Watch Out for Wealth Effects

The aggressive turn in Fed policy beginning late last year has instigated a sharp up-move in interest rates. Accordingly, financial assets have retreated with the S&P 500 and Nasdaq composite ind ices down over 15% and 25% year-to-date. Not only has the expectation of a dramatically increased fed funds rate broadly lifted borrowing rates, but the Fed’s plans to dispose of their $2.7T worth of mortgage-backed securities has additionally propelled mortgage rates. Are home prices the next due for a correction?