A recent article from the NPR indicated that The Federal Reserve will stop buying mortgage-backed securities on Wednesday March 31. This marks the end to a massive program that’s been helping the housing market recover.
When the economy showed signs of decline over a year and a half ago, the government wanted to drive down interest rates for homeowners to stimulate the economy by making it cheaper to buy or refinance a house. The problem was that lenders were not issuing loans, even to homeowners with good credit. As a result, interest rates rose.
The Federal Reserve aimed to solve this problem by buying up a lot of mortgages. Because of this, they became the largest mortgage-backed security investor in the world. In fact the total amount of mortgage-backed securities now totals more than $1.2 trillion worth in all.
The Fed was buying 90 percent of new mortgage-backed securities and now is only buying about 30 percent or less. As of April 1, 2010 they will stop buying altogether. So the question is what happens then? Barry Habib, chairman of the board of Mortgage Success Source, which tracks rates and trends for mortgage brokers, says that when the Fed stops purchasing these securities, it will leave a vacuum in the market that will push up interest rates.
What many people don’t know or understand is that the government actually has been making quite a bit of money on this program. The U.S. Treasury earns about $50 billion a year from interest that homeowners pay on loans the government owns. However, there is the risk that some of the more than $1 trillion worth of home loans that might go bad.
With all the uncertainty swirling just weeks before the spring market, we do know of a certainty that will definitely come with this year’s spring market. The Federal Reserve will cut the rate by at least a half point. This rate cut is expected to take place on March 18th, just 2 days before spring. There is a chance that the cut will be as large as ¾ of a point, although this is unlikely according to most expert analysts. When I heard the news of this cut, I started to wonder what the impact would be on the market. Will we get the jump in Madison real estate activity that we are all hoping for? What do you think? I would love to know your opinions. In a couple of days I will post an expert review of what all this could mean for you in the Madison real estate market, but in the mean time I would love to hear from you.
I know it is difficult to sort out all the real estate headlines that hit the press on a daily basis. Foreclosures, dropping prices, and daily decreases in sales volume! Many people are asking themselves, “is it ok to buy a home with all of this swirling?” Absolutely!! With the shift that has occurred in this real estate market, we are definitely in the midst of a buyer’s market. There are greater prices today than what we have seen in years, and these prices are paired up with fantastically low-rate mortgages. Many speculators believe the Federal Reserve will cut the rate again by another quarter point at the end of this month. This potentially means even better interest rates during a time when buyers have great negotiating ability. My recommendation is to get a head start on your property search so that you are ready to take advantage of these great rate offerings. This is a perfect time to step into home ownership and investment opportunities.