, any mention of US mortgages takes them back to the dark days of 2008. But today’s mortgage bonds aren’t the devils some market participants make them out to be.
