By the Numbers
Slowing home sales lowers expected net MBS supply
This material is a Marketing Communication and does not constitute Independent Investment Research.
Expectations for MBS net supply this year have fallen as the pace of new and existing home sales has slowed. If seasonally adjusted home sales remain steady, then net supply should average roughly $15 billion a month for the rest of the year and only $13 billion a month for the year overall. Supply should be higher over the coming months than it was in February and March, which are typically the lowest months of the year.
Net supply has been close to model projections in for the first quarter of 2026, including capturing the sharp drop in February and March (Exhibit 1). Net supply is typically low early in the year, following the slowest months for housing turnover. Furthermore, refinancing was accelerating, and the delay between payoff and repooling typically causes net supply to drop when refinancing increases. Net supply typically rises when refinancing activity fades.
Exhibit 1. Net supply projections
Static projections hold March 2026 home sales constant. Fannie Mae’s April 2026 and MBA’s March 2026 housing forecasts were used for those net supply projections.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
The chart shows monthly projections assuming seasonally-adjusted new and existing home sales are unchanged, and using forecasts provided by Fannie Mae and the Mortgage Bankers Association. The forecasts expect home sales to increase, leading to higher supply projections than the static projection.
Net supply is expected to average $13.0 billion a month this year using the static home sale assumption (Exhibit 2). That is a full-year total of $156.0 billion. The MBA’s home sales forecast leads to expected supply of $16.2 billion per month or $194.4 billion for the year. Fannie Mae’s home sales projections fall in between those results, at $14.9 billion per month or $178.8 billion for the year. All three forecasts are less than projections made last fall based on higher expected home sales.
Exhibit 2. Net supply projections
2026 is an average of actual net issuance through March and projected net issuance from April through December. The first column holds home sales constant at the March 2026 level. Fannie Mae’s April 2026 and MBA’s March 2026 housing forecasts were used for those net supply projections. Fannie Mae’s home sales forecasts do not yet cover 2028.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
The net supply model is driven primarily by new and existing home sales. The portion of new home sales that are placed in Agency MBS contribute directly to net supply. Existing home sales and cash-out refinancing also contribute if the new loan has a larger balance than the loan being paid off. Mortgage rates are also used to estimate the effect of increases and decreases in rate/term refinancing, which can have a short-term effect on supply. There is typically a delay between prepayment and re-pooling, so when rates drop paydowns increase before gross supply; this pushes net supply down. The opposite happens when rates increase and prepayments slow. Over the long run the effects should balance out, but can cause short-term disruptions.
The model does not directly capture other effects, such as flows of loans to and from non-agency securitization or bank portfolios. For example, a borrower that refinances a loan in a non-agency security using an agency mortgage would lift supply. Fannie Mae and Freddie Mac may also cloud these numbers if they choose to retain loans purchased at the cash window rather than pool and sell them, or if they pool loans they had previously retained. This could be more relevant as the two companies seek to grow their mortgage investment portfolios. The model incorporates a short-term error correction designed to capture some of these effects.
A longer-term view of the model shows that it has captured most of the changes in supply levels for several years (Exhibit 3). This graph uses a 3-month moving average to smooth out the month-to-month volatility. The biggest discrepancies occurred in 2020, 2021 and 2022, when supply reached record levels. Some of this may be due to borrowers mortgaging properties that had been owned outright to take advantage of record low rates during the pandemic
Exhibit 3. Agency MBS monthly net supply predicted vs. actual
Three-month moving average was applied to all series.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
Over the last few years, the model has been close to actual, although biased slightly high (Exhibit 4). It was generally a little low before and during the pandemic, with the worst miss coming in 2021 when MBS issuance peaked. The model error was smaller over the first quarter of 2026 compared to the four preceding years.
Exhibit 4. Agency MBS monthly net supply predicted vs. actual
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
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