The most popular question people are asking us is where are mortgage rates going and did we hit bottom. Only time will tell, but the Fed has made an announcement last week that could affect rates going forward. They announced their participation in the purchase of Mortgage Backed Securities is ending. The Fed decided to invest in this market last year to keep rates low (to attract more homebuyers) and committed $1.2 trillion dollars for this investment. They continued to invest heavily in this market, which helped keep mortgage rates at historical lows.
Last week the Fed announced they would not be buying more securities in 2010. They will also be weaning off the purchases to bring rates back to a more normal level in today’s market for the remainder of 2009. The Fed has consistently been purchasing $25 billion in Mortgage Backed Securities weekly. They will now do this in a more inconsistent manner to allow rates to increase at a slower and less volatile pace vs. showing huge increases in a short time period.
While we should start to see a gradual climb in rates over time, current rates remain low. Though there are many factors which cause rate movement, the Feds involvement and announcement for discontinuing the purchase of Mortgage Backed Securities will certainly affect rates in the coming months. Look for gradually rising rates during the last quarter of 2009.