What a crazy couple of months! Lots going on in the world of real estate. So busy! I apologize for the break in posts.
So if you remember, over the course of the fall we talked about the Federal Reserve’s bond-buying program (Quantitative Easing) that was put into place because of the housing crisis. This program helped to stimulate the economy and kept interest rates on mortgages low. For a good part of 2013, there was lots of chatter about whether or not the Fed was going to begin to taper this program–thus potentially leading to increased interest rates. Then we had the announcement that Fed chief Ben Bernanke was leaving in January with Janet Yellen in the wings to take over. All of this lead to much speculation about when the tapering would begin and what the impact would be.
Well, the Fed did indeed begin the tapering process in December. However, it has started small (small being a relative term here). Now instead of buying $85 billion in bonds a month, they are buying $75 billion. The Fed says their plan is to eventually do away with the program entirely. It is dependent however on many factors, including the labor market.
So what has this meant so far on the interest rates for 30-year fixed rate mortgages? Check out this chart from Freddie Mac (To see a bigger version, click on the picture):
Looking at the graph, you can see that for two weeks after the Fed’s announcement in mid December of 2013, we saw a slight rise in interest rates. But, once the new year began, the rates dropped a bit. It seems that the initial tapering has not had that big of an effect. However, projections by lots of the big guns, Freddie, Fannie, Mortgage Bankers Assoc., etc. are predicting a good jump by the end of 2014. Some financial experts believe the rates may even reach 6%.
While the definitiveness of increasing mortgage interest rates isn’t 100%, it is important to note that if you are planning on buying in the next year or so, it might be worth taking the plunge sooner rather than later. Tomorrow we will look at data from the past year and see what the cost was of waiting out 2013 to buy.
Have a great day!