The narrative this week was dominated by policy uncertainty rather than concrete action, beginning with President Trump’s long-teased $200 billion mortgage-backed securities purchase plan, which arrived at Davos with few details and little immediate market impact. Mortgage rates ended up less than 10-basis points from below pre-announcement levels, underscoring the growing consensus among economists and Fed officials that housing affordability is constrained by supply, not financing. The bond-buying effort appears aimed more at offsetting the Fed’s gradual MBS runoff than materially lowering borrowing costs, reinforcing skepticism that it will deliver meaningful relief for homebuyers.
Markets found some near-term calm after Trump struck a softer tone on Greenland and tariffs in Davos, easing immediate trade-war fears, but few investors are convinced the détente will last. Treasury yields moved higher over the week as policy risk, geopolitical tensions, and revived tariff concerns weighed on U.S. assets, pushing the 10-year yield back toward levels last seen in August and accelerating curve steepening. Supreme Court oral arguments in Trump v. Cook provided a counterweight to executive power, as even conservative justices signaled discomfort with undermining Fed independence, helping preserve confidence in monetary policy credibility despite longer-term uncertainty around Fed leadership and tariff authority.
It remains a story of structural weakness rather than cyclical relief in the housing market. Construction spending was essentially flat after a September dip and October rebound, driven mainly by residential improvements, while year-over-year activity remained down amid high rates and economic uncertainty. Homebuilder sentiment slipped again in January, with the NAHB index stuck at deeply pessimistic levels as builders rely heavily on incentives to move product. Years of underbuilding, restrictive zoning, high construction costs, and the lock-in effect from ultra-low pandemic-era mortgages continue to constrain supply, keeping affordability strained and limiting prospects for a near-term rebound in homebuilding.
Within the mortgage market itself, volatility remained elevated: UMBS and Ginnie Mae performance showed sharp dispersion by coupon, program, and servicer, with lower coupons seeing strong rolls and higher coupons favoring specific low-payup and larger-balance stories. Ginnie Mae II prepayment data highlighted faster VA speeds versus FHA, particularly in higher coupons, with prepayment risk concentrated among a handful of large servicers rather than evenly distributed across the stack. Issuance remains robust, ARMs continue to attract interest, and January prepayments are expected to slow. The overall tone reflects caution over conviction.
Finally, data indicators offered mixed signals. Mortgage applications surged, led by refinancing, as rates briefly dipped, but that optimism sits uneasily alongside rising yields, fading rate-cut expectations, and headline-driven volatility. With January Fed cuts fully priced out and June now the earliest likely window, markets are increasingly sensitive to political developments, Supreme Court rulings, and geopolitical headlines rather than economic data. Your takeaway: there are solid demand pockets and strong issuance activity, offset by higher rates, policy uncertainty, and structural housing constraints that no amount of bond buying is likely to fix anytime soon.