is the (low mortgage rate) party over?

The party is just getting started in New Orleans (Super Bowl win + Mardi Gras = month long celebration), but it may soon be coming to an end for historically low rates.

Enjoy it while you can!

Mortgage rates hit historic lows in 2009 thanks to the extraordinary efforts of the Federal Reserve.  Back in November 2008, the Feds announced a program to buy mortgage backed security (MBS) bonds.  The reasons were two fold:

  • to help push mortgage rates lower to stimulate the real estate market
  • to create a market (or in other words, increase the value) of MBS bonds for others to buy

When the plan was announced by the Feds in November 2008, interest rates dropped roughly a half point in one day!  As the Feds began buying bonds, rates dropped down to their historic lows. The initial plan was to buy bonds through the first six months of 2009. It was extended through 2009, and extended again through end of the first quarter 2010.

At their recent meeting, the Feds reiterated their intentions to “seamlessly exit” the MBS bond market with no hint at another extension to the MBS bond buying program.  The question now is “what happens to mortgage rates?”  Take a look at the chart below.

Since mortgage rates dropped significantly on the announcement of the plan, and then continued to improve to historic lows as the Feds purchased MBS bonds, one would logically expect the opposite reaction once the bond buying program comes to an end.  In this case, and at least to some degree, interest rates should rise.

How should you proceed? Anyone who hasn’t refinanced OR is waiting until the deadline to take advantage of one of the home buyer tax credits, go ahead and get prequalified today.  Move forward with the loan now while rates are still ridiculously low.

There is not guarantee rates will dramatically increase, but also no guarantee they will stay the same.  Take advantage of the market and low rates while they are still available.

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