Are interest rates going to go up or down?
Great question.
Consider this:
For most of this year, the Federal Reserve has been buying mortgage backed securities – en masse. As of last week, they had spent about $792 billion and many people say that the reason that interest rates have stayed so low is because the Fed has provided the demand side of the supply/demand law and thus mortgage rates have remained reasonably low.
The total amount that was authorized by the Fed was $1.25 trillion in mortgage bonds that are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. This buying is designed to reduce home-finance costs and hopefully turn the housing market around. In addition to the $1.25 trillion in mortgage bonds, the Fed also intends to buy $300 billion of long-term Treasuries and $200 billion of federal agency debt.
But all that buying activity will be coming to an end in the next few months.
And if the main entity that has been providing the demand over the last year “quits” providing demand by buying up mortgage backed securities… what impact will that have?
Not only am I unsure, but some of the smartest people in the world are also unsure about what impact this may have. According to Richmond Fed President Jeffrey Lacker:
Lacker said it’s unclear whether an end to buying the securities will disturb markets. “Whether there is a so-called cliff effect or any disruption due to discontinuous change in our purchases is up in the air.”
Are interest rates going to go up or down?
I don’t know. But interest rates are bouncing around their recent lows right now and it might be a good time to act.
Arizona Mortgage Rates
Comments on this entry are closed.