Scary. Home Mortgage rates could be edging closer to 5% by the end of 2014.
By: Alan Aptheker
Low mortgage rates have been a great incentive to buy a home. An even greater incentive is the threat of high mortgage rates. In October, the Fed will make a stealthy move that could hit you right in the mortgage payment.
Fed policy is really boring, but suffice it to say at least they've kept mortgage rates low by buying Mortgage Backed Securities. When the Fed buys these assets, the Fed gets fatter. It loans more money to banks. Banks get fatter. They loan more money to people like you and me. We buy things like houses.
In short, the Fed feels the economy is getting strong enough to stand up on its own. But the Fed has three distinct sub-groups, and sometimes the sub-groups disagree. One of the sub-groups is the Federal Open Market Committee. The FOMC has expressed real concern about this move as it relates to interest rates, hence, housing markets.
This five year plan is/was called “Quantitative Easing” (QE). They’ll end it in October, because they see the economy getting better, unemployment down, and the stock market up. The QE program began in 2009 in the midst of the financial crisis. In three phases, the Fed has bought up about $4 trillion of these Mortgage Backed Securities.
It’s just a law if nature that interest rate increases will follow, probably starting before the end of 2014, and continuing into 2015. The takeaway should be this: A low mortgage rate is a beautiful thing, until it’s not low anymore.
