Mortgage rates are up slightly this week, in response to the Federal Reserve’s decision to “taper” their bond purchase program that has been in place for some time now. The Fed had been doing this in an effort to keep interest rates low & to help strengthen the economy. A 30 year fixed rate loan with “0” points is now in the high 4% range, while a 15 year rate is hovering right around 4.0%. This news from the Fed, while it does result in somewhat higher rates, is not all bad news for those of us interested in housing. Here are some things to consider:
- The Federal Reserve has confirmed it’s strong desire to keep interest rates low, to help strengthen the recovery.
- As they taper the purchase of bonds, they are doing so in a slow & measured fashion. Wall Street reacted very positively yesterday because of this. The Fed had been purchasing government & mortgage bonds to the tune of 85 billion per month. This is being reduced to 75 billion per month.
- Higher rates make lenders hungry for business. This is because the “low hanging fruit” of the refinance market is gone, & as rates become somewhat higher, profit margins at least in theory, become greater. All of this should result in certain lending guidelines to become a bit more relaxed. We’ll have to see if this is offset by some new regulatory changes coming in to play (watch for an upcoming post on the impact of “Qualified Mortgage” requirements).
- Keep in mind that this is being done because the economy is improving. If there has been one dominating force in real estate over the last few years, it has been the confidence level of the consumer. As the economy improves, logic says that consumer confidence should improve. This makes sellers happy to sell, as they can net higher proceeds from their sale, & it makes buyers happy to buy, as they have a better feeling about what the future holds.
Take a look at the chart below to keep all of this in perspective. This chart shows mortgage rates going back to 1971. The last few years have resulted in the best interest rates in decades. Even with somewhat higher rates, home financing remains very attractive!
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