PIMCO recommends Fed halt mortgage unwind to boost housing market

Core Viewpoint - PIMCO suggests that the Federal Reserve should halt the reduction of its mortgage holdings to support the U.S. housing market, as the current approach has led to elevated mortgage rates and wide mortgage spreads [1][2]. Group 1: Mortgage Market Conditions - Mortgage spreads have remained "unusually wide," approximately 230 basis points, contributing to a high average mortgage rate of 6.35% for 30-year loans [2][6]. - The Fed's quantitative tightening has involved shedding mortgage bond holdings since 2022, impacting the housing market negatively [1][2]. Group 2: Proposed Solutions - Reinvesting the proceeds from mortgage-backed securities (MBS) roll-off, averaging $18 billion monthly, could lower mortgage rates by 20 to 30 basis points, equating to the effect of a 100-basis point cut in the federal funds rate [3][4]. - An alternative strategy includes both reinvesting the MBS roll-off and selling $20 billion to $30 billion in MBS, potentially leading to a 40 to 50 basis point reduction in mortgage rates [5]. Group 3: Future Outlook - If the Fed maintains its current strategy, mortgage rates are expected to remain high through 2026, limiting homeownership to wealthier individuals [6].