Scary news from the Fed today about Quantitative Easing. Let’s discuss it and what it could mean for real estate…
The scariest thing you are likely to see this Halloween won’t be at a haunted house or in a movie. It won’t a trick or treater with an over the top costume. It will be news from the Federal Reserve about
No Taper for Quantitative Easing
Due to the still weak economy and high unemployment, the FOMC has announced they are NOT any immediate plans for the Federal Reserve to start tapering Quantitative Easing. So what did they Fed say?
- Economic Activity Expanding at Moderate Pace
- Unemployment Still High
- Housing Has Slowed Down
This means that the Fed is going to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Fed has been spending money like crazy so it will put downward pressure on interest rates.
There is no doubt that rates have been super low as evidenced by the historically low mortgage rates. Those with the testicular fortitude to take advantage of the rates are getting in while the getting is good. Why?
The Mortgage Bankers Association just said they think mortgage rates will be above 5% in 2014. As I have said numerous times before, when the Fed starts to taper, mortgage rates will rise.
One interesting thing is the Fed said that fiscal policy is restraining growth. Not sure which policy they are referring to or if they mean the general unease most people have now. Consumer confidence is at it’s lowest level since December 2012 according to the latest Thomson Reuters and the University of Michigan Consumer Sentiment Index.
Rising mortgage rates and uncertainty will hurt hurt the real estate market. Something else that would hurt the housing market is if the proposal to require 30% down payments is implemented. This would destroy the real estate market and the economy.
NAR just testified before the Senate Committee on Banking, Housing and Urban Affairs regarding some of the proposed changes to mortgage lending. Good to see that NAR is finally being listened to instead of some website that exists solely to generate leads via out of date listings and inaccurate home values.
Anyway, NAR is pushing for “aligning the QRM definition with the QM definition”. This would protect consumers while still allowing credit worthy home buyers the ability to get a mortgage. Higher down payments will only hurt the real estate market and do NOT guarantee anything.
Prudent, reasonable and logical lending standards do!
The Take Away
The Fed not tapering Quantitative Easing is bad news because it means the economy is still weak. And it means the Fed is going to continue spending money despite it not helping the majority of Americans. We really have no idea when the Fed will start to taper QE. It could be as early as December but most think it will not happen until after Bernanke leaves the Federal Reserve OR the economy & unemployment improves.
With consumer confidence at a low point, it is hard for some buyers to overcome FUD (Fear, Uncertainty, Doubt) despite the great opportunity. Great prices on real estate combined with historically low mortgage rates makes now a great time to buy for some people.
You can lead a horse to water but you can’t make it drink…
We do know that interest rates, and more specifically mortgage rates, will rise once the Fed cuts back on Quantitative Easing. If someone is planning on buying, it might be in their best interest to do so sooner rather than later.