We can breathe a sigh of relief since the Federal Reserve announced that its quantitative easing (QE) program would remain unchanged…
Hopefully this will help mortgage rates to remain at the super low levels that are available today.
The bad news is that we know that the Fed will eventually end QE at some point in time. Some economists think the Fed will start tapering the Quantitative Easing at the end of this year. That is based on the Fed’s Chairman Ben Bernanke’s previous statements that “tapering” would likely begin near year-end.
Nobody Knows When
Sadly, no knows exactly when the Fed will begin tapering QE. Which is due to the fact that even the Fed probably doesn’t know what the future holds. It really depends on the rate that the economy and unemployment improves in the coming months.
Bernanke has said that the Fed will be watching domestic and global economic developments to help them decide when and how they will change the QE program.
Economy and Employment Improving
In the FOMC statement, the Fed pointed out they are seeing modest economic expansion and improving labor markets. Because of the still way too high unemployment levels we can expect the Fed to continue its current level of QE.
While I have strong feeling’s about the Fed being nothing but a tool for the big banks to manipulate the economy, we can’t change that. At least not today. Supposedly the Fed has a mandate that requires it to support price stability and low unemployment. So if they see the economy or unemployment levels get worse then the Fed should continue QE at the present level. Some economists think that the Fed will continue QE to sometime in 2014.
QE and Mortgage Rates
Right now the Fed is buying $40 billion in mortgage-backed securities (MBS) and $45 billion in Treasury securities every month. Because of this, the Fed is probably responsible for the low mortgage rates. And it is hard to deny that the low mortgage rates are helping the housing.
The bad part of Quantitative Easing is that when the Fed does stop or taper these asset purchases, demand for MBS and Treasury securities are expected to fall. Which means their prices will likely fall as well. Which should lead to higher mortgage rates because when prices for bonds fall, mortgage rates usually increase.
The recent rise in mortgage rates plus the possibility of QE ending is something that worries me. Many buyers shop for homes based upon what their monthly payment is going to be. Higher mortgage rates will mean some homes are out of their price range. Add to this rising home prices and we can see that some buyers could face difficulties in buying a home soon.
The Take Away:
If you are thinking about buying a home, it would be best to take action before the Fed does change the current QE program. Not saying you should panic or rush your home buying decision! You need to be aware that dragging your feet may cost you money. Or mean the house of your dreams is now beyond your reach.