Mortgage-Backed Securities Insights — Week of July 6, 2026

Hi, I’m Jerry Levy, Managing Director of Texas Capital’s Mortgage, Security Sales & Trading.

Here we are at the second half of 2026: Let’s go over where we stand in terms of the macro environment, Fed policy, the ongoing housing affordability crisis and regulatory reform directed at the residential mortgage market.

As my colleague Steve Orr has emphasized, never has the range of possible macroeconomic outcomes — that have a direct bearing on the mortgage market — been as wide as the present due to uncertainty finalizing the Mideast cease fire agreement and the reopening of the Strait of Hormuz.

The surge in inflation over the last three months is directly related to the WTI oil price spike to $100 in May, from under $60 at the beginning of 2026. At $68 today, we are close to having round-tripped back to that 60-to-$65 level, which will indeed support the “transitory inflation” theory and the current 4% headline inflation numbers return to 3%. In fact, the Cleveland Fed’s inflation nowcast just released shows negative month-to-month readings for both June and July, with headline consumer prices running at a -0.06% and July at a -0.2%.

Last week’s June payroll shock: only 57,000 jobs were added, with the report well below the 115,000 consensus — this is a real hiring deceleration. The employment rate ticked down to 4.2%, but that’s partly due to a drop in labor force participation. ADP private payrolls also missed at 98,000 versus the 120,000 forecast. One analyst called it “a reality check for the real economy.” The soft print confirmed the “no imminent Fed rate hike” scenario, and 30-year mortgage rates returned to the 643 to 646 range, which is the lowest in almost two months. The agencies are rumored to have opportunistically added to their holdings, buying MBS during the sell-off, which is what their expanded purchase limits were intended to do.

Chairman Warsh, for his part, commented that “prices are too high,” repeating his hawkish support for price stability, reassuring markets while he waits and sees, and giving more time for the Fed’s task forces to report on their suggestions for changing Fed operating procedures. As a reminder, the Fed minutes will be released this Thursday, July 9th. Affordability in the first half of 2026 has been hurt by the almost 50 basis-point move higher in mortgage rates, while it has been helped by HPA — home price appreciation — coming in about flat on a national basis thus far, but median home prices remain well above the median wages needed to comfortably purchase. The 21st Century ROAD to Housing Act — with its structural and regulatory reform supporting housing, specifically aimed at first-time homebuyers — remains unsigned, while the political landscape remains divided in front of the November midterms. The midyear report card for 2026 housing and agency mortgage markets is therefore a C-minus at best, with the homebuying season window slowly shutting. Without mortgage rates declining in the third quarter, which would help affordability and buyer demand, look for MBS commentary to start shifting, calling for 2027 to be the time for a sustained recovery in the housing market, as 2026 will end even below 2025’s levels.  

Thank you for listening. Please go to the Texas Capital LinkedIn page for all our updates; until next time.