The Federal Open Market Committee met this week and stunned the credit markets with their announced plans!! They are planning to purchase an additional $750 billion in mortgage-backed securities on top of what they were already buying. They also announced that they are going to buy up $300 billion of longer-term US government debt over the next 6 months. They did not change interest rates, but they were not expected to!
This will help keep interest rates unuusually low for an extended period of time. We had expected that the money the Fed was using to buy mortgage backed securities would be gone by June, now it should last through the end of the year. One of the reasons the mortgage interest rates have been lower this year is that the Fed is buying mortgage backed securities every month. Once they stop the rates will increase by as much as a point – possibly more.
Mortgage investors had been waiting to see if the Fed would announce plans to buy treasury securities. The only concern here is the risk that credit markets may feel that Fed Chairman Bernanke and his fellow bankers are running out of choices to end the recession. The stimulus package has to be paid for somehow and that is done through selling bonds. The treasury bonds that were sold last week had a good response so that does help.
The bottom line to the meeting this week is that interest rates should stay low (around 5 to 5.5%) for an extended period of time (although that is subject to change on a daily basis!!!). Today with a great credit score and good equity it is possible to see rates around 4.50 – 4.75% on conventional loans.
What a wonderful time to buy a new home!!!
