Dear Bloggers: Since I’ve been selling real estate in Raleigh, North Carolina since 1984, I take the ‘long view’ of housing ups and downs. The biggest difference about this phenomenal ‘buyers market’ is that both home prices and interest rates are low. This is very rare. This moment in time and dual opportunity will this be seized by savvy home buyer’s.
The Fed will no longer be buying mortgage-backed securities in the near future. When that happens, the volatility on mortgage rates will become increasingly HIGH, due to not having a firm, solid backing to make sure the securities are bought. Some buyers need to seek Pre Purchase Rate Protection (not sure what this is, I would love to tell you – email me now at Marti@MartiHampton.com
We could see rate swings from 0.125% to 0.375% in a day. See Report below:
March 11, 2010 (Bankrate.com)
The Fed is in the final three weeks of a mortgage-buying initiative that began more than a year ago. In all, the Fed plans to buy $1.25 trillion in mortgage-backed securities. The central bank is down to the last $30 billion or so of these purchases. Afterward, it will be up to investors to buy mortgages and keep home loans available.
For a while, the consensus among bankers and economists was this: Mortgage rates would rise roughly half a percentage point after the Fed’s withdrawal. That consensus of an expectation of higher rates has transformed into uncertainty.
“Are we going to see a half-point blip? I don’t know. Maybe. Possibly. Probably. I don’t know,” says Dick Lepre, senior loan consultant for Residential Pacific Mortgage. If the Fed’s withdrawal means that rates are going to rise, why haven’t rates gone up already? Lepre explains:
Even members of the Fed are asking that question, which implies that they are uncertain about the direction of mortgage rates, too. Brian Sack, executive vice president of the New York Fed, said in a speech Monday that the central bank has been tapering its purchases of mortgage-backed securities. “However, even as the pace of our purchases has slowed, longer-term interest rates have remained low,” Sack said, and the gap between mortgage rates and Treasury yields has remained narrow.”This pattern suggests that the effects of the purchases have been primarily associated with the stock of the Fed’s holdings rather than with the flow of its purchases,” Sack continued. “In that case, the market effects of the purchase program will only slowly unwind as the balance sheet shrinks gradually over time.”
In other words, Sack believes that mortgage rates are low because the Fed has bought more than a trillion dollars’ worth of home loans, not because the central bank is buying a certain amount of mortgage-backed securities every week. And that implies that rates won’t necessarily rise rapidly after the Fed withdraws.
For his part, Lepre is more certain about something else: After the Fed stops buying mortgage-backed securities, rates on mortgages will be volatile. That is, they might move up and down in big chunks during the day. These up-and-down moves might pretty much cancel each other out over a day or week or month, albeit with a long-term, upward trend. It won’t be a relaxing ride for borrowers who are trying to decide whether to lock or float.
“I think we’re going to return to greater volatility simply because the Federal Reserve is not there to take up the slack in case there’s no participants (in the market), and that’s going to be annoying to people who are concerned about locking interest rates or not locking interest rates,” Lepre says.
Hopefully this will guide you to make all the right moves in real estate for today and for your future. All the best, mh