As Fed. Backs Away From Mortgage Bonds… Buyers Need To Take Action

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There are more questions than answers right now.

After the last meeting of the Federal Reserve Board, Chairman Bernanke announced that the Federal Reserve would complete its strategy of purchasing mortgage backed bonds in June of this year. Previously, it was expected that they would back away from the market in March. Most experts believe that the Federal Reserve will EASE away from the mortgage backed securities market to allow for private money to flow in. I compare it to changing players at the poker table. If everyone stops playing at the same time, the game is over!!

I tend to be more optimistic as it relates to liquidity in the market. The quality of mortgage backed securities is so high today. I believe private investors will be anxious to participate. This will include new money from international resources. The key is for the Federal Reserve to keep a tight hand on the wheel and not let housing slow down anymore than it already is. Timing is everything and as existing home prices reach the bottom (we are close) it will be critical for buyers to have access to credit. The Federal Reserve will not want to cause a further slow down in housing which could trigger more catastrophe for the economy. Look for the Federal Reserve to begin easing away in June with a strategy to jump back in if things go wrong. They have invested $1.25 Trillion through 2010 and committed
to almost $800 billion more. They don’t want to squander the gains.

Lastly, I do expect rates to tick up eventually as the “real” market takes over. These increases will be gradual barring any drastic economic developments. I see rates between 5.25% and 6% by the end of the year. The time for buyers to act is now. Those who try to time the market typically don’t win at the poker table of market timing!!

by John Inzeo, Vice President of Wisconsin Mortgage Corporation

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Categories: Home Buying, Mortgage

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