March 20 Mortgage Update

March 20 Mortgage Update

Mortgage rates had a nice downward bounce this week after the Federal Reserve announced they would buy up to $300 billion in Treasury bonds over the next six months. In addition, the Fed also announced they would now purchase up to 1.25 trillion in mortgage-backed securities, raising their appetite from the $500 billion that was previously announced. It is interesting to note it is the Federal Reserve, utilizing their mandate from Congress, that is taking action. The current balancing act between the Fed setting monetary policy & the Treasury Department’s fiscal policy initiatives, is a tall order and one that has caused much debate on both sides.

I think the important item to note is that this big announcement did not have the huge impact on rates that the media would have you to believe. Conforming rates prior to the announcement were already under 5%. When the announcement was made, investors’ rates on average improved by only 0.25% & by the end of the day Thursday, many investors were already having price changes for the worse. The bottom line: throwing another trillion or so at our growing liquidity problem had only a limited immediate effect on mortgages rates; however, it should keep rates in this low realm for the immediate future. What is going to be the outcome of this unprecedented government spending plan, most recently estimated at $10 trillion over the next five years? While inflation should remain in check for the next 12-18 months due to the large amount of economic slack present in our economy, expect inflation and a much higher interest rate environment a couple years down the road. This provides quite an attractive home buying proposition right now.