This is an even bigger increase than we discussed in our recent Housing comment.

And while the benchmark 10y Treasury yield has also risen, the increase is "only" 94bp. In other words, there has also been a significant widening in mortgage spreads, by 66bp to 243bp. This could be explained by the Fed's accelerated pivot from QE to QT, the latter of which we expect will be announced at the next FOMC meeting in May.

As discussed one week ago in "Housing Affordability Is About To Crash The Most On Record", the move higher in rates means that an already record affordability shock will be even worse! As a reminder, we looked at the NAR affordability index and found that the 4.22% on average rate through mid-March, would lead to a record affordability decline of more than -25% yoy. Refreshing the data, Bank of America finds that the decline now looks closer to -30% yoy.

Unfortunately, that's only the beginning: according to BofA economist Alex Lin, it will probably be even worse than that given the considerable momentum behind home prices, which actually picked up to begin this year with Case-Shiller national home prices accelerating 1.6% mom and 19.2% yoy in January. This move would bring the level of affordability to the lowest since 2007, when the housing bubble was bursting. In other words, not only is housing affordability about to plunge at the fastest rate in history, it will also drop to the lowest rate on record, making housing an asset class which just a select group of US households can afford.

What does this shock mean for actual home prices, sales and - ultimately - the coming recession?

According to Lin, housing affordability tends to lead the trajectory of existing home sales by about half a year. For illustrative purposes, we can draw up a scenario where the existing home sales trajectory matches affordability. This would suggest existing home sales falls below a 4.4mn SAAR pace by September, averaging 5.26mn SAAR over the first 9 months of 2022. That said, the relationship between affordability and existing home sales is imprecise. As a result, this is probably more of a bear case than the base case.