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A Small Rise In Mortgage Rates Seen After Feds Back Down

By Kevin Landis

As soon as the Federal Reserve finishes its debt-buying program, interest rates will experience a small rise.

It is estimated that the Federal Reserve will finish its debt-buying program in March of this year. Thus, many people are interested to see what this means for mortgage interest rates in the United States. The housing market has definitely improved in the past year thanks to the government’s help. However, people around the world are still worried about the housing market being so weak.

It’s a Buyer’s Market

Currently, the market is great for buyers but not so great for individuals trying to sell their homes or trying to keep up with their payments. Foreclosures are common, which has worried banks and forced them to lower interest rates. Lowering rates may be great for buyers but it’s not so great for the overall economy. Thus, the Federal Reserve closing up it’s debt-buying program will no doubt have some effects on the market.

A Rise in Rates

Still, many analysts believe that once the program is finished, there will be a small rise in mortgage rates. In fact, some believe that there could be as much as a full percentage point increase for the average 30-year fixed rate mortgage. However, other groups, like the highly respected Morgan Stanley group, predict much lower increases: anywhere from .10 to .15%. When the program announced in December 2008 that it planned to purchase privately held bonds, mortgage rates fell to 5%. In time, the government became the largest buyer of securities linked to mortgages.

Feds May Return

Some experts predict that banks will have more cash to work with and will be able to deal with the increasing demand for mortgages. Even though the program will be officially over, the Federal Reserve can still decide to keep is options open when it comes to purchases. Thus, the group could very well come back in and start purchasing securities again.

Affect on Buyers

So, what does this mean for people looking to buy new homes? It means that their mortgage rates will no doubt be slightly higher than the past year. However, many experts do not believe that this will negatively impact the housing market. The economy is improving along with the higher interest rates. Thus, the number of buyers is not expected to significantly fall.

Positive Sign for Banks and the Economy

Instead, banks will have more cash flow to work with. This is important. Banks can only survive if they are making some sort of revenue or profit. This is why they charge interest rates for mortgages. If they have cash flow, they can then work with people struggling to keep their homes, can lower the number of foreclosures, and will be able to really offer a range of mortgage rates to fit a variety of clients. All of these things are expected to have a possible affect on the overall economy.

Really, it’s a good sign that the Feds want to back down and come out of the mortgage game. This means that the economy is on an upward climb. The small rise in mortgage rates is just a sign that things will be back to normal in no time at all.

Related posts:

1. Will Mortgage Rates Rise of Fall?
2. How Fast Will Mortgage Interest Rates Rise Now?
3. Do Declining Bond Prices Cause Mortgage Rates To Rise?
4. How Long Will Mortgage Rates Be Low?
5. How Do Market Conditions Affect Mortgage Interest Rates?