If anyone is considering purchasing a home this year, or know someone that is, you may want to take note of the new financial information from the feds that has recently been released. A quote from Mark Wagner, VP of Capital Markets
"The Fed is setting the stage for unwinding its stimulus, no surprise as the Fed is always very cautious not to shock or surprise the bond market. The Fed said it plans to divest all of the non-treasury assets it holds (MBSs (Mortgage Backed Securities) for one); to accomplish that will likely take at least a couple of years but it is necessary for the Fed to clear the air between monetary and fiscal policy if it is to remain autonomous. The Fed will end its support of the MBS (Mortgage Backed Securities) market at the end of next month after buying $1.25T of MBSs over the last year and $175B of agency debt it purchased. Likely the first move for the Fed to tighten will be an increase in the discount rate and end the 28 day term to 24 hours, the discount rate is what banks pay for borrowing frm the Fed. Back in the day if a bank went to the discount window to borrow frm the Fed, by the time the loan was made bank regulators were at the bank's door step. Borrowing at the discount window was the last straw for a troubled bank. A different world these days."
What does this mean to you and buying a home? As of March 31, the Fed will stop purchasing mortgage backed securities. I have heard many different opinions, but they all indicate it will cause an immediate rise in mortgage rates of .50-1.00 in RATE. Therefore if we are around 5.25%, we will be 5.75%-6.25% by the end of March- beginning of April. Also note, markets don’t wait for things to happen, everyone knows this, and therefore you may see more selling in advance of it.
The bottom line is...if YOU are thinking of purchasing a home this year, or if you have a friend or family member that is looking to purchase a home, particularly before the expiration of the Federal Homebuying Tax Credit on April 30th, 2010, DO NOT WAIT! Depending upon the price of the home and your mortgage amount, this much of a change in interest rate can DRAMATICALLY affect your monthly payment and pricing.
Feel free to contact me with any questions or requests.
Coldwell Banker Residential Real Estate