The housing market has been identified by the Federal Reserve as a key driver of economic growth in the U.S., which is why the Fed targeted mortgage-backed securities (MBS) as part of its “Quantitative Easing” program. Through mortgage purchases, the Fed provided technical support to the market, driving prices up and yields down. These lower yields corresponded to lower mortgage rates for borrowers and higher levels of home affordability. Now that the Fed has begun to taper its mortgage purchases, supply and demand for MBS and the resulting impact on mortgage rates become front and center. April will mark the first time since the latest QE program began when Fed buying will not outstrip supply. Last year, the Fed purchased double the amount of new supply. We are of the opinion that the MBS market has priced-in reduced Fed buying and expect mortgage rates to follow the direction of Treasury yields, as that has historically been a very close relationship. Mortgage rates remain historically low and home affordability is high. This is a nice underpinning for continued improvement in the housing sector, which should positively impact economic growth.