Daily Archives: September 20, 2013

To Taper, or Not to Taper… that was the question

As a part of the overall Government stimulus programs started back in 2009, the Federal Reserve announced over a year ago that it would purchase Treasury and Mortgage Securities at a pace of $85 Billion per month in order to foster lower long term borrowing rates, and help the housing recovery.

This program has come under scrutiny lately, with several Fed Governors starting to voice concern about how long they could keep this up. Consequently, over the past month or so, it became widely rumored that at their September meeting the Fed would announce a reduction in the level of purchasing (or to begin “tapering” its purchases of Treasuries and Mortgages). The level of tapering was expected to be $10 to $15 Billion monthly. And this fairly quickly caused mortgage rates to rise. Less government demand for mortgages would result in higher rates.

So, leading into the Fed Meeting and press release September 18th, 30 year mortgage rates stood at approximately 4.625%; and poised for extreme volatility if the Fed announced anything different than the expected reduction in bond purchases.

What did the Fed decide? Surprisingly, they decided to keep doing what they’ve been doing. From the statement, “the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago… However, the Committee decided to wait for more evidence that progress will be sustained before adjusting the pace of its purchases.”

Stocks and mortgage markets rallied immediately after this announcement, assuming we’ve got maybe a few more months before the Fed starts to back out of the market. And 30 year mortgage rates have dipped back down into the 4.50% range; obviously good news for home buyers! But this won’t last long. Since Wednesday afternoon, we’ve already seen the mortgage markets giving back some of these gains.

Is now a good time to borrow for a home purchase or refinance?  You bet it is! Higher rates are coming. It’s now just a matter of when.