Not All Lock-In Comes From Rates: The Hidden Turnover Story

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why growing macro uncertainty has done little to change their constructive intermediate-term outlook for agency MBS, as improving technical demand increasingly offsets a more challenging rate environment. They examine two underappreciated forms of housing lock-in—capital gains taxes and America's aging housing stock—and explain why both may ultimately create future turnover rather than suppress it indefinitely. The episode also explores how maintenance costs, homeowner demographics, and state-level tax exposure are becoming increasingly relevant inputs for prepayment modeling, particularly in seasoned legacy discount collateral where even modest changes in turnover can meaningfully improve expected returns.