US Housing & Mortgage Markets
Real house prices are quietly grinding lower while a divergence inside the GSEs raises questions about the plumbing of the mortgage market — and Erdmann is making a structural argument for why builders can't easily ride to the rescue.
Real Prices: High, but the Peak Is Receding
McBride's latest Case-Shiller analysis cuts through the nominal noise. The National Index hit a new all-time high in nominal terms, but in real (CPI-adjusted) terms, the National index sits 2.6% below its 2022 peak — and it's been 45 months since that real peak. The Composite 20 is also 2.6% below its own real peak. These aren't dramatic declines, but the trajectory matters: McBride's base case for 2026 is "mostly flat to a small decline in prices nationally," with rising inventory exerting downward pressure and sticky inflation preventing real prices from recovering.
Context worth holding: real prices remain 9.8% above the pre-bubble peak of 2006, and the long-run trend in real house prices slopes upward — so some premium is structurally expected. But the price-to-rent ratio and affordability index (gated for paid subscribers) likely tell a more sobering story for entry-level buyers. The setup is a market that looks expensive on nearly every historical measure, slowly deflating in real terms but not collapsing.
Inside the GSEs: A Widening Gap
Tom Lawler (via McBride's platform) flags something technically significant in the Fannie/Freddie monthly volume summaries. Fannie grew its agency MBS holdings by $17.7B in March; Freddie grew by just $700M — roughly a 25-to-1 ratio for the month. Over Q1, Fannie added $33.4B versus Freddie's $11.7B, a gap that remains unexplained. The combined $45.1B in GSE MBS acquisitions for Q1 is a fraction of the ~$200B pace implied by the President's January post that briefly moved spreads 15bp tighter. Those spreads have since given back the entire move and sit a few basis points wider than before.
The more pointed concern is duration risk. Freddie, in particular, has dramatically extended the maturity of its corporate and operating liquidity portfolio — from under 1 month at end-2024 to 44 months by March 2026. The stated rationale was income smoothing, but the consequence is stark: Freddie's market value sensitivity to a 50bp upward rate shock ballooned from $4M to $1.517B in 15 months. Fannie's comparable exposure went from $14M to $1.034B. In a rate environment that remains uncertain, these are not trivial position shifts at systemically important institutions. Lawler doesn't say they're imprudent, but the implicit question — why is Freddie's COLP structured like a medium-duration bond fund? — is worth watching as the GSEs edge toward any conservatorship exit.
The Builder Paradox: Why Shortage Doesn't Automatically Produce Supply
Erdmann's latest entry in his "20th vs. 21st Century Housing" series tackles the incentive problem that sits beneath the supply debate. In the 20th-century cycle, everything moved together: household formation, prices, and construction all rose and fell in sync. Under shortage conditions, the logic inverts. More construction is required to bring prices down — but builders who understand that dynamic face a painful question: why start a project if you know your margins will erode as you work through your production timeline?
This is the motte-and-bailey critique of the oligopolistic builder narrative. It's not that builders are colluding to restrict supply; it's that rational builders under shortage conditions have incentives that don't cleanly solve the supply problem. Erdmann's argument suggests that the path from "we need more housing" to "housing gets built" is not automatic — it requires either a policy environment that de-risks new development or demand conditions strong enough to make the margin compression tolerable. In the current market, with affordability strained and rate sensitivity elevated, neither condition is obviously present.
Synthesis
The picture that emerges from this week's posts is one of a market caught in a durable holding pattern. Real prices are elevated but slowly fading; the GSEs are acquiring MBS at a pace well below what policy rhetoric suggested, while quietly accumulating interest rate risk; and the structural case for why supply can't quickly solve affordability is being laid out systematically by Erdmann. The market isn't breaking, but it isn't healing either.
TL;DR - Real house prices are 2.6% below their 2022 peak and McBride expects further modest real declines in 2026 as inventory builds — nominal records mask a grinding affordability problem. - GSE MBS acquisitions came in at just $45B combined in Q1, well short of the $200B pace implied by January's policy signals, while both Fannie and Freddie have dramatically increased their interest-rate sensitivity. - Erdmann argues that shortage conditions create a builder incentive trap — rational developers know more supply will compress their margins, which is why "build more" is easier said than done without structural policy support.
Compiled from 2 sources · 3 items
- Bill McBride (2)
- Kevin Erdmann (1)