Federal Reserve will reduce amount spent monthly on Mortgage Backed Securities.
For just over 5 years, the Federal Reserve has purchased Mortgage Backed Securities (MBS) to the tune of $85 billion as part of the stimulus program enacted in November 2008. Known as Quantitative Easing (QE), this purchase of bonds helped to shore up the real estate market by helping to keep interest rates low. QE gave confidence for investors because of the security the ongoing stimulus provided to the market.
Late last spring, the Federal Reserve hinted that they may eventually end Quantitative Easing due to marked improvements in the nation’s economy. Investors, nervous that they may no longer rely on the stimulus guarantee, initiated a selloff of MBS that caused mortgage interest rates to jump nearly a full percent. The Fed changed their course late in the summer, and QE continued without any changes.
Changes ahead, but how will they affect the real estate market?
On December 18th, the Federal Reserve announced they would reduce Quantitative Easing by $10 billion per month. Good news from an economic standpoint in that taxpayers will be saved $120 billion during the course of the year. So far, the stock market has reacted positively, with markets closing up since the news was announced. Interest rates have not been affected either…yet…but so far the outlook appears positive.
All of this seems to be good news to start the new year. November saw home prices in Santa Clarita the highest in five years, when values peaked just before the recession took hold. Overall we’ve seen significant gains in the housing market in 2012, and with the improvement of economic conditions, we should see continued gains into 2014. Continue reading Fed Eases Mortgage Stimulus, Rates Hold Steady