Federal Reserve To Continue Bond Purchases. Could This Bring Interest Rates Down?

The Fed will continue it’s $85 billion monthly guarantee of Mortgage Backed Securities despite earlier hints at tapering off.

After months of speculation that the Federal Reserve will end its stimulus for Mortgage Backed Securities (MBS), causing a ripple effect in the stock market and inadvertentlyFederal Reserve raising mortgage interest rates, key policy makers have made the decision to continue the program until further notice.

Citing the desire to see more improvement in the economy, the Federal Reserve made it clear that they will continue to guarantee MBS. The stimulus program was put into effect in November 2008, during the dark days of the real estate collapse and Great Recession as a way of maintaining low interest rates in preparation for an eventual economic recovery. The stimulus program, known as Quantitative Easing,  provides $85 billion per month in guarantees for MBS. Other funds have helped to purchase debt issued by government backed agencies such as Fannie Mae and Freddie Mac.

This past spring, the Federal Reserve hinted that they may eventually discontinue the stimulus in light of more positive economic news coming from Washington this year. On the heels of this revelation, mortgage interest rates jumped over 1 percent during the summer months and are currently holding just below 5 percent. Rates did take a very slight dip (.10 percent) after the Fed made their announcement, and the Dow Jones Industrial Average shot up 80 points.

Could this mean more historically low mortgage interest rates?

While this is great news for mortgage investors and stock holders, how will this translate to the residential real estate market? It’s very early to try and predict exactly how the real estate market will react. On the one hand, we’ve seen positive signs already with this news being released, but there may still be other economic factors that will determine the level to which mortgage interest rates may decline, if at all.

The good news for home buyers is that interest rates are still incredibly low, compared to the historic average which, over the past 40 years, has rested just ABOVE 7 percent. Qualified buyers are still able to get mortgage loans at just under 5 percent. This, coupled with the beginnings of a more balanced residential inventory for sale, can give buyers a lot more negotiating power when making their home purchase.

Team Avalos is here for all your real estate needs.

Whether buying a home, or selling, we have the answers and experience to make your real estate dreams come true. Contact us for a free, no obligation real estate consultation.

Team Avalos Real Estate
Keller Williams VIP Properties
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Valencia, CA 91355

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