Most people that are going to buy a home will be using a mortgage. Hints about mortgage rates going up should make both buyers and sellers pay attention…
Who Hinted at Rising Mortgage Rates?
Well the Federal Reserve did. They did not come right out and say it in plain English. We have to read between the lines and make some educated guesses. The recently released minutes from the April/May Federal Open Market Committee (FOMC) could have a big effect on mortgage rates in the near future.
Because the suggestion that the Fed’s quantitative easing (QE) program may be modified would mean that mortgage rates could rise. Right now, the Federal Reserve is purchasing $85 billion per month in mortgage backed securities (MBS) and Treasury bonds. The Fed’s goal with QE is keeping long-term interest rates, including mortgage rates, low.
There is no doubt that mortgage rates are super low right now…
But is this going to change soon?
So why would the Fed change their Quantative Easing?
Some are pointing towards concerns a possible economic “bubble”. Also some FOMC members are concerned about economic deflation resulting from cutbacks in QE.
Bernanke Says Bond Buying Program “Overheated”
Just the other night (might have been last night) I saw Fed chairman Ben Bernanke on the news testifying before Congress. I was half asleep but when I saw Bernanke I did pay attention because I know the impact his words can have on the economy, interest rates etc.
Anyway, Bernanke said the current QE program is “overheating the economy”. And he said that slowing economic growth is a worse than continuing the current QE program. Bernanke thinks that QE is supporting financial markets and the economy.
I wonder if the Fed started loaning money at super low rates to the average tax paying hard working person instead of to the banks if we would see more improvements in the economy. Sure, some morons would waste this money. But many people would use it in ways that could help our economy instead of just helping the TBTF banks and Wall Street.
We know who is the REAL priority for the Federal Reserve…
And it isn’t me or you.
I was not sure how I felt when he said that it is not time to reduce the Fed’s support. I am not the only one that is not sure about the benefits of Quantative Easing considering the costs. There was one member of the FOMC calling for the immediate tapering of the QE program. But another member proposed expanding QE purchases. Not sure what this one is smoking…
Some of the problems the FOMC pointed out include:
- Unemployment rate of 7.60%
- Private sector hiring plans were “subdued”
- Jobless claims trending up
But there was some good news from the Fed: Improved consumer spending (due to higher car sales) and lower gas prices.
It does not take a rocket scientist to figure out that consumer spending is not going to change unless we see improvements in the unemployment numbers. Some members of the FOMC expressed their concerns that the current level of consumer spending will eventually stagnate unless there is improvement in unemployment and business investment. Some of the business leaders that the FOMC members talk to said they are scared to hire or invest in their businesses because of the reports of decreased manufacturing and lower international demand for products.
Not All Of the News Was Bad
While it sounds like the most recent FOMC meeting was pessimistic, there was good news about inflation. The Fed expects that inflation will stay subdued until 2015. The Fed said it will keep its benchmarks for adjusting the Federal Funds Rate and QE based on the US unemployment rate reaching 6.50% and the inflation rate reaching 2.00%.
One really noteworthy thing is that the FOMC said the improving real estate market is part of the reason for recent improvement in the economy. The Fed also said that the increased demand for housing is because of the low inventory of available homes. They are of course talking about US housing inventory and not just the numbers in Upstate South Carolina.
The Fed thinks that rising home prices and easier consumer credit terms are contributing to the improving economy. People have more money to spend because of this according to the Fed.
The FOMC members could not agree on how, when or if they will revise their current QE policy. For now, it appears that the FOMC is kicking the can down the road as far as QE. Which means that mortgage rates should stay low despite rising for the past several weeks. So we will have to wait for the next FOMC meeting to find out if there will be any changes to the QE program.
For now, if you are thinking about buying a home in the Anderson area, I suggest talking to a lender for 2 reasons:
- Mortgage rates may go UP
- Getting a Pre-Approval Letter is one of the first steps in buying a home!
If you have any questions about real estate in the Anderson SC area, please contact me!