What drives the performance of RMBS? Do house prices matter?
Fact: even during the market volatility experienced in 2018 and the falling house prices - the values of GCI investments were rock solid.
The portfolio has performed exactly as forecast, never falling below its $2 issue price and delivering low volatility and sustainable monthly income.
This raises the question - what drives RMBS?
2 things:
IMF stress test (Feb 2019) of the Australian Major Banks concluded unemployment is the most important driver of performance of home loans.
House prices are important for the 'wealth' effect and government coffers BUT they have a second order impact on borrowers capacity to pay their mortgage.
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