By the Numbers
Light net MBS supply is about to get a little boost
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Net MBS supply is set to increase following a weak start to the year, but it still could struggle to match even the tepid pace of 2024. New and existing home sales faltered in May, although the MBA’s purchase index remained strong. If home sales don’t bounce back then net issuance could average $16 billion a month over the full year, the lowest since 2015. If home sales recover to the levels before May, then a full year average of $18 billion a month is possible, slightly above 2024. The remainder of 2025 should average $20 billion to $25 billion a month.
Slow home sales following the pandemic have pulled net supply to the lowest levels in years (Exhibit 1). New and existing home sales are the primary drivers of net supply. A new home that is purchased with an agency mortgage directly adds to supply, while an existing home sale contributes if the new loan is larger than the loan that paid off. High home price appreciation during the pandemic has prevented net supply from crashing even lower. Seasonal patterns keep supply low in the first half of the year and high in the second half of the year, all-else-equal.
Exhibit 1. Net supply projections
Three-month moving average applied to all series.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
If home sales follow the forecasts from Fannie Mae and the Mortgage Bankers Association then net supply should trend higher over the rest of 2025 and the following years, potentially averaging about $26 billion a month in 2026.
Other factors that influence net supply are cash-out refinances, since the new loan is larger than the prior loan. Cash-out volume jumped during the pandemic as rates hit record lows but dropped substantially as rates increased. And rate-and-term refinancing can have a temporary effect on net supply, since on average there is a delay between a loan payoff and re-pooling of the new loan. Supply tends to fall when refis increase, and supply tends to rise when refis decrease. That effect contributed to low supply in March and April.
The net supply model, which uses home sales, loan size, and mortgage rates as inputs, has been overpredicting net supply following the pandemic (Exhibit 2). The gap widened during the first few months of 2025, primarily because of refinancing in March and April. The gap is likely to narrow as the year progresses.
Exhibit 2. Agency MBS monthly net supply predicted vs. actual
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Santander US Capital Markets.
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