Time to Say Goodbye to Rock-Bottom Mortgage Rates?
Dec 18th, 2013 @ 10:04 PM by Amber Nelson
It finally happened. The Federal Reserve announced Wednesday that it will begin tapering its bond-buying program at the beginning of the new year. And while that’s a good sign – it means the economy is not as dependent on government stimulus money as it once was – the consequences may mean that we have seen the very last of all-time record low mortgage interest rates.
The new plan will have the Fed reducing its purchases of long-term Treasury bonds to $40 billion a month from the current $45 billion and easing down its monthly mortgage-backed securities purchases to $35 billion from $40 billion. In a statement, the Fed said that if economic reports continue to come back positive, “the [Federal Open Market] Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.” But Fed Chairman Ben Bernanke and the rest of the Committee stressed that the tapering terms are flexible. “However, asset purchases are not on a preset course,” and they can be increased again if the economy sours again.
At the same time that it is reducing its bond-purchases, the Fed recommitted to keeping its target Federal Funds rate at or near zero “well past the time” that the unemployment rate falls to at least 6.5 percent and inflation does not become a problem.
As long as the target rate is at its current level mortgage rates are not likely to skyrocket, but there is definitely some room for long-term rates to move upward in the coming weeks and months. The Fed’s latest announcement may signal an effectual halt to refinancing activity in 2014 as rising rates erase any possible payment savings.
Nine of the ten voting Fed members were in favor of the tapering program, while Boston Fed President was the only dissenter, believing that the purchase reductions are “premature” based on the current state of the economy.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.