The real estate and mortgage market professionals will be fixed on the Federal Open Market Committee (FOMC) tomorrow, as the tapering decision will surely affect mortgage rates. If you’re not familiar with the FOMC meeting, it’s a meeting regarding whether or not the Federal Reserve will start tapering back its purchases of Mortgage Backed Securities (MBS). In simplest terms, if the Fed decides to cut back on its MBS purchasing, mortgage rates are likely to go up.
Both the FOMC policy statement and its up-to-date economic and market projections will be released tomorrow, Wednesday, September 18 at 2 pm, EDT, and will be followed up by Fed Chairman Ben S. Bernanke’s press conference at 2:30 pm.
So why is the Fed considering tapering now? Well, it has to do with the economy. Quantatative easing (known as QE3) is a process that was initiated to help the economy recover from the struggles that occurred after the housing and economic crisis of a few years ago. Now, it appears that the U.S. economy is showing enough signs of strength to justify putting an end to QE3. How swiftly the Fed chooses to cut back will depend largely on an evaluation of the labor market. The Fed announced its most recent round of QE in September of last year, and it has been buying $85 billion a month since January ($45 billion in Treasuries, $40 billion in MBS).
Although the 169,000 U.S. jobs gained in August fell short of the forecast, the economy has added more than 180,000 jobs a month on average since the latest program was launched. That compares with an average of just 130,000 in the six months before the program was launched. During the same time, the unemployment rate has dropped to 7.3 percent from 8.1 percent ahead of last September’s FOMC meeting. These positive changes stand as evidence that the economy can handle a reduction in QE and an increase in mortgage rates.
But isn’t an increase in mortgage rates a bad thing?
Not necessarily. In a strong economy, a slightly higher interest rate won’t necessarily deter buyers from entering the market. As long as employment remains on the right track and home values continue to gain across the nation, the thought is that a higher rate shouldn’t be a deal breaker for those who still have home ownership as their goal. Also, interest rates are unlikely to spike significantly, so buyers who are looking to purchase within the year are likely to lock in a rate that is still close to the record lows we saw last year. However, those who are payment-conscious should consider locking in sooner than later, as to receive the best rate possible
Mortgage Rates Forecast
Currently Trending: Neutral
For now, average mortgage rates are staying steady. However, the coming week will bring a lot more volatility due to the FOCM meeting. It should be noted that the actual minutes from the meeting won’t be released until October 9, the market is known to move on speculation. Something else that will likely affect rates – the replacement of Bernanke and talk of potential candidates has market analysts on the edge of their seats. The bottom line is this: If you’re on the verge of taking out your mortgage, talk to your lending professional about locking in the best rate. Waiting a week may not be in your best interest as an increase in mortgage rates is not out of the question.
If you’re searching for low mortgage rates in the state of Texas, contact Kelly Decker and his team of home financing specialists. The Decker Group is committed to staying abreast of market conditions and can advise you on the best course of action for obtaining an affordable TX mortgage. Call (972) 591-3097 for more information and a free rate quote.